2020
ANNUAL
REPORT
Purpose is at the heart of everything we do at McCormick
and it’s been that way for over 130 years. Our purpose is
to stand together for the future of flavor, and we envision
a world united by flavor where healthy, sustainable and
delicious go hand in hand. We believe flavor is a positive,
unifying and powerful force for good.
WE INVITE YOU TO
CONTENTS
02 STANDING TOGETHER
05 FINANCIAL HIGHLIGHTS
14 OUR BROAD GLOBAL PORTFOLIO
16 DIRECTORS AND OFFICERS
06 LETTER TO SHAREHOLDERS
19 FORM 10-K
Investor Information on Inside Back Cover
Vanilla
One of the world’s most loved and tantalizing flavors, vanilla
can be used to enhance baked goods and savory sauces as well
as hot or cold beverages. Its signature bourbon-vanilla flavor
and floral aroma are loved around the globe. This year’s annual
report is scented with the wonderful and warm scent of vanilla.
2 0 2 0 A NNUA L REPOR T 1
Standing With Our
McCormick is grateful for our
employees’ commitment during
these trying times, and we’re
dedicated to ensuring our teams
are valued and protected—
because a successful business,
thriving people and a flavorful
future depend on it.
#STANDINGTOGETHER
OUR EMPLOYEES RALLIED TOGETHER TO...
• Rapidly implement COVID-19 protocols
• Maintain our product supply
• Ensure product quality and integrity
• Remain committed to future growth
Our global employees
supported & cared
for one another.
To show deep appreciation and support for the employees critical to
maintaining operations, McCormick implemented many measures, including:
Premium pay for
hourly employees
Flexibility and support
for caregivers
Salary assurance
during shutdowns
2 Mc CORMICK & COMPA N Y
GLOBALLY McCORMICK DONATED
$10 Million
across 22 countries where we live & work
supporting causes including...
COVID-19
RELIEF
SOCIAL
JUSTICE
Support and product donations
made to nonprofit organizations
providing relief during the pandemic
including food banks, healthcare
workers, local restaurants and
hospitality workers.
Support to employee-nominated
organizations in the U.S. and
EMEA to combat racial injustice
and to provide food, healthcare
or other essential services to
Black communities.
HUNGER
RELIEF
Support and employee
volunteer time to aid the
most vulnerable people in
food-insecure communities
around the world.
Standing With Our
McCormick has a proud
legacy of serving people;
the communities where
we live, work and source;
and the planet we share.
We’re committed to standing
with our communities for a
healthy, thriving future.
#STANDINGTOGETHER
Vahiné products donated
to retirement community
staff in France
2 0 2 0 A NNUA L REPOR T 3
Flavor brings us together during
the best of times and the most
challenging of times. That’s why,
no matter the circumstances,
McCormick is proud to provide
the products you love—because
life’s biggest moments and flavor’s
greatest potential both lie ahead.
#STANDINGTOGETHER
Standing With Our
PROVIDED SOLUTIONS AND FLAVOR TO OUR CONSUMERS
» Real-time content creation, driven by daily consumer insights
» Social media inspiration from the kitchens of McCormick chefs
» Scaled consumer-generated content for personalized connections
» Family-friendly meal ideas and crafts
» Healthy, on-trend recipes
Standing With Our
Tips to help you optimize your current
curbside pickup, takeout, delivery and
drive-thru menu offerings.
DIGITALLY COLLABORATED ON SOLUTIONS
AND DEMAND MANAGEMENT
» Modified menus for carryout
» Optimized recipes for safety
» Leveraged brands for menu excitement
» Provided portion control for single use
» Prioritized and scaled production
4 Mc CORMICK & COMPA N Y
McCormick is the key ingredient for a wide range of global food
and beverage products—providing healthy and sustainable products
well beyond our own brands. And during this unprecedented
pandemic, we stand with our partners. #STANDINGTOGETHER
FINANCIAL HIGHLIGHTS
For the year ended November 30 (in 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
2020
$5,601.3
2,300.4
41.1%
999.5
17.8%
747.4
2.78
1,041.3
330.1
1.24
2019
% Change
$5,347.4
2,145.3
40.1%
957.7
17.9%
702.7
2.62
946.8
302.2
1.14
4.7%
7.2%
4.4%
6.4%
6.1%
10.0%
9.2%
8.8%
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
2020
1,018.8
18.2%
762.7
2.83
2019
978.5
18.3%
717.3
2.68
% Change
4.1%
6.3%
5.6%
DELIVERING ON OBJECTIVES
Results since 2015
% Represents 5-Year Compound Annual Growth Rate
GENERATED FUEL
FOR GROWTH
ACHIEVED TOP-TIER
PERFORMANCE
12%
CASH FLOW FROM OPERATIONS
7%
NET SALES*
+390 BPS
ADJUSTED OPERATING
MARGIN EXPANSION
>$570 M
CUMULATIVE COST
SAVINGS ACHIEVED
11%
ADJUSTED OPERATING
INCOME*
10%
ADJUSTED EARNINGS
PER SHARE
*Net sales and adjusted operating income stated in constant currency.
2-for-1
STOCK SPLIT
• Sustained performance and
confidence in growth
• Increased accessibility
DIVIDEND ARISTOCRAT
Paid for the last
96
YEARS
Increased for
35
CONSECUTIVE YEARS
2 0 2 0 A NNUA L REPOR T 5
Fellow Shareholders,
Purpose has always been at the core of McCormick. We stand for the future of flavor and we believe that
flavor has the potential to improve lives and the world we know. Our purpose, as a global leader in flavor,
is more than selling great-tasting, high-quality products. We must also stand with our stakeholders—our
employees, our communities, our consumers and our customers. In today’s rapidly changing world, we are
committed to delivering top-tier financial results while also helping to improve the health and well-being of
people, build vibrant communities and make a positive impact on our planet.
2020 has been an extraordinary year. We continue to
employees and recognizing their exceptional performance,
maintain focus on our long-term objectives, strategies
making investments in our supply chain and brand market-
and values that have made us successful, while working
ing and supporting our communities through relief efforts.
through the challenges of a global pandemic. Since the
COVID-19 crisis began, we have had three priorities.
First, to ensure the health and safety of our employees
and the quality and integrity of our products. Second, to
keep our brands and our customers’ brands in supply and
maintain the financial strength of our business and third,
to make sure we emerge from this crisis stronger.
TOP-TIER BUSINESS
PERFORMANCE
We delivered strong results in 2020 despite great disrup-
tion, proving the strength of our business model and the
value of our products and capabilities, as well as the suc-
Net Sales rose 5%, with minimal impact from currency.
Our Consumer segment growth of 10%, also with mini-
mal currency impact, was driven by consumers cooking
and eating more at home. COVID-19 restrictions in most
markets as well as consumers’ reluctance to dine-out
reduced demand from our restaurant and other foodser-
vice customers, driving our Flavor Solutions segment sales
to decline 3%, or 2% in constant currency. Taken together,
our segments’ results demonstrate the strength of our
diverse offering. Our breadth and reach create a balanced
portfolio to drive consistency in our performance in a vola-
tile environment.
Operating income increased 4% driven by higher sales,
cessful execution of our strategies. We drove outstanding
favorable business mix and Comprehensive Continuous
underlying operating performance while protecting our
TOTAL SHAREHOLDER RETURN
1-YEAR
5-YEAR
10-YEAR
20-YEAR
As of 11/30/2020
12%
19%
18%
15%
6 Mc CORMICK & COMPA N Y
Improvement (CCI) led cost savings. Excluding special
charges and transaction expenses, adjusted operating
income increased 4%, or in constant currency 5%.
Our earnings per share increased to $2.78 in 2020 from
$2.62 in 2019. Excluding the impact of special charges and
transaction expenses, adjusted earnings per share grew
to $2.83 in 2020 from $2.68 in 2019, driven primarily by
higher adjusted operating income. This increase of 6%
includes an unfavorable impact from foreign currency.
Our strategies and commitment to best-in-class exe-
cution have delivered consistent results and generated
double-digit shareholder returns. Our fundamentals are
strong and our performance gives us confidence that the
momentum of our business is sustainable as we continue
to build long-term shareholder value. Looking ahead, we
Research indicates a majority of consumers are cooking
remain steadfast in our focus on growth, performance and
more from scratch, enjoying the cooking experience
people, as well as our commitment to purpose.
and adding flavor to their meal occasions. These behav-
WIN WITH LEADERSHIP
We will win with leadership through the successful exe-
cution of our growth strategies. We are continuing to
drive undisputed leadership in spices and seasonings,
accelerate our condiment and flavor global platforms and
fuel our growth in emerging markets and channels. We
are also strengthening our connection with the consumer
and driving growth through our best-in-class customer
engagement in Flavor Solutions. The combination of our
breadth and reach and our alignment with consumer
trends is one of our greatest competitive advantages and
sustainably positions us for continued growth.
iors are driving an increased and sustained preference
for cooking at home. Many consumers are also adding
flavor with spices, sauces or condiments they have at
home to carryout or delivery meals. We believe these
trends will continue globally and further benefit our
Consumer segment.
Our Flavor Solutions segment has a diverse customer
base. Demand from our consumer packaged food and
quick service restaurant, or QSR, customers is similar to
pre-pandemic levels. The rest of the restaurant industry
and other foodservice venues were most significantly
impacted, and their recovery will take time. We have pos-
itive fundamentals in place to navigate through this period
and remain confident in the long-term growth trajectory of
SUSTAINABLY POSITIONED FOR GROWTH
this segment.
The foundation of our sales growth is the global demand
Underlying consumer demand continues to underpin
for flavor. We are capitalizing on the growing consumer
interests in healthy and flavorful cooking, trusted brands
and digital engagement, as well as purpose-minded prac-
tices. These long-term trends have not only remained
intact during the pandemic, but have accelerated. Our
alignment with them positions us well to meet increased
consumer demand, both through our products and our
our growth. Our growth initiatives were yielding results
before the pandemic. Overall, our growth plans did not
need to change, although some were adjusted and even
strengthened as we responded with agility to changes in
the environment and consumer behavior. We leveraged
our initiatives to capitalize on the opportunity to help our
consumers and our customers navigate through this
Flavor Solutions customers’ products.
unprecedented time.
MANAGEMENT COMMITTEE
LAWRENCE KURZIUS
MIKE SMITH
BRENDAN FOLEY
LISA MANZONE
NNEKA RIMMER
MALCOLM SWIFT
2 0 2 0 A NNUA L REPOR T 7
ROBUST PIPELINE
OF NEW
2021
INNOVATION
Millions
OF HOUSEHOLDS WITH NEW
CONSUMERS GAINED IN 2020
75%
OF U.S. CONSUMERS
ENJOY COOKING
MORE THAN
PRE-PANDEMIC
Strengthening Customer Intimacy and
Consumer Connection
We further differentiated our customer engagement
by collaborating with our Flavor Solutions customers
to adapt to the changing environment, from managing
demand volatility to collaborating on solutions for new
operating models. For our consumers, digital experiences
were already increasingly important to them before the
pandemic and we were scaling up our digital programs
and activating more opportunities for them to connect
with us on their digital flavor journey. Our efforts to
strengthen our consumer connection and bridge their
physical and digital experiences with flavor became even
more relevant as they looked online for flavor inspiration.
E-commerce growth accelerated
significantly in 2020. We were
well prepared for this change in
consumers’ shopping behavior
from our past investments as
well as the opportunities we
activated this year, such as
continuing to make touch points
136%
E-COMMERCE
GROWTH
Fueling Growth through Health and Wellness
Consumers’ focus on health and wellness has been
amplified as a result of the pandemic. Our products add
flavor through healthy choices and we are the global
brand leader in organic spices and seasonings. We are
raising the awareness of many of our products’ clean
and heathy labels as well as making investments through
our McCormick Science Institute to promote their health
benefits. We are pleased spices and herbs were included
in the new 2020 – 2025 Dietary Guidelines for Americans
as a way to help flavor food when reducing sugar, fat
and sodium, as well as adding enjoyment to eating
occasions. In Flavor Solutions, our broad technology
platform, combined with our culinary foundation, enables
us to create consumer-preferred natural flavor solutions
for our customers who are migrating their portfolios to
better-for-you products without compromising taste. We
are committed to using natural ingredients, focusing on
quality and furthering our product transparency and sus-
tainability efforts. Helping consumers achieve their health
and wellness goals is an exciting growth opportunity.
“shoppable.” Our 2020 global e-commerce growth was
outstanding, and we are even better positioned for the
opportunities still ahead. Our digital leadership is an
Driving Category Leadership
We are driving category leadership with strong category
management initiatives, brand marketing and new prod-
advantage. In 2020, we were again recognized as the #1
uct innovation.
U.S. Food brand with the highest designation of Genius,
by Gartner L2 Research in their Digital IQ rankings. This
is the seventh year in a row we were ranked in the top-
five food and beverage brands.
In the U.S., we began our initiative to reinvent the
in-store experience for spices and seasonings’ consumers
by introducing new merchandising elements to improve
navigation and drive inspiration. Our roll-out will continue
in 2021 and with increased cooking at home expected to
continue, this initiative is even more exciting.
8 Mc CORMICK & COMPA N Y
In 2020, we gained millions
of new households and saw
strong, sustained repeat pur-
chase rates. The combination
of significant increases in
household penetration and
repeat purchases indicates a
high level of consumer usage
7%
INCREASE IN BRAND
MARKETING
slowed in 2020 due to the focus on keeping core items
on retail shelves. Longer-term, we believe new product
innovation from leading brands will be a key differentiator
and we are excited about the strong pipeline both we
and our customers are carrying into 2021.
and speaks to the strength of our products. We increased
brand marketing investments this past year, as planned,
with some adjustments to our messaging in light of the
pandemic. We launched campaigns focused on con-
sumer education and building confidence in the kitchen
and targeted additional messaging to focus on cooking at
home. Through our strong brand marketing investments,
we are capitalizing on the momentum we have gained,
further building brand equity and driving growth.
Overall, our plans and portfolio are even more relevant
today than before the pandemic. We expect consumer
trends, particularly the increase in cooking at home,
to persist, bolstering our confidence that we will drive
future growth. In these uncertain times, consumers are
finding comfort in the brands they trust. We are here
for our consumers and customers as we have been for
over 130 years, and we are incredibly proud that our
McCormick brands have earned that trust.
ACCELERATING CONDIMENT AND
FLAVORS PLATFORMS
Our new products launched early in 2020, such as
Frank’s RedHot® Thick Sauces, Stubb’s® reduced sugar
barbeque sauce, SchwartzTM One Pan recipe mixes and
Vahiné® baking products, built significant momentum
with exceptional trial. The sell-in of our new product
launches and big-bet innovation from our customers
Acquisitions are a key part of our long-term growth strat-
egy, and we are excited with the recent addition of two
new trusted brands to our global portfolio—Cholula® and
FONA. McCormick has a strong history of creating value
through acquisitions and we are confident both Cholula
and FONA will add to that history.
Leading Consumer Brands
ACROSS THE GLOBE
Flavor Solutions
CUSTOMER INTIMACY & PARTNERSHIP
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Użyte kolory/Used colors:
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LOGO KAMIS.ai
2016.01.05
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Agencja Reklamowa Opus B, ul. Pijarska 9, 31-015 Kraków, Polska/Poland, www.opusb.pl
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OUR TRUSTED
BRANDS
STAND FOR
FLAVOR
®
Bertie
2 0 2 0 A NNUA L REPOR T 9
FONA, a leading North American manufacturer of flavors,
increases the scale of our global flavors platform with the
addition of its highly complementary portfolio to our Flavor
Solutions segment and further migrates our portfolio to more
value-added products. FONA also expands our technology
platform and capabilities, including expertise in health and
performance nutrition which advances our health and well-
ness portfolio. The combination of our portfolios strengthens
our clean and natural leadership and uniquely positions us to
provide our customers with a more comprehensive product
offering to meet the growing demand for clean and flavorful
eating, drinking and nutrition experiences. FONA’s customer-
centric culture is very similar to ours and the combined
power of our organizations will enable us to collaborate with
a wider range of customers and enhance our partnerships.
McCormick and FONA‘s shared passion for our customers
and flavor is a key differentiator in driving growth. FONA is a
great strategic addition and will be the cornerstone for accel-
erating our flavors platform in the Americas.
The acquisitions of Cholula and FONA reinforce McCormick’s
position as a global leader in flavor. We are confident they will
continue to support differentiated growth and performance
and further position us for success in 2021 and beyond.
INDUSTRY-RENOWNED FLAVOR HOUSE
» Capabilities in attractive & fast-growing categories
» Focus on nutritional & natural products
» Complementary flavor & technical talent
» State-of-the-art manufacturing facility & technical
innovation center
DIFFERENTIATED VALUE PROPOSITION
Beloved premium
brand with a passionate
consumer base
Proudly made in Mexico
with a unique blend of fresh
peppers and regional spices
Outpacing U.S.
category growth
Leading Mexican Hot Sauce
Cholula, an iconic brand known for authentic bold and
spicy Mexican flavors, is highly complementary to our
existing hot sauce portfolio and will broaden our flavor
offerings in this attractive, high-growth category. We plan
to accelerate momentum, expand distribution and drive
further growth of Cholula by optimizing category manage-
ment and brand marketing, while also expanding channel
penetration. Our operational expertise and infrastruc-
ture will allow us to elevate Cholula’s brand awareness,
increase the availability of its products and extend its
offerings into new flavors, formats and eating occasions to
drive trial and household penetration. We will strengthen
Cholula’s go-to-market model through leveraging our
e-commerce investments as well as our broad presence
across all foodservice channels. Cholula is a great strategic
addition which will accelerate the growth of our global
condiment platform.
10 Mc CORMICK & COMPA N Y
WIN WITH RESULTS
Our performance strategies are designed to win with
results. In 2020, we delivered superior results with purpose
and continued to create value. We will continue delivering
industry-leading financial performance by accelerating our
fuel for growth and transforming to create capacity.
FUELING OUR GROWTH
We are fueling our growth through our cost savings
program and strong cash flow. Our CCI program realized
$113 million of savings in 2020 which funded invest-
ments in brand marketing, new product innovation,
information technology systems and our supply chain.
We have a proven history of consistently delivering cost
savings through our powerful CCI program and with a
strong pipeline of opportunities ahead, we are confident
in continuing that momentum.
We are making excellent prog-
ress reducing our working cap-
ital, which combined with our
profit growth, is driving strong
cash flow. In 2020, we reached
another new high of $1 billion,
our ninth consecutive year of
record cash flow from operations.
$1 B
IN CASH FLOW
FROM OPERATIONS
This cash was not only used to generate fuel for growth,
but also to fully pay off the term loans related to the
acquisition of our Frank’s RedHot and French’s® brands
as well as return a portion to our shareholders through
our dividend. Our robust cash generation further differen-
tiates McCormick and accelerates our growth.
TRANSFORMING TO CREATE CAPACITY
We are making transformative investments which will
enable us to sustainably meet growing demand and
enhance competitiveness for years to come. In 2020,
we initiated strategic investments across all regions to
expand our global infrastructure and capabilities which
will further drive our momentum in delivering the base
business growth to which we aspire.
Late in 2020, in the Americas, we announced plans for
a new state-of-the art Northeast Distribution Center in
Maryland which will optimize our distribution network
by adding distribution capacity, enhancing our customer
response time and driving efficiencies enabled by auto-
mation. The facility, scheduled to open in the second half
of 2022, will be our largest distribution center in the world
and will position us well to accommodate future growth
in the Americas. In the Europe, Middle East and Africa
region (EMEA), we began construction on a new Flavor
Solutions manufacturing facility in the U.K. which will
Groundbreaking ceremony for
EMEA’s state-of-the-art Flavor
Solutions manufacturing
facility in the U.K.
Groundbreaking ceremony for 1.8 million square-foot
Northeast Distribution Center in the U.S.
2 0 2 0 A NNUA L REPOR T 11
Our employees demonstrated
and advanced their skills,
agility and resilience during
a highly challenging time.
be completed in 2021. The new facility creates further
opportunities to support the region’s strong and growing
WIN WITH TALENT
customer base.
We are also investing in our Asia/Pacific region. In China,
we are investing in flavor capabilities to further drive Flavor
Solutions growth. In Australia, we have commissioned
a new facility with a technical innovation center, a state-
of-the-art logistics center and a new headquarters office.
Scheduled to open in late 2021, this facility is a continua-
tion of the modernization of our workplaces, incorporating
sustainability principles and advancing our operational
efficiencies. These investments will all create capacity
which will be a new foundation for growth.
These investments will also incorporate principles related
to sustainability, an area within our broader purpose-led
performance principle, for which we continue to be
recognized. For the fifth year in a row, McCormick
was named by Corporate Knights in their 2021 Global
100 Most Sustainable Corporations Index. We were
ranked No. 1 in the Packaged and Processed Foods and
Ingredients sector and No. 6 overall. In 2020, for the third
consecutive year we were recognized on Barron’s 100
Most Sustainable Companies list.
We will win with talent as McCormick employees are core
to executing on our growth and performance strategies.
Our success is driven by our people and high-performance
culture which began with C.P. McCormick’s introduc-
tion of The Power of People in the 1930’s. We have an
unwavering commitment to putting people first with a
culture rooted in our shared values and respect for every
employee’s contributions. We believe in living our Power
of People principle which cannot be successful without
all employees, encourages participation and inclusion and
requires every person be treated with respect and dignity.
This is more important now than ever.
Our actions in the face of the pandemic crisis show-
cased our employees’ dedication and creativity and the
resiliency of our organization. We quickly adapted our
ways of working, including a flawless migration of many
employees to remote, virtual working environments and
supply chain employees adapting to increased safety pro-
tocols to remain on-site and maintain product supply. The
health and safety of our employees has remained a top
priority as we launched new initiatives, including those to
help maintain mental health during this uncertain period. I
am inspired by the way our employees responded during
this time. The collective power of our approximately
13,000 employees worldwide drove our strong results,
which is a testament to our capabilities.
In 2020, we also faced a crisis in social and racial justice.
As our Power of People principle includes standing up
for the fair and equal treatment of all, we pledged our
dedication to help uplift McCormick’s workforce and com-
munities through dialogue, education and engagement.
12 Mc CORMICK & COMPA N Y
To that end, we have made several bold, public commit-
ments including donating to organizations combatting
racial injustice, accelerating unconscious bias training for
all employees and prioritizing investments in our diversity
and inclusion initiatives. We are not newcomers to these
issues and have longstanding commitments to fostering
a diverse and inclusive workforce. We continue to make
progress on our goals of increasing the proportions of eth-
nically diverse talent and women in leadership positions,
expanding leadership development programs and lever-
aging our Employee Ambassador Groups.
We have again been named a DiversityInc
Top 50 company for our continued efforts
around Diversity and Inclusion. While we
are honored to be recognized, we know
there is more to do and are committed to
leading actions to drive meaningful results.
In addition, McCormick has an impressive Board of
Directors to which we welcomed Anne Bramman earlier
this year. As Chief Financial Officer of Nordstrom, Inc.,
Anne brings an exciting background in digital e-commerce
and online retail shopping.
Our people drive our success and are the reason
McCormick is a great place to work. On behalf of the
executive team, I want to express my deep appreciation
and recognize each employee for their hard work, effort
and dedication.
EMERGING STRONGER
I am incredibly proud of the way McCormick performed
during 2020 in an unprecedented operating environ-
ment. We were well-equipped to navigate impacts of
the pandemic and execute from a position of strength
through the combination of our strong business model,
the investments we have made and capabilities we
have built as an organization. We remain forward-looking
with an overarching focus on growth. We will continue
to drive growth as we execute on our long-term strate-
gies, actively respond to changing consumer behaviors
and capitalize on new opportunities from our relative
strength. We are confident we will emerge stronger
from these uncertain times and, as we look toward fiscal
2021, we expect to continue to deliver differentiated
results. On behalf of the McCormick Board of Directors
and the executive team, I would like to thank you for
standing together with us.
Sincerely,
Lawrence E. Kurzius
Chairman, President and Chief Executive Officer
I’d like to extend special recognition to McCormick’s
essential frontline workers —our manufacturing
and distribution teams—who have worked
tirelessly in our facilities around the world
to support the global food supply chain.
– Lawrence E. Kurzius
Chairman, President and Chief Executive Officer
2 0 2 0 A NNUA L REPOR T 13
OUR BROAD GLOBAL
McCormick is a global leader in flavor operating in two segments...
in every region across the globe...with compelling offerings
for every retail and customer strategy across all channels.
GLOBAL
NET SALES
BY PRODUCT
CATEGORY
GLOBAL
NET SALES
BY SEGMENT
AND REGION
CONSUMER SEGMENT
FLAVOR SOLUTIONS SEGMENT
Americas
Americas
Europe, Middle East and Africa
Europe, Middle East and Africa
Asia/Pacific
Asia/Pacific
Consumer Segment
Our Consumer segment provides flavor to consumers around the
world with brands in approximately 160 countries and territories.
Our iconic brands have leading share positions in many of our markets.
We sell products at every price point ranging from our premium brands
to private label.
Since 2015 we grew...
36%
NET SALES
71%
ADJUSTED OPERATING
INCOME
2020 New Products
2020 new products highlighting our broad range of categories and formats across every region.
14 Mc CORMICK & COMPA N Y
PORTFOLIO
McCormick is differentiated by our breadth and reach...which creates an
advantaged and balanced portfolio that drives consistency in
our performance...particularly in a volatile environment.
GLOBAL
NET SALES
BY PRODUCT
CATEGORY
CONSUMER SEGMENT
FLAVOR SOLUTIONS SEGMENT
U.S. Spices & Seasonings
International Spices & Seasonings
Recipe Mixes
Condiments & Sauces
Regional Leaders
GLOBAL
NET SALES
BY SEGMENT
AND REGION
Flavors
Branded Foodservice
Custom Condiments
Ingredients & Coatings
Flavor Solutions Segment
Our Flavor Solutions segment is a culinary-inspired business delivering
consumer-preferred flavor solutions by leveraging our deep understand-
ing of real food and beverage. Our portfolio is one of the broadest among
our competitors and we develop solutions for consumer food and bever-
age manufacturers, restaurants and other foodservice customers.
Since 2015 we grew...
21%
NET SALES
51%
ADJUSTED OPERATING
INCOME
Flavors designed for a wide range of customer applications
Beverages
Snacks
Dairy
Bakery/
Confectionary
Savory
Health
2 0 2 0 A NNUA L REPOR T 15
BOARD OF DIRECTORS
Anne Bramman 53
Chief Financial Officer
Nordstrom, Inc.
Seattle, Washington
Director since 2020
Audit Committee
Michael A. Conway 54
Executive Vice President and
President, International Licensed Markets
Starbucks Corporation
Seattle, Washington
Director since 2015
Audit Committee
Freeman A. Hrabowski, III 70
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating/Corporate
Governance Committee*
Lawrence E. Kurzius 62
Chairman, President and
Chief Executive Officer
McCormick & Company, Inc.
Director since 2015
Patricia Little 60
Former Senior Vice President
and Chief Financial Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2010
Nominating/Corporate
Governance Committee
Michael D. Mangan 64
Former President
Worldwide Power Tools & Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**
Compensation and Human Capital Committee
Nominating/Corporate
Governance Committee
Maritza G. Montiel 69
Former Deputy Chief Executive
Officer and Vice Chairman
Deloitte LLP
Washington, D.C.
Director since 2015
Audit Committee*
Margaret M.V. Preston 63
Former Managing Director,
Private Wealth Management
TD Bank
New York, New York
Director since 2003
Compensation and Human Capital Committee
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
President, Global Flavors and Extracts
Jeffery D. Schwartz
Vice President, General Counsel
and Secretary
Malcolm Swift
President Global Flavor Solutions,
EMEA and Chief Administrative Officer
Gary M. Rodkin 68
Former Chief Executive Officer
ConAgra Foods, Inc.
Omaha, Nebraska
Director since 2017
Nominating/Corporate
Governance Committee
Jacques Tapiero 62
Former Senior Vice President and
President, Emerging Markets
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012
Compensation and Human Capital Committee
W. Anthony Vernon 65
Former Chief Executive Officer
Kraft Foods Group, Inc.
Northfield, Illinois
Director since 2017
Compensation and Human Capital Committee*
* Indicates Chair Position on the Committee
** Lead Director
16 Mc CORMICK & COMPA N Y
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
32
32
32
32
33
34
35
54
55
55
56
59
59
60
61
62
63
86
86
87
87
87
87
87
87
88
2020 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, 2020
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 £
2020 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 if the registrant has filed a report on and attestation on its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. S
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, 2020: $1,601,653,059
The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2020: $21,709,733,991
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
17,999,331
248,943,617
December 31, 2020
December 31, 2020
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of 10-K into Which Incorporated
Proxy Statement for
McCormick’s March 31, 2021
Annual Meeting of Stockholders
(the “2021 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.
In early fiscal 2021, we completed the purchase of FONA International,
LLC and certain of its affiliates (FONA), a privately held company. The
purchase price was approximately $710 million, net of cash acquired,
subject to certain customary purchase price adjustments. FONA is a
leading manufacturer of clean and natural flavors providing solutions
for a diverse customer base across various applications for the food,
beverage and nutritional markets. The acquisition of FONA broadens
our value-add offerings with products that are highly complementary to
our existing portfolio. By combining the portfolios and infrastructures,
we have added manufacturing capacity as well as greater scale and
expect to accelerate our global flavor growth. At the time of the acqui-
sition, annual sales of FONA were approximately $114 million. The
results of FONA’s operations will be included in our financial statements
as a component of our flavor solutions segment from the date of FONA’s
acquisition on December 30, 2020. Unless expressly noted, our disclo-
sures contained in this Annual Report on Form 10-K for the year ended
November 30, 2020 exclude the impact of our acquisition of FONA.
On November 30, 2020, we completed the purchase of the parent
company of Cholula Hot Sauce® (Cholula) from L Catterton. The
purchase price was approximately $803 million, net of cash acquired,
subject to certain customary purchase price adjustments. Cholula, a
premium Mexican hot sauce brand, is a strong addition to McCormick’s
global branded flavor portfolio, which broadens the Company’s offering
in the high growth hot sauce category to consumers and foodservice
operators and accelerates our condiment growth opportunities with a
complementary authentic Mexican flavor hot sauce. At the time of the
acquisition, annual sales of Cholula were approximately $96 million.
The results of Cholula’s operations have been included in our financial
statements as a component of our consumer and flavor solutions
segments from the date of acquisition.
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 $4.2 billion. The market-leading brands
we acquired from RB Foods included 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 moved us
to a leading position in the attractive U.S. Condiments category,
while providing significant international growth opportunities for our
consumer and flavor solutions segments.
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 participate 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 attributes 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
segment has a higher overall profit margin than our flavor solutions seg-
ment. In 2020, the consumer segment contributed approximately 64% of
consolidated net sales and 77% of consolidated operating income, and
the flavor solutions segment contributed approximately 36% of consoli-
dated net sales and 23% of consolidated operating income.
Consumer Segment. From locations around the world, our brands
reach consumers in approximately 160 countries and territories. Our
leading brands in the Americas include McCormick®, French’s®,
Frank’s RedHot®, Lawry’s® Cholula Hot Sauce® and Club House®, as
well as brands such as Gourmet Garden® and OLD BAY®. We also
market authentic regional and ethnic brands such as Zatarain’s®,
Stubb’s®, Thai Kitchen® and Simply Asia®. In the Europe, Middle
East and Africa (EMEA) region, our major brands include the
Ducros®, Schwartz®, Kamis® and Drogheria & Alimentari® brands of
spices, herbs and seasonings and an extensive line of Vahiné®
brand dessert items. In China, we market our products under the
McCormick and DaQiao® brands. In Australia, we market our spices
and seasonings 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.
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 profitabil-
ity of their spice and seasoning sales while simultaneously working to
increase our sales and profit.
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 distributors
or wholesalers. In addition to marketing our branded products to these
customers, we are also a leading supplier of private label items, also
known as store brands. In our businesses in China and India, foodser-
vice sales are managed by and reported in our consumer segment.
2020 Annual Report 21
Flavor Solutions Segment. In our flavor solutions segment, we provide a
wide range of products to multinational food manufacturers and foodser-
vice customers. The foodservice customers are supplied with branded,
packaged products both directly by us and indirectly through distributors,
with the exception of our businesses in China and India, where foodser-
vice sales are managed by and reported in our consumer segment. We
supply food manufacturers and foodservice customers with customized fla-
vor 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 fla-
vor solutions, our long-standing customer relationships are evidence of our
effectiveness in building customer intimacy. Our customers benefit from
our expertise in many areas, including sensory testing, culinary research,
food safety and flavor application.
Our 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.
Raw Materials
The most significant raw materials used in our business are dairy
products, pepper, vanilla, 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 delivery,
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 manufacturers
as ingredients for their finished goods and by foodservice customers
as ingredients for menu items, as well as provided to their own cus-
tomers for use in dine-in and take-out eating occasions, all to enhance
the flavor of their foods. Customers for the flavor solutions segment
include food manufacturers and the foodservice industry supplied 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 12% of consolidated sales in 2020 and 11% of con-
solidated sales in 2019 and 2018. Sales to one of our flavor solutions
segment customers, PepsiCo, Inc., accounted for approximately 11%
of consolidated sales in 2020 and 10% of consolidated sales in both
2019 and 2018. In 2020, 2019 and 2018, the top three customers in our
flavor solutions segment represented between 49% and 52% of our
global flavor solutions sales.
22 McCormick & Company, Inc.
Trademarks, Licenses and Patents
We own a number of trademark registrations. Although in the aggregate
these trademarks are material to our business, the loss of any one of
those trademarks, with the exception of our “McCormick,” “French’s,”
“Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Cholula,” “Stubb’s,” “Club
House,” “Ducros,” “Schwartz,” “Vahiné,” “OLD BAY,” “Simply Asia,”
“Thai Kitchen,” “Kitchen Basics,” “Kamis,” “Drogheria & Alimentari,”
“DaQiao,” “Kohinoor” and “Gourmet Garden” trademarks, would not
have a material adverse effect on our business. The “Mc – McCormick”
trademark is extensively used by us in connection with the sale of
our food products in the U.S. and certain non-U.S. markets. The terms
of the trademark registrations are as prescribed by law, and the reg-
istrations 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 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 quarters
of the fiscal year, increase in the third quarter and are significantly
higher in the fourth quarter due to the holiday season. This seasonal-
ity reflects customer and consumer buying patterns, primarily 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.
Human Capital
We believe in the Power of People—our employees and customers
across the world. Our high-performance culture is rooted in our
shared values and respect for all contributions of every employee.
Our key human capital objectives are to attract, retain and develop
the highest quality talent. We employ various human resource pro-
grams in support of these objectives. We had approximately 13,000
full-time employees worldwide as of November 30, 2020. Our opera-
tions have not been affected significantly by work stoppages, other
than those associated with temporary closures of plants related to
the COVID-19 pandemic in fiscal 2020 and, in the opinion of manage-
ment, employee relations are good. In 2020, our employees demon-
strated resiliency, agility and engagement in support of business
continuity despite the challenges that arose in the pandemic. We
have approximately 300 employees in the United States who are cov-
ered by a collective bargaining contract, which is subject to renegoti-
ation upon its expiration in 2021. At our subsidiaries outside the U.S.,
approximately 2,500 employees are covered by collective bargaining
agreements or similar arrangements.
We believe diversity and inclusion are at the core of our values and
strategic business priorities. Throughout our business, we champion
equality, supporting parity for women and under-represented groups
as we work to create ethical, safe and supportive workplaces where
our employees thrive. We believe a diverse and inclusive workplace
results in business growth and encourages increased innovation,
retention of talent and a more engaged workforce. We have various
employee ambassador groups that provide a supportive, collaborative
space for employees to come together to promote inclusion. Respect
for human rights is fundamental to our business and its commitment to
ethical business conduct.
We measure employee engagement on an ongoing basis to solicit
feedback and understand views of our employees, work environ-
ment and culture. The results from engagement surveys are used to
implement programs and processes designed to enhance employee
engagement and improve the employee experience.
We are committed to the safety, health, and security of our employees.
We believe a hazard-free environment is a critical enabler for the suc-
cess of our business. Throughout our operations, we strive to ensure
that all of our employees have access to safe workplaces that allow
them to succeed in their jobs.
Information about our Executive Officers
In addition to the executive officers described in the 2021 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 56 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 49 years old and, during the last five years, has held
the following positions with McCormick: August 2020 to present—
President Global Flavors and Extracts (part of our flavor solutions seg-
ment); February 2019 to August 2020—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.
Operations Outside of the U.S.
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 2020, 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,
gross margin, earnings, cost savings, transaction and integration
expenses, special charges, acquisitions, brand marketing support, vol-
ume and product mix, income tax expense, and the impact of foreign
currency rates are “forward-looking statements” within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended.
These statements may be identified by the use of words such as
“may,” “will,” “expect,” “should,” “anticipate,” “intend,” “believe”
and “plan.” These statements may relate to: the impact of the COVID-
19 pandemic on our business, suppliers, consumers, customers, and
employees; disruptions or inefficiencies in the supply chain, including
any impact of COVID-19; the expected results of operations of busi-
nesses acquired by the company, including the acquisitions of Cholula
and FONA; the expected impact of material costs and pricing actions
on the company’s results of operations and gross margins; the
expected impact of productivity improvements, including those associ-
ated with our Comprehensive Continuous Improvement (CCI) program
and global enablement initiative; expected working capital improve-
ments; expectations regarding growth potential in various geogra-
phies 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 initia-
tive, which includes the implementation of a global enterprise
resource planning (ERP) system; the expected impact of accounting
pronouncements; the expectations of pension and postretirement plan
contributions and anticipated charges associated with those plans;
the holding period and market risks associated with financial instru-
ments; the impact of foreign exchange fluctuations; the adequacy of
internally generated funds and existing sources of liquidity, such as
the availability of bank financing; the anticipated sufficiency of future
cash flows to enable the payments of interest and repayment of short-
and long-term debt as well as quarterly dividends and the ability to
issue additional debt or equity securities; and expectations regarding
purchasing shares of McCormick’s common stock under the existing
repurchase authorization.
These and other forward-looking statements are based on manage-
ment’s current views and assumptions and involve risks and uncer-
tainties that could significantly affect expected results. Results may
be materially affected by factors such as: the company’s ability to
2020 Annual Report 23
drive revenue growth; damage to the company’s reputation or brand
name; loss of brand relevance; increased private label use; product
quality, labeling, or safety concerns; negative publicity about our
products; actions by, and the financial condition of, competitors and
customers; the longevity of mutually beneficial relationships with our
large customers; the ability to identify, interpret and react to changes
in consumer preference and demand; business interruptions due to
natural disasters, unexpected events or public health crisis, includ-
ing COVID-19; 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 acquisitions of Cholula and FONA; global economic and financial
conditions generally, including the on-going impact of the exit of
the United Kingdom (U.K.) from the European Union, availability of
financing, interest and inflation rates, and the imposition of tariffs,
quotas, trade barriers and other similar restrictions; foreign currency
fluctuations; the effects of increased level of debt service following
the Cholula and FONA acquisitions as well as the effects that such
increased debt service may have on the company’s ability to borrow
or the cost of any such additional borrowing, our credit rating, and our
ability to react to certain economic and industry conditions; impair-
ments of indefinite-lived intangible assets; assumptions we have
made regarding the investment return on retirement plan assets, and
the costs associated with pension obligations; the stability of credit
and capital markets; risks associated with the company’s information
technology systems, including the threat of data breaches and cyber-
attacks; the company’s inability to successfully implement our business
transformation initiative; fundamental changes in tax laws; including
interpretations and assumptions we have made, and guidance that
may be issued, regarding the U.S. Tax Act enacted on December 22,
2017 and volatility in our effective tax rate; climate change; infringe-
ment of intellectual property rights, and those of customers; litigation,
legal and administrative proceedings; the company’s inability to
achieve expected and/or needed cost savings or margin improvements;
negative employee relations; and other risks described herein under
Part I, Item 1A “Risk Factors.”
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.mccormickcorporation.com. We make available free of charge
through our website our Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after
such documents are electronically filed with, or furnished to, the
United States Securities and Exchange Commission (the SEC). The
SEC maintains an internet website at www.sec.gov that contains
reports, proxy and information statements, and other information
regarding McCormick. Our website also includes our Corporate
Governance Guidelines, Business Ethics Policy and charters of the
Audit Committee, Compensation & Human Capital Committee,
and Nominating/Corporate Governance Committee of our Board
of Directors.
24 McCormick & Company, Inc.
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 state-
ments. 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 uncer-
tainties that are not presently known to us or are currently deemed
to be immaterial also may materially adversely affect our business,
financial condition, or results of operations in the future. If any of the
risks actually occur, our business, financial condition or results of
operations could be negatively affected. In that case, the trading
price of our securities could decline, and you may lose part or all of
your investment.
Risks Related to Our Company, Business and Operations
Our operations may be adversely impacted as a result of
pandemic outbreaks, including COVID-19.
In December 2019, COVID-19, a strain of novel coronavirus, was first
reported in Wuhan, China, resulting in thousands of confirmed cases of
the disease in China. By January 2020, the Chinese government imple-
mented a quarantine protocol for Wuhan and implemented other
restrictions for other major Chinese cities, including mandatory busi-
ness closures, social distancing measures, and various travel restric-
tions. In March 2020, as COVID-19 spread outside of China, significantly
impacting the rest of the world, the World Health Organization desig-
nated the outbreak as a global pandemic. The effects of COVID-19 and
related actions to attempt to control its spread significantly impacted
not only our operating results but also the global economy. COVID-19
has impacted and continues to impact our customers, our operations,
consumers and the global economy as discussed below. However, given
the evolving health, economic, social, and governmental environments,
the breadth and duration of such impact remains uncertain.
The COVID-19 pandemic has affected, and continues to affect, our
operations, major facilities, and the health of our employees and
consumers. The production of certain of our products in our Americas,
EMEA, and Asia/Pacific geographic regions are concentrated in a
single manufacturing site within each region. To mitigate the spread
of COVID-19, many governments have implemented quarantines
and significant restrictions on travel as well as work restrictions
that prohibited many employees from going to work. As a result, we
temporarily closed certain manufacturing and other facilities for limited
periods in 2020. Our results have been and we expect will continue to
be adversely impacted by these closures and other actions taken to
contain or treat the impact of COVID-19, and the extent of such impact
will depend upon future developments, which are highly uncertain
and cannot be predicted. COVID-19 continues to interfere with
general commercial activity related to our supply chain and customer
base, which could have a material adverse effect on our business,
financial condition, or results of operations. In mid-2020, we saw some
loosening of government-mandated COVID-19 restrictions in certain
locales in response to improved COVID-19 infection levels. However,
upon worsening COVID-19 infection levels in certain localities in late
fiscal 2020 and in early fiscal 2021, local governmental authorities have
either re-imposed some or all of earlier restrictions or imposed other
restrictions, all in an effort to prevent the spread of COVID-19.
In early fiscal 2021, vaccines for combatting COVID-19 were
approved by health agencies in certain countries/regions in which
we operate (including the U.S., U.K., European Union, Canada and
Mexico) and began to be administered. However, initial quantities
of vaccines are limited and vaccine distributions, controlled by
local authorities, are being allocated, generally first to front-line
health care workers and other essential workers and next to those
members of individual populations believed most susceptible to
severe effects from COVID-19. Full administration of the COVID-19
vaccines is unlikely to occur in most jurisdictions until mid- to late-
2021. The impact of COVID-19, including the impact of restrictions
imposed to combat its spread, could result in additional businesses
being shut down, additional work restrictions and supply chains be-
ing interrupted, slowed, or rendered inoperable. As a result, it may
be even more challenging to obtain and process raw materials to
support our business needs, and more individuals could become ill,
quarantined or otherwise unable to work and/or travel due to health
reasons or governmental restrictions. Also, governments may im-
pose other laws, regulations or taxes which could adversely impact
our business, financial condition or results of operations. Further, as
some of our customers’ businesses are similarly affected, they might
delay or reduce purchases from us, which could adversely affect our
results of our business, financial condition or results of operations.
The potential effects of COVID-19 also could impact many of the
other risk factors described herein, but given the evolving health,
economic, social and governmental environments, such potential
impact remains uncertain. While we expect the impacts of COVID-19
to continue to have an effect on our business, financial condition and
results of operations, we are unable to predict the extent or nature
of these impacts at this time.
Damage to our reputation or brand name, loss of brand
relevance, increase in use of private label or other competi-
tive brands by customers or consumers, or product quality
or safety concerns could negatively impact our business,
financial 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 mea-
sures. 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. In the
event that we are unable to supply our products to customers in the
time frame and quantities that they desire, whether due to increased
demand or other factors, our customers may discontinue all or a
portion of their purchases from us and source competitive brands. If
a significant portion of our branded business was switched to private
label or competitive products, it could have a material negative impact
on our consumer segment.
Our reputation for manufacturing high-quality products is widely
recognized. In order to safeguard that reputation, we have adopted
rigorous quality assurance and quality control procedures which are
designed to ensure the safety of our products. A serious breach of our
quality assurance or quality control procedures, deterioration of our
quality image, impairment of our customer or consumer relationships
or failure to adequately protect the relevance of our brands may lead
to litigation, customers purchasing from our competitors or consumers
purchasing other brands or private label items that may or may not
be manufactured by us, any of which could have a material negative
impact on our business, financial condition or results of operations.
The food industry generally is subject to risks posed by food spoilage
and contamination, product tampering, product recall, import alerts
and consumer product liability claims. For instance, we may be
required to recall certain of our products should they be mislabeled,
contaminated or damaged, and certain of our raw materials could
be blocked from entering the country if they were subject to govern-
ment-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 produc-
tion 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 gener-
ate 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 consol-
idation could continue. Such consolidation could present a chal-
lenge 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.
2020 Annual Report 25
The inability to maintain mutually beneficial relationships
with large customers could adversely affect our business.
Our operations may be impaired as a result of disasters,
business interruptions or similar events.
We have a number of major customers, including two large customers
that, in the aggregate, constituted approximately 23% of our consoli-
dated sales in 2020. The loss of either of these large customers or a
material negative change in our relationship with these large custom-
ers or other major customers could have an adverse effect on our
business.
Disruption of our supply chain and issues regarding
procurement 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, pepper, vanilla, 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, includ-
ing 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 fluctua-
tions 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 disrup-
tions 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.
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.
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 man-
agement 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 profitabil-
ity. 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.
Our profitability may suffer as a result of competition
in our markets.
An impairment of the carrying value of goodwill or other
indefinite-lived intangible assets could adversely affect our results.
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.
As of November 30, 2020, we had approximately $5.0 billion of good-
will and approximately $3.0 billion of other indefinite-lived intangible
assets. Goodwill and indefinite-lived intangible assets are initially
recorded at fair value and not amortized but are tested for impairment
at least annually or more frequently if impairment indicators arise.
We test goodwill at the reporting unit level by comparing the carrying
value of the net assets of the reporting unit, including goodwill, to the
unit’s fair value. Similarly, we test indefinite-lived intangible assets
by comparing the fair value of those assets to their carrying values.
26 McCormick & Company, Inc.
If the carrying values of the reporting unit or indefinite-lived intan-
gible 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 mar-
gins, weighted average cost of capital, future economic and market
conditions or assumed royalty rates. The impairment of our goodwill or
indefinite-lived intangible assets would have a negative impact on our
consolidated results of operations.
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, partic-
ularly those acquired in recent low interest rate environments, such as
Cholula and FONA, 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.
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 organi-
zation structure to reduce fixed costs, simplify or improve process-
es, and improve our competitiveness, and we expect to continue
to evaluate such actions in the future. From time to time, those
changes are of such significance that we may transfer production
from one manufacturing facility to another; transfer certain selling
and administrative functions from one location to another; eliminate
certain manufacturing, selling and administrative positions; and exit
certain businesses or lines of business. These actions may result in
a deterioration of employee relations at the impacted locations or
elsewhere in McCormick.
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.
Uncertain global economic conditions expose us to credit risks
from customers and counterparties.
Consolidations in some of the industries in which our customers
operate have created larger customers, some of which are highly
leveraged. In addition, competition has increased with the growth
in alternative channels through our customer base. These factors
have caused some customers to be less profitable and increased our
exposure to credit risk. Current credit markets are volatile, and some
of our customers and counterparties are highly leveraged. A significant
adverse change in the financial and/or credit position of a customer or
counterparty could require us to assume greater credit risk relating
to that customer or counterparty and could limit our ability to collect
receivables. This could have an adverse impact on our financial condi-
tion and liquidity.
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 transla-
tion 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 unconsoli-
dated affiliates. Primary exposures include the U.S. dollar versus the
Euro, British pound sterling, Canadian dollar, Polish zloty, Australian
dollar, Mexican peso, Swiss franc, Chinese renminbi, Indian rupee and
Thai baht, as well as the Euro versus the British pound sterling and
Australian dollar, and finally the Canadian dollar versus British pound
sterling. We routinely enter into foreign currency exchange contracts
to 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 on-going effects of the decision by British voters to exit
the European Union may negatively impact our operations.
On December 24, 2020, the U.K. and the European Union announced an
agreement on the EU-UK Trade and Cooperation Agreement (the EU-UK
trade deal) that took effect on January 1, 2021.The trade deal was
formally approved by the U.K. House of Commons on December 30,
2020 and is expected to be formally approved by the European Union
legislature in March 2021. While the EU-UK trade deal has removed
uncertainty and a significant amount of financial risk associated with
the U.K.’s exit from the European Union, we are still assessing its
details and related impact on our U.K business and other operations.
We believe that the new trading relationship between the U.K and the
European Union will result in increased costs of goods imported into
the U.K. from the European Union and exported from the U.K. into the
European Union. The movement of goods between the U.K. and the
European Union will continue to be subject to additional inspections
and documentation checks, leading to possible delays at ports of entry
and departure. Also, there will be additional costs related to goods
that are deemed to originate outside of the U.K. or European Union,
and for which the originating country has no trade agreement with the
U.K. Our ability to increase pricing of our products in light of increased
costs is uncertain and, to the extent we are unable to fully do so, our
profitability will decline.
We 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 result-
ing 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.
2020 Annual Report 27
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. Scientific consensus shows that greenhouse gases
in the atmosphere have an adverse impact on global temperatures,
weather patterns and the frequency and severity of extreme weather
and natural disasters. In the event that such climate change has a
negative effect on agricultural productivity or practices, we may be
subject to decreased availability or less favorable pricing for certain
commodities that are necessary for our products. In addition, such
climate change may result in modifications to the eating preferences
of the ultimate consumers of certain of our products, which may also
unfavorably impact our sales and profitability.
Risks Relating to Credit and Capital Markets, Our Credit
Rating, Borrowings and Dividends
Increases in interest rates or changes in our credit ratings may
negatively impact us.
On November 30, 2020, we had total outstanding variable rate debt
of approximately $950 million, including $887 million of short-term
borrowings, at a weighted-average interest rate of approximately
0.3%. The interest rates under our term loans and revolving credit
facilities can vary based on our credit ratings. Our policy is to manage
our interest rate risk by entering into both fixed and variable rate debt
arrangements. We also use interest rate swaps to minimize worldwide
financing cost and to achieve a desired mix of fixed and variable rate
debt. We utilize derivative financial instruments to enhance our ability
to manage risk, including interest rate exposures that exist as part of
our ongoing business operations. We do not enter into contracts for
trading purposes, nor are we a party to any leveraged derivative instru-
ments. Our use of derivative financial instruments is monitored through
regular communication with senior management and the utilization
of written guidelines. However, our use of these instruments may not
effectively limit or eliminate our exposure to changes in interest rates.
Therefore, we cannot provide assurance that future credit rating or
interest rate changes will not have a material negative impact on our
business, financial position or operating results.
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 downgraded or put on watch for a potential downgrade, we
may not be able to sell additional debt securities or borrow money in
the amounts, at the times or interest rates, or upon the more favorable
terms and conditions that might be available if our current credit
ratings were maintained.
We have incurred additional indebtedness to finance the
acquisition of Cholula and FONA that may limit our ability to,
among other matters, issue additional indebtedness, meet our
debt service requirements, react to rising interest rates,
comply with certain covenants and compete with less highly
leveraged competitors.
After financing our acquisition of Cholula on November 30, 2020,
we have a significant amount of indebtedness outstanding. As of
November 30, 2020, the indebtedness of McCormick and its subsidiar-
ies is approximately $4.9 billion. Subsequent to November 30, 2020,
we acquired FONA for $710 million, which we funded with cash and
commercial paper borrowings. This substantial level of indebtedness
could have important 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, including an antici-
pated long-term debt financing in fiscal 2021 of the Cholula and
FONA acquisition indebtedness together with our 3.9% notes in
the amount of $250 million that mature in July 2021, and increas-
ing 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
• placing us at a competitive disadvantage as compared to our
competitors, to the extent that they are not as highly leveraged.
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, including funding of acquisi-
tions. If any of the banks in the syndicates backing these facilities were
unable to perform on its commitments, our liquidity could be impacted,
which could adversely affect funding of seasonal working capital
requirements. We engage in regular communication with all of the
banks participating in our revolving credit facilities. During these com-
munications, none of the banks have indicated that they may be unable
to perform on their commitments. In addition, we periodically review
our banking and financing relationships, considering the stability of
the institutions, pricing we receive on services and other aspects of
the relationships. Based on these communications and our monitoring
activities, we believe the likelihood of one of our banks not performing
on its commitment is remote.
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
28 McCormick & Company, Inc.
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 calendar year 2021, when private-sector banks are
no longer required to report the information used to set the rate. With-
out 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 overnight, collat-
eralized by U.S. Treasury securities. Given the inherent differences
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 derivative
financial instruments. The Company will also need to consider new
contracts and if they should reference an alternative benchmark rate or
include suggested fallback language, as published by the 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.
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 pur-
suant 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 alter-
native uses of cash that our board of directors may conclude would
be in the best interest of the company and our shareholders. Our
dividend payments are subject to solvency conditions established by
the Maryland General Corporation Law. Accordingly, there can be no
assurance that any future dividends will be equal or similar in amount
to any dividends previously paid or that our board of directors will not
decide to reduce, suspend or discontinue the payment of dividends at
any time in the future.
Risks Related to Intellectual Property, Information
Technology, and Cyber-Security
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
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.
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 oper-
ating 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
disrupt our business and could result in transaction or reporting errors,
processing inefficiencies and the loss of sales and customers, causing
our business and results of operations to suffer.
Furthermore, our information technology systems are subject to
cyber-attacks or other security incidents, service disruptions, or other
system or process failures. Such incidents could result in unautho-
rized 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 information security program that includes
2020 Annual Report 29
updating technology, developing security policies and procedures,
implementing and assessing the effectiveness of controls, conduct-
ing 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 technologies 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 for
certain information technology processes and functions, which makes
our operations vulnerable to a failure by any one of these vendors to
perform adequately or maintain effective internal controls.
If we are 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 utiliza-
tion of these cloud-based services and systems will increase as we
implement our business transformation initiatives. If any of these
third-party service providers or vendors do not perform effectively, or if
we fail to adequately monitor their performance (including compliance
with service-level agreements or regulatory or legal requirements),
we may not be able to achieve expected cost savings, we may have to
incur additional costs to correct errors made by such service providers,
30 McCormick & Company, Inc.
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.
Risks Related to Our Global Business, Litigation, Laws and
Regulations
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 regu-
lations relating to the growing, sourcing, manufacturing, storage, label-
ing, 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, priva-
cy, 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. Enforce-
ment 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, finan-
cial 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 compli-
ance 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 obliga-
tions required by the European Union’s General Data Protection Regu-
lation (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 individ-
uals 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.
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 allegations
made in litigation claims or legal or administrative proceedings (even
if untrue) may also adversely affect our reputation. These factors and
others could have an adverse impact on our business and financial
condition or damage our reputation.
Our international and cross-border operations are subject to
additional risks.
We operate our business and market our products internationally. In
fiscal year 2020, approximately 38% of our sales were generated in
countries other than the U.S. Our international operations are subject
to additional risks, including fluctuations in currency values, foreign
currency exchange controls, discriminatory fiscal policies, compli-
ance with U.S. and foreign laws, enforcement of remedies in foreign
jurisdictions and other economic or political uncertainties. Several
countries within the European Union continue to experience sovereign
debt and credit issues, which causes more volatility in the economic
environment throughout the European Union and the U.K. Additionally,
sales in countries other than the U.S., together with finished goods and
raw materials imported into the U.S., are subject to risks related to
fundamental changes to tax laws as well as the imposition of tariffs,
quotas, trade barriers and other similar restrictions. All of these risks
could result in increased costs or decreased revenues, which could
adversely affect our profitability.
The global nature of our business, changes in tax legislation
and the resolution of tax uncertainties create volatility in our
effective tax rate.
As a global business, our tax rate from period to period can be affect-
ed by many factors, including changes in tax legislation, our global
mix of earnings, the tax characteristics of our income, the timing
and recognition of goodwill impairments, acquisitions and disposi-
tions, adjustments to our reserves related to uncertain tax positions,
changes in valuation allowances and the portion of the income of
international subsidiaries that we expect to remit to the U.S. and that
will be taxable.
In addition, significant judgment is required in determining our effective
tax rate and in evaluating our tax positions. We establish accruals for
certain tax contingencies when, despite the belief that our tax return
positions are appropriately supported, the positions are uncertain.
The tax contingency accruals are adjusted in light of changing facts
and circumstances, such as the progress of tax audits, case law and
emerging legislation. Our effective tax rate includes the impact of tax
contingency accruals and changes to those accruals, including related
interest and penalties, as considered appropriate by management.
When particular matters arise, a number of years may elapse before
such matters are audited and finally resolved. Favorable resolution of
such matters could be recognized as a reduction to our effective tax
rate in the year of resolution. Unfavorable resolution of any particular
issue could increase the effective tax rate and may require the use of
cash in the year of resolution.
2020 Annual Report 31
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
India:
New Delhi—consumer and flavor solutions
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 Compans, France. We also own distribution
facilities in Belcamp, Maryland and Monteux, France. In addition,
we own, lease or contract other properties used for manufacturing
consumer and flavor solutions products and for sales, warehousing,
distribution and administrative functions.
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 (2 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 property
is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
32 McCormick & Company, Inc.
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 18 of the accompanying financial state-
ments the information relating to the dividends declared and paid on our classes of common stock. The market price of our common stock at the close
of business on December 31, 2020 was $95.57 per share for the Common Stock and $95.60 per share for the Common Stock Non-Voting.
On November 30, 2020, the Company effected a two-for-one stock split in the form of a stock dividend on all shares of the Company’s two classes
of common stock. On November 30, 2020, one like share was issued for each outstanding share to shareholders of record as of November 20, 2020.
All common stock and per share data has been retroactively adjusted to reflect the stock split.
The approximate number of holders of our common stock based on record ownership as of December 31, 2020 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 2020:
Period
September 1, 2020 to
September 30, 2020
October 1, 2020 to
October 31, 2020
November 1, 2020 to
November 30, 2020
Total
ISSUER PURCHASES OF EQUITY SECURITIES
Total number of
shares
purchased
CS-0
CSNV-0
CS-13,200
CSNV-0
CS-0
CSNV-0
CS-13,200
CSNV-0
Average
price
paid per
share
—
—
$97.24
—
—
—
$97.24
—
Total number of
shares purchased
as part of publicly
announced plans
or programs
—
—
13,200
—
—
—
13,200
—
Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs
$586 million
$585 million
$585 million
$585 million
As of November 30, 2020, approximately $585 million remained of a $600 million share repurchase authorization approved by the 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 reinvestment/direct
purchase plans. The number of shares issued in an exchange is generally equal to the number of shares received in the exchange, although the
number may differ slightly to the extent necessary to comply with the requirements of the Employee Retirement Income Security Act of 1974.
During fiscal 2020, we issued 975,306 shares of CSNV in exchange for shares of CS and issued 4,404 shares of CS in exchange for shares of CSNV.
2020 Annual Report 33
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL SUMMARY
(millions except per share and percentage data)
2020
2019
2018
2017
2016
For the Year
Net sales
Operating income
Income from unconsolidated operations
Net income
Per Common Share (1)
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
Current debt
Long-term debt
Shareholders’ equity
Other Financial Measures
Percentage of net sales
Gross profit
Operating income
Capital expenditures
Depreciation and amortization
Common share repurchases
Dividends paid
Average shares outstanding (1)
Basic
Diluted
$ 5,601.3
999.5
40.8
747.4
$ 2.80
2.78
1.27
93.49
14.76
$12,089.7
1,150.6
3,753.8
3,940.0
$ 5,347.4
957.7
40.9
702.7
$ 2.65
2.62
1.17
84.63
13.01
$10,362.1
698.4
3,625.8
3,456.7
$ 5,302.8
891.1
34.8
933.4
$ 3.55
3.50
1.07
75.00
12.05
$10,256.4
643.5
4,052.9
3,182.2
$ 4,730.3
699.8
33.9
477.4
$ 1.88
1.86
0.97
51.09
9.81
$10,385.8
583.2
4,443.9
2,570.9
$4,313.9
649.4
36.1
472.3
$ 1.87
1.85
0.88
45.60
6.53
$4,635.9
393.2
1,054.0
1,638.1
41.1 %
17.8 %
$ 225.3
165.0
47.3
330.1
40.1 %
17.9 %
$ 173.7
158.8
95.1
302.2
39.5 %
16.8 %
$ 169.1
150.7
62.3
273.4
37.9 %
14.8 %
$ 182.4
125.2
137.8
237.6
38.1 %
15.1 %
$ 153.8
108.7
242.7
217.8
266.5
269.1
265.1
268.1
263.1
266.5
253.6
256.8
253.1
255.9
(1) On November 30, 2020, the Company effected a two-for-one stock split to shareholders of record as of November 20, 2020. All common stock and per share data has been
retroactively adjusted to reflect the stock split.
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 (3)
2020
$ (19.3)
(15.3)
(0.05)
2019
2018
2017
$ (20.8)
(14.6)
(0.06)
$ (38.8)
271.4
1.02
$ (83.9)
(69.3)
(0.27)
2016
$ (16.0)
(11.1)
(0.04)
(1) In 2020, 2019, 2018, 2017, and 2016, we recorded special charges related to the completion of organization and streamlining actions, including, for 2016, special charges related to
the discontinuance of bulk-packaged and broken basmati rice product lines for our business in India. In 2020, we recorded transaction and integration expenses related to our
acquisitions of Cholula and FONA. 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.
(3) On November 30, 2020, the Company effected a two-for-one stock split to shareholders of record as of November 20, 2020. All common stock and per share data has been
retroactively adjusted to reflect the stock split.
34 McCormick & Company, Inc.
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 develop-
ment of future projections and earnings growth prospects. This infor-
mation is also used by management to measure the profitability of
our ongoing operations and analyze our business performance and
trends. The dollar and share information in the charts and tables in
the MD&A are in millions, except per share data. On November 30,
2020, the Company effected a two-for-one stock split in the form of a
stock dividend on all shares of the Company’s two classes of common
stock. On November 30, one like share was issued to each share out-
standing to shareholders of record as of November 20, 2020. All
common stock and per share data has been retroactively adjusted to
reflect the stock split.
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 busi-
ness 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%.
Impact of Global COVID-19 Pandemic—During the year ended
November 30, 2020, the effects of a new coronavirus (COVID-19) and
related actions to attempt to control its spread significantly impacted
not only our operating results but also the global economy.
The impact of the global COVID-19 pandemic on our consolidated
operating results in early fiscal 2020 was limited, in all material
respects, to our operations in China where the Chinese government
mandated numerous measures, including closures of businesses, lim-
itations on movements of individuals and goods, and the imposition
of other restrictive measures, in its efforts to mitigate the spread of
COVID-19 within the country. In March 2020, as COVID-19 spread out-
side of China, significantly impacting the rest of the world, the World
Health Organization designated the outbreak as a global pandemic.
The pandemic spread outside of China in the balance of fiscal year
2020 to impact operations in our Americas and Europe, Middle East
and Africa (EMEA) regions in addition to elsewhere in our Asia/Pacific
region. The effects of COVID-19 and related actions to attempt to
control its spread significantly impacted not only our operating results
but also the global economy.
In the U.S., many state and local governments, based on local con-
ditions, either recommended or mandated actions to slow the trans-
mission of COVID-19. These measures ranged from limitations on
crowd size, together with closures of bars and dine-in restaurants,
to mandatory orders for non-essential citizens to shelter in place.
Governments in non-U.S. jurisdictions also implemented shelter-in-
place orders, quarantines, significant restrictions on travel, as well
as restrictions that prohibited many employees from going to work.
Borders between countries have been closed to contain the spread
of COVID-19 contagion. The extent and nature of government actions
varied during fiscal year 2020 and in early fiscal year 2021 based
upon the then-current extent and severity of the COVID-19 pandemic
within their respective countries and localities.
We identified three priorities while navigating through the period
of volatility and uncertainty associated with various stages of the
COVID-19 pandemic:
• First, to ensure the health and safety of our employees and the
quality and integrity of our products.
• Second, to keep our brands and our customers’ brands in supply
and to maintain the financial strength of our business.
• Third, to ensure McCormick emerges strong from this event. The
pandemic will come to an end and we believe that we will come
out a better company by driving our long-term strategies, respond-
ing to changing consumer behavior and capitalizing on opportuni-
ties from our relative strength.
We implemented numerous measures over the course of fiscal 2020
to ensure that these priorities were achieved, including: (i) for our
manufacturing and distribution employees, who played a critical role in
maintaining the supply of our products to our customers and consum-
ers, we instituted pre-shift temperature checks, temporarily increased
pay and benefits, and provided time to enable social distancing and
even greater sanitation procedures during shift changes; (ii) for our
other employees, we instituted work-from-home arrangements; (iii)
we maintained close communication with customers and suppliers to
enable us to react to changing demand; and (iv) throughout the organi-
zation, we empowered global, regional and local crisis response teams
that enabled us to react quickly to the challenging environment.
Our sales increased by 4.7% for the year ended November 30, 2020
over the 2019 level. That increase was driven by an 10.0% increase in
sales of our consumer segment, partially offset by a 3.5% decline in
sales of our flavor solutions segment. Our operating results have and
will continue to be impacted by COVID-19, including the related recov-
ery and the shift in consumer demand resulting from the pandemic.
We have partnered with our customers to monitor consumer demand
changes and address the shift to at-home versus away-from-home
consumption. We estimate that away-from-home consumption has
historically represented approximately 20% of our consolidated sales.
The effects of COVID-19 on consumer behavior have, on a net basis,
favorably impacted the operating results of our consumer segment
and unfavorably impacted the operating results of our flavor solutions
segment during the year ended November 30, 2020. The impact of
COVID-19 on our consumer segment during fiscal 2020 resulted in a
significant increase in at-home consumption and related demand for
our products. The unfavorable impact on our flavor solutions segment
during the same periods was principally attributable to decreased
demand from certain customers that were affected by government
mandates related to COVID-19 in many of our markets. Those measures
required closures of, or capacity limitations on, dine-in restaurants or
restricted operations of those restaurants to carry-out or delivery only
and also restricted operations of quick service restaurants to drive-
through pick-up or delivery. The resulting negative demand impacts in
2020 Annual Report 35
our flavor solutions segment were partially offset by increased at-home
consumption from certain customers in our flavor solutions segment
that use our products to flavor their own brands for at-home consump-
tion. The impact of COVID-19 on our consumer segment and flavor
solutions segment moderated during our fourth quarter of fiscal 2020.
During that quarter, our sales increased by 4.9% over the comparable
period in 2019, driven by a 5.9% increase in sales of our consumer
segment and a 3.1% increase in sales of our flavor solutions segment.
The 5.9% fourth quarter growth in sales of our consumer segment
was moderated by the lack of availability of certain of our consumer
products in the U.S. following the sustained increase in demand
earlier in 2020 that caused us to suspend or curtail production of some
secondary products in the fourth quarter to protect the supply of our
top selling holiday items.
Upon worsening COVID-19 infection levels in certain localities in late
fiscal 2020 and in early fiscal 2021, local governmental authorities
have either re-imposed some or all of earlier restrictions or imposed
other restrictions, all in an effort to check the spread of COVID-19.
In early fiscal 2021, vaccines effective in combatting COVID-19 were
approved by health agencies in certain countries/regions in which
we operate (including the U.S., U.K., European Union, Canada and
Mexico) and began to be administered. However, initial quantities
of vaccines are limited and vaccine distributions, controlled by local
authorities, are being allocated, generally first to front-line health care
workers and other essential workers and next to those members of
individual populations believed most susceptible to severe effects from
COVID-19. Full administration of the COVID-19 vaccines is unlikely to
occur in most jurisdictions until mid- to late-2021. The pace and shape
of the COVID-19 recovery described above as well as the impact and
extent of potential resurgences is not presently known. These and
other uncertainties with respect to COVID-19 could result in changes
to our current expectations in addition to a number of adverse impacts
to our business, including but not limited to additional disruption to the
economy and consumers’ willingness and ability to spend, temporary
or permanent closures by businesses that consume our products, such
as restaurants, additional work restrictions, and supply chains being in-
terrupted, slowed, or rendered inoperable or, in the case of significant
increased demand for our product, incapable of fulfilling that increased
demand. As a result, it may be challenging to obtain and process raw
materials to support our business needs, and individuals could become
ill, quarantined, or otherwise unable to work and/or travel due to
health reasons or governmental restrictions. Also, governments may
impose other laws, regulations or taxes which could adversely impact
our business, financial condition or results of operations. Further, if
our customers’ businesses are similarly affected, they might delay
or reduce purchases from us. The potential effects of COVID-19 also
could impact us in a number of other ways including, but not limited to,
variations in the level of our profitability, laws and regulations affecting
our business, fluctuations in foreign currency markets, the availability
of future borrowings, the cost of borrowings, valuation of our pension
assets and obligations, credit risks of our customers and counterpar-
ties, and potential impairment of the carrying value of goodwill or other
indefinite-lived intangible assets.
Sales growth: Over time, we expect to grow sales with similar contri-
butions from: 1) our base business—driven by brand marketing support,
category management, and differentiated customer engagement; 2)
new products; and 3) acquisitions.
36 McCormick & Company, Inc.
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 completed
nine acquisitions, which are driving sales in both our consumer and fla-
vor 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 have included
bolt-on opportunities as well as the following recent acquisitions:
• On December 30, 2020, we acquired FONA International, LLC and
certain of its affiliates (FONA), a privately owned company, for
approximately $710 million, net of cash acquired, subject to certain
customary purchase price adjustments. We financed this fiscal 2021
acquisition with cash and short-term borrowings. FONA is a leading
manufacturer of clean and natural flavors providing solutions for a
diverse customer base across various applications for the food, bev-
erage and nutritional markets which expands the breadth of our fla-
vor solutions segment into attractive categories, as well as extends
our technology platform, strengthens our capabilities, and acceler-
ates the strategic migration of our portfolio to more value-added
and technically insulated products.
• On November 30, 2020, we acquired the parent company of Cholula
Hot Sauce® (Cholula) from L Catterton for approximately $803 million,
net of cash acquired, subject to certain customary purchase price
adjustments. Cholula is a strong addition to McCormick’s global
branded flavor portfolio, which broadens the Company’s offering in
the high growth hot sauce category to consumers and foodservice
operators and accelerates our condiment growth opportunities with
a complementary authentic Mexican flavor hot sauce in both our
consumer and flavor solutions segments.
• On August 17, 2017, we acquired Reckitt Benckiser’s Food Division
(RB Foods) for approximately $4.2 billion. The acquired market-
leading brands of RB Foods included 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
moved 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 FONA and Cholula acquisitions are expected to contribute more
than one-third of our sales growth in 2021. The RB Foods acquisition
contributed more than one-third of our sales growth in 2018 and 2017.
Cost savings and business transformation: We are fueling our invest-
ment 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 notes to our consolidated
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,
including in our Global Enablement (GE) organization to transform
McCormick through globally aligned, innovative services to enable
growth. As more fully described in note 3 of notes to our consolidated
financial statements, we expect to incur special charges of approx-
imately $60 million to $65 million associated with our GE initiative
of which approximately $39.9 million have been recognized through
November 30, 2020. As technology provides the backbone for this
greater process alignment, information sharing and scalability, we
are also making investments in our information systems. From late
2018 through early 2020, we progressed in implementing our global
enterprise resource planning (ERP) replacement program which will
enable us to accelerate the transformation of our ways of working and
provide a scalable platform for growth. In the second quarter of fiscal
2020, we elected to pause activity related to our ERP for the balance
of fiscal 2020 due, in part, to COVID-19 restrictions that restricted
necessary travel by internal and external ERP team members and made
it difficult for local McCormick personnel to actively participate in the
ERP development, data cleansing, and testing prior to then sched-
uled pilots later in fiscal 2020. In addition, the pause of this activity
enabled all McCormick employees to focus their activities on the three
priorities previously described under the heading “Impact of COVID-19
Pandemic” for navigating through the period of volatility and uncertain-
ty associated with various stages of the COVID-19 pandemic.
We expect that, in total over the course of the ERP replacement pro-
gram from late 2018 through 2023, we will invest from approximately
$350 million to $400 million, including expenses related to the go-live
activities in our operations, to enable the anticipated completion
of the global roll out of our new information technology platform
in 2022. Of that projected, $350 million to $400 million, we expect
capitalized software to account for approximately 50% and program
expenses to account for approximately 50%. Of the approximately
$175 million to $200 million of operating expenses included in our
projected total spending related to our ERP replacement program,
approximately $40 million have been recognized through November 30,
2020. Of the approximately $175 million to $200 million of capitalized
software included in our projected total spending related to our ERP
program, approximately $87 million has been recognized through
November 30, 2020.
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
provided by operating activities reached $1,041.3 million in 2020, an
increase of $94.5 million from the $946.8 million realized in 2019. In
2020, 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
35 years, and to fund capital expenditures and acquisitions. In 2020,
the return of cash to our shareholders through dividends and share
repurchases was $377.4 million.
Operating Results: On a long-term basis, we expect a combination of
acquisitions and share repurchases to add about 2% to earnings per
share growth.
In 2020, we achieved further growth of our business with net sales
rising 4.7% over the 2019 level due to the following factors:
• We grew volume and product mix, which added 3.7% of sales
growth. This growth was driven by sharply higher demand within
our consumer segment, as the continuation of measures imposed to
mitigate the spread of COVID-19 and the related change in con-
sumer behavior, resulted in a shift in consumer behavior toward
at-home meal preparation that more than offset lower demand
within our flavor solutions segment principally associated with our
branded food service customers.
• Pricing actions contributed 1.6% of the increase in net sales.
• Net sales growth was negatively impacted by fluctuations in currency
rates that decreased sales growth by 0.6%. Excluding this impact, we
grew sales by 5.3% over the prior year on a constant currency basis.
Operating income was $999.5 million in 2020 and $957.7 million in
2019. We recorded $6.9 million and $20.8 million of special charges in
2020 and 2019, respectively, related to organization and streamlining
actions. In 2020, we also recorded $12.4 million of transaction and inte-
gration expenses related to our acquisitions of Cholula and FONA that
reduced operating income. In 2020, compared to the year-ago period, the
favorable impact of higher sales and $113.0 million of cost savings from
our CCI program, including organization and streamlining actions more
than offset the impact of increased conversion costs, COVID-19 related
expenses, higher incentive compensation, and the unfavorable impact
of foreign currency exchange rates. During 2020, COVID-19 related
expenses included certain actions taken in response to the pandemic,
including the impact of temporary arrangements that increased salaries
and benefits paid to our manufacturing employees, measures to enable
manufacturing and distribution staff to maintain social distancing and
permit enhanced cleaning between shifts that reduced productivity,
and impact of lower production volumes of flavor solutions inventories.
Excluding special charges together with, for 2020, transaction and
integration expenses related to our acquisitions of Cholula and FONA,
adjusted operating income was $1,018.8 million in 2020, an increase
of 4.1%, compared to $978.5 million in the year-ago period. In constant
currency, adjusted operating income rose 4.8%. For further details and
a reconciliation of non-GAAP to reported amounts, see the subsequent
discussion under the heading “Non-GAAP Financial Measures”.
Diluted earnings per share was $2.78 in 2020 and $2.62 in 2019. The
year-on-year increase in earnings per share was driven mainly by
higher operating income and decreased interest expense. Those
favorable impacts in 2020 were partially offset by the impact of a
2020 Annual Report 37
higher effective tax rate, a decrease in other income and the impact of
higher shares outstanding. Special charges, and in 2020, transaction
and integration expenses lowered earnings per share by $0.05 and
$0.06 in 2020 and 2019, 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
$2.83 in 2020 and $2.68 in 2019, or an increase of 5.6%.
2021 Outlook
In 2021, we expect to grow net sales over the 2020 level by 7% to 9%,
including an estimated 2% favorable impact from currency rates, or 5 to
7% on a constant currency basis. That anticipated 2021 sales growth
includes the incremental impact of the Cholula and FONA acquisitions,
which we expect to comprise 3.5% to 4.0% of the expected 7% to 9%
sales growth, and higher volume and product mix driven by our category
management, brand marketing, new product, and differentiated cus-
tomer engagement growth plans. We expect to have organic sales
growth in both our consumer and flavor solutions segments.
We expect our 2021 gross profit margin to range from a decline of 10
basis points to an increase of 15 basis points from our gross profit
margin of 41.1% in 2020. The projected 2021 range of change in
gross profit margin is principally due to (i) expected accretion from our
acquisitions of Cholula and FONA, net of transaction and integration
expenses of $6.9 million related to the amortization of the step-up of
the acquired inventories of Cholula and FONA to fair value, (ii) anticipat-
ed unfavorable sales mix in 2021 between our consumer and flavor
solutions segments as compared to 2020, (iii) an expected increase in
COVID-19 expenses of approximately $10 million in 2021 over the 2020
level, and (iv) an anticipated low-single-digit level of inflation in 2021
compared to 2020. Excluding the $6.9 million of transaction and integra-
tion expenses related to our acquisitions of Cholula and FONA included
in our projected range of gross profit margin anticipated in 2021, we
expect our adjusted gross profit margin to range from comparable to 25
basis points higher than our 2020 gross profit margin of 41.1%.
In 2021, we expect an increase in operating income of 4% to 6%,
which includes an estimated 2% favorable impact from currency rates,
over the 2020 level. The projected range of change in operating income
in 2021 reflects an expected increase of approximately $30 million in
expense related to our global ERP replacement program over the fiscal
2020 level. Our CCI-led cost savings target in 2021 is approximately
$110 million and approximates the $113 million of CCI-led cost savings
realized in 2020. We anticipate transaction and integration expenses
related to the Cholula and FONA acquisitions of approximately $50
million to negatively impact operating income in 2021, as compared to
$12.4 million of transaction and integration expenses in 2020. We also
expect approximately $8 million of special charges in 2021 that relate
to previously announced organization and streamlining actions; in
2020, special charges were $6.9 million. Excluding special charges and
transaction and integration expenses, we expect 2021’s adjusted oper-
ating income to increase by 8% to 10%, which includes an estimated
2% favorable impact from currency rates, or to increase by 6% to 8%
on a constant currency basis over the 2020 level.
Our underlying effective tax rate is projected to be higher in 2021 than
in 2020. We estimate our effective tax rate, including the net favorable
impact of anticipated discrete tax items, to approximate 24% in 2021
as compared to 19.8% in 2020. Excluding projected taxes associat-
ed with special charges and transaction and integration expenses,
including the unfavorable impact in 2021 of a discrete tax item related
38 McCormick & Company, Inc.
to our acquisition of FONA, we estimate that our adjusted effective tax
rate will approximate 23% in fiscal 2021, as compared to an adjusted
effective tax rate of 19.9% in 2020.
Diluted earnings per share was $2.78 in 2020. Diluted earnings per
share for 2021 is projected to range from $2.71 to $2.76. Excluding
the per share impact of special charges and transaction and inte-
gration expenses of $0.01 and $0.04, respectively, adjusted diluted
earnings per share was $2.83 in 2020. Adjusted diluted earnings per
share (excluding an estimated per share impact from special charges
of $0.02 and from transaction and integration expenses of $0.18,
including the unfavorable impact of a discrete tax item of $0.04 related
to our acquisition of FONA) is projected to range from $2.91 to $2.96 in
2021. We expect adjusted diluted earnings per share to grow by 3% to
5%, which includes a 2% favorable impact from currency rates, or to
grow by 1% to 3% on a constant currency basis over adjusted diluted
earnings per share of $2.83 in 2020.
RESULTS OF OPERATIONS—2020 COMPARED TO 2019
Net sales
Percent growth
Components of percent growth in net
sales—increase (decrease):
Volume and product mix
Pricing actions
Foreign exchange
2020
2019
$5,601.3
$5,347.4
4.7%
0.8%
3.7%
1.6%
(0.6)%
2.5%
0.2%
(1.9)%
Sales for 2020 increased by 4.7% from 2019 and by 5.3% on a constant
currency basis. That 4.7% sales increase was driven by higher sales in
our consumer segment, which increased by 10.0% over the 2019 level,
partially offset by lower sales in our flavor solutions segment, which
declined by 3.5% from the prior year level. On a consolidated basis,
higher volume and favorable product mix increased sales by 3.7% while
pricing actions added 1.6% to sales. That net volume increase and
favorable mix was driven by higher demand within our consumer seg-
ment, as measures imposed to mitigate the spread of COVID-19 and the
related change in consumer behavior, resulted in a shift in consumer
behavior toward at-home meal preparation that more than offset lower
demand within our flavor solutions segment principally associated
with our restaurant and branded food service customers. Sales were
also impacted by unfavorable foreign currency rates that decreased
net sales 0.6% compared to 2019 and is excluded from our measure of
sales growth of 5.3% on a constant currency basis.
Gross profit
Gross profit margin
2020
2019
$2,300.4
$2,145.3
41.1%
40.1%
In 2020, our gross profit margin increased 100 basis points to 41.1%
from 40.1% in 2019. This improvement was driven by the favorable
impact of CCI-led cost savings, favorable pricing actions and the mix
of consumer and flavor solutions sales, partially offset by unfavorable
conversion costs and increased material costs. Higher conversion
costs during 2020 reflected certain matters associated with COVID-19,
including the impact of temporary arrangements that increased
salaries and benefits paid to our manufacturing employees, measures
to enable manufacturing and distribution staff to maintain social
distancing and permit enhanced cleaning between shifts that reduced
productivity, and the impact of lower production volumes of flavor
solutions inventories.
Selling, general & administrative expense
Percent of net sales
$1,281.6
$ 1,166.8
22.9%
21.8%
2020
2019
was $1,018.8 million in 2020 as compared to $978.5 million in 2019,
an increase of $40.3 million or 4.1% over the 2019 level. Adjusted
operating income as a percent of net sales declined by 10 basis points
in 2020, to 18.2% in 2020 from 18.3% in 2019.
Selling, general and administrative (SG&A) expense was $1,281.6 million
in 2020 compared to $1,166.8 million in 2019, an increase of $114.8
million. That increase in SG&A expense was primarily a result of (i) higher
performance-based employee incentive expense accruals, (ii) higher dis-
tribution expenses associated with the higher sales volume, (iii) increased
brand marketing costs and (iv) a one-time fiscal 2019 expense reduction
from the alignment of an employee benefit plan to our global standard
that did not recur in 2020, all as compared to 2019. SG&A expense as
a percent of net sales increased by 110 basis points from the prior year
level, primarily as a result of the previously mentioned factors, partially
offset by the impact of the leverage of fixed and semi-fixed expenses over
a higher level of sales during the 2020 period.
Total special charges
2020
$6.9
2019
$20.8
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 Manage-
ment Committee and classify expenses related to those changes as
special charges in our financial statements.
During 2020, we recorded $6.9 million of special charges, consisting
of $5.3 million related to streamlining actions in our EMEA region and
$1.6 million related to our GE initiative.
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 Ameri-
cas; and (iii) $3.9 million related to streamlining actions in our EMEA
region.
Transaction and integration expenses
2020
$12.4
2019
$—
Transaction and integration expenses related to our acquisitions of
Cholula and FONA of $11.2 million and $1.2 million, respectively, were
incurred late in fiscal 2020. We expect to incur additional transaction
and integration expenses related to these acquisitions in fiscal 2021.
Operating income
Percent of net sales
2020
2019
$ 999.5
17.8 %
$957.7
17.9 %
Operating income increased by $41.8 million, or 4.4%, from $957.
7 million in 2019 to $999.5 million in 2020. Operating income as a
percent of net sales declined by 10 basis points in 2020, to 17.8%
in 2020 from 17.9% in 2019 as a result of the factors previously
described. Excluding the effect of special charges and transaction and
integration expenses previously described, adjusted operating income
Interest expense
Other income, net
2020
$135.6
17.6
2019
$165.2
26.7
Interest expense was $29.6 million lower for 2020 as compared to
the prior year primarily due to a decline in average total borrowings
and a lower interest rate environment. Other income, net for 2020
decreased by $9.1 million from the 2019 level due principally to lower
non-service cost income associated with our pension and postretire-
ment benefit plans that declined by $7.6 million in 2020 from the prior
year level.
Income from consolidated operations before
income taxes
Income tax expense
Effective tax rate
2020
2019
$881.5
174.9
19.8 %
$819.2
157.4
19.2 %
The provision for income taxes is based on the 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 employ-
ees, changes in estimates of the outcome of tax matters related to prior
years, including reversals of reserves upon the lapsing of statutes of
limitations, provision-to-return adjustments, the settlement of tax audits,
changes in enacted tax rates, changes in the assessment of deferred tax
valuation allowances and the tax effects of intra-entity asset transfers
(other than inventory).
The effective tax rate was 19.8% in 2020 as compared to 19.2% in
2019. The effective tax rate of 19.2% in 2019 includes a non-recurring
net tax benefit of $1.5 million associated with the U.S. Tax Act, as
more fully described in note 13 of notes to our consolidated financial
statements. Net discrete tax benefits were $43.4 million in 2020,
which is a decrease of $0.3 million from $43.7 million in 2019, includ-
ing the $1.5 million non-recurring benefit of the U.S. Tax Act in 2019.
Discrete tax benefits in both the 2020 and 2019 periods include excess
tax benefits associated with share-based payments to employees
($14.2 million and $22.4 million in 2020 and 2019, respectively), the
tax benefits associated with intra-entity asset transfers that occurred
($9.9 million and $15.2 million in 2020 and 2019, respectively), the
reversal of reserves for unrecognized tax benefits for the expiration of
the statues of limitations and other discrete items. In 2020, discrete
tax benefits included $11.9 million associated with the release of val-
uation allowances due to a change in judgment about realizability of
deferred tax assets. See note 13 of notes to our consolidated financial
statements for a more detailed reconciliation of the U.S. federal tax
rate with the effective tax rate.
Income from unconsolidated operations
2020
$40.8
2019
$40.9
2020 Annual Report 39
Income from unconsolidated operations, which is presented net of
the elimination of earnings attributable to non-controlling interests,
decreased $0.1 million in 2020 from the prior year. We own 50% of
most of our unconsolidated joint ventures, including our largest joint
venture, McCormick de Mexico, that comprised 75% and 72% of the
income of our unconsolidated operations in 2020 and 2019, respectively.
We reported diluted earnings per share of $2.78 in 2020, compared to
$2.62 in 2019. The table below outlines the major components of the
change in diluted earnings per share from 2019 to 2020. The increase
in adjusted operating income in the table below includes the impact
from unfavorable currency exchange rates in 2020.
2019 Earnings per share—diluted
Increase in operating income
Decrease in special charges
Increase in transaction and integration expenses
Decrease in interest expense
Decrease in other income
Impact of income taxes
Impact of higher shares
2020 Earnings per share—diluted
$ 2.62
0.12
0.05
(0.04)
0.09
(0.03)
(0.02)
(0.01)
$ 2.78
Results of Operations—Segments
We measure the performance of our business segments based on
operating income, excluding special charges and transaction and inte-
gration expenses related to our acquisitions. See note 16 of notes to
our consolidated financial statements for additional information on our
segment measures as well as for a reconciliation by segment of operat-
ing income, excluding special charges and transaction and integration
expenses related to our acquisitions. In the following discussion, we
refer to our previously described measure of segment profit as “Seg-
ment operating income”.
Consumer Segment
Net sales
Percent growth
Components of percent growth in net
sales—increase (decrease):
Volume and product mix
Pricing actions
Foreign exchange
2020
2019
$3,596.7
$3,269.8
10.0 %
0.7%
8.8%
1.5%
(0.3)%
2.4%
0.1%
(1.8)%
Segment operating income
Segment operating income margin
$ 780.9
$ 676.3
21.7%
20.7%
Sales of our consumer segment in 2020 grew by 10.0% as compared
to 2019 and grew by 10.3% on a constant currency basis. This increase
was driven by sharply higher sales of our consumer business in the
Americas and in EMEA, with a partial offset from a sales decline in the
Asia/Pacific region. Asia/Pacific region sales declines were driven by
lower sales in China, which includes the impact of away-from-home
products included in its consumer portfolio. Higher volume and product
mix added 8.8% to sales as measures imposed to mitigate the spread
of COVID-19 resulted in a shift in consumer behavior toward at-home
meal preparation. Pricing actions added 1.5% to sales as compared
to the prior year period. The unfavorable impact of foreign currency
exchange rates decreased consumer segment sales by 0.3% compared
to 2019 and is excluded from our measure of sales growth of 10.3%
on a constant currency basis.
40 McCormick & Company, Inc.
In the Americas, consumer sales rose 13.9% in 2020 as compared to
2019 and rose by 14.0% on a constant currency basis. Higher volume and
product mix added 11.9% to sales driven by significant growth across
the McCormick branded portfolio. In addition, pricing actions, taken in
response to higher costs, increased sales by 2.1% as compared to the
prior year period. The unfavorable impact of foreign currency exchange
rates decreased sales by 0.1% compared to 2019 and is excluded from
our measure of sales growth of 14.0% on a constant currency basis.
In the EMEA region, consumer sales increased 14.5% in 2020 as com-
pared to 2019 and rose by 14.3% on a constant currency basis. Volume
and product mix increased sales by 13.9%. The increase was broad
based across the region with particular strength in branded spices and
seasonings and homemade dessert products in France. The impact
of pricing actions increased sales by 0.4%. The favorable impact of
foreign currency exchange rates increased sales by 0.2% compared to
2019 and is excluded from our measure of sales growth of 14.3% on a
constant currency basis.
In the Asia/Pacific region, consumer sales decreased 16.6% as compared
to 2019 and decreased 15.1% on a constant currency basis. Lower vol-
ume and product mix reduced sales by 15.0%. The decrease was driven
by products related to away-from-home consumption in China. Partially
offsetting this decline was growth in cooking-at-home products, partic-
ularly in Australia. Pricing actions reduced sales by 0.1% as compared
to 2019. The unfavorable impact from foreign currency exchange rates
decreased sales by 1.5% compared to 2019 and is excluded from our
measure of sales decline of 15.1% on a constant currency basis.
We grew segment operating income for our consumer segment by
$104.6 million, or 15.5%, in 2020 as compared to 2019. The increase
in segment operating income was driven by the impact of higher sales,
as previously described, and CCI-led cost savings, partially offset by
higher conversion costs, increased material costs, increased brand
marketing costs and higher performance-based employee incentive
expense accruals. Higher conversion costs during 2020 reflected certain
matters associated with COVID-19, including the impact of temporary
arrangements that increased salaries and benefits paid to our manu-
facturing employees as well as measures to enable manufacturing and
distribution staff to maintain social distancing and permit enhanced
cleaning between shifts that reduced productivity. Segment operating
margin for our consumer segment rose by 100 basis points in 2020 to
21.7%, driven by an increase in consumer gross profit margin that was
partially offset by an increase in SG&A expense as a percentage of net
sales as compared to the 2019 period. Segment operating margin in
2020 benefited from the leverage of fixed and semi-fixed expenses over
a higher sales base than compared to the 2019 level. On a constant
currency basis, segment operating income for our consumer segment
rose by 15.7% in 2020 in comparison to the same period in 2019.
Flavor Solutions Segment
Net sales
Percent (decline) growth
Components of percent change in net
sales—increase (decrease):
Volume and product mix
Pricing actions
Foreign exchange
2020
2019
$2,004.6
(3.5)%
$2,077.6
1.1%
(4.2)%
1.8 %
(1.1)%
2.9%
0.3%
(2.1)%
Segment operating income
Segment operating income margin
$ 237.9
$ 302.2
11.9 %
14.5%
Sales of our flavor solutions segment decreased 3.5% in 2020 as
compared to 2019 and decreased by 2.4% on a constant currency basis.
Driving that decrease in sales was lower demand due to the impact of
the COVID-19 disruption on our restaurant and branded food service
customers, particularly in the Americas and EMEA regions. Unfavorable
volume and product mix decreased segment sales by 4.2% as compared
to 2019, while pricing actions, taken in response to increased costs,
during the period increased sales by 1.8%. The unfavorable impact
of foreign currency rates decreased flavor solutions segment sales by
1.1% as compared to 2019 and is excluded from our measure of sales
decline of 2.4% on a constant currency basis.
In the Americas, flavor solutions sales decreased by 3.5% in 2020 as
compared to the prior year level and decreased by 2.5% on a constant
currency basis. Unfavorable volume and product mix decreased flavor
solutions sales in the Americas by 4.4% during 2020, driven by lower
sales to branded foodservice and quick service restaurant customers,
but was partially offset by higher sales to packaged food companies.
Pricing actions increased sales by 1.9% as compared to the prior year
period. An unfavorable impact from foreign currency rates decreased
sales by 1.0% compared to 2019 and is excluded from our measure of
sales decline of 2.5% on a constant currency basis.
In the EMEA region, flavor solutions sales in 2020 decreased by 5.5%
from the prior year level and decreased by 4.2% on a constant currency
basis. Unfavorable volume and product mix decreased segment sales
by 7.0% as compared to 2019. The decline was primarily attributable
to lower sales to branded foodservice and quick service restaurant
customers, partially offset by higher demand from packaged food com-
panies. Pricing actions increased sales by 2.8% in 2020 as compared
the prior year level. An unfavorable impact from foreign currency rates
decreased sales by 1.3% compared to 2019 and is excluded from our
measure of sales decline of 4.2% on a constant currency basis.
In the Asia/Pacific region, flavor solutions sales increased 0.4% in
2020 from the prior year level and increased by 1.6% on a constant
currency basis. Favorable volume and product mix increased sales by
2.2%, driven by higher sales to quick service restaurant customers.
Pricing actions decreased sales by 0.6% as compared to the prior year
period. An unfavorable impact from foreign currency rates decreased
sales by 1.2% compared to 2019 and is excluded from our measure of
sales growth of 1.6% on a constant currency basis.
Segment operating income for our flavor solutions segment decreased
by $64.3 million, or 21.3%, in 2020 as compared to 2019. The decrease
in segment operating income was driven by lower sales, increased
conversion costs, the impact of lower production volumes, increased
material costs and higher performance-based employee incentive
expense accruals that were partially offset by CCI-led cost savings.
Higher conversion costs during 2020 reflected certain matters associ-
ated with COVID-19, including the impact of temporary arrangements
that increased salaries and benefits paid to our manufacturing employ-
ees as well as measures to enable manufacturing and distribution staff
to maintain social distancing and permit enhanced cleaning between
shifts that reduced productivity, and the impact of lower production
volumes of flavor solutions inventories. Segment operating margin
for our flavor solutions segment decreased by 260 basis points from
the prior year level to 11.9% in 2020, driven by lower flavor solutions
segment gross profit margin and an increase in SG&A expense as a
percent of net sales. Segment operating margin in 2020 also declined
due to the deleveraging impact of fixed and semi-fixed expenses over
a lower sales base as compared to the 2019 period. On a constant cur-
rency basis, segment operating income for our flavor solutions segment
declined by 19.7% in 2020, as compared to the same period in 2019.
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 con-
stant 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 busi-
ness. Pricing actions added 0.2% to sales. These factors were partially
offset 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
2019
2018
$1,166.8
$1,163.4
21.8 %
22.0 %
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 alignment 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 percent of net sales
was 21.8%, a 20-basis point improvement from 2018.
Total special charges
2019
2018
$20.8
$16.3
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.
2020 Annual Report 41
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 (that 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 employee
severance benefits and other costs directly associated with the reloca-
tion 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 then 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
million 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 substan-
tially offsetting 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
approximately 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,
42 McCormick & Company, Inc.
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 (benefit) expense
Effective tax rate
2019
2018
$819.0
157.4
19.2%
$741.3
(157.3)
(21.2)%
As more fully described above and in note 13 of notes to our consoli-
dated financial statements, 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, togeth-
er with additional foreign withholding taxes of $7.9 million associated
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
associated 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 impact-
ed 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 payments 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 settle-
ments with taxing authorities in several jurisdictions, the previously
described non-recurring benefit of the U.S. Tax Act, and other discrete
items. See note 13 of notes to our consolidated financial statements
for a more detailed reconciliation of the U.S. federal tax rate with the
effective tax rate.
Income from unconsolidated operations
2019
$40.9
2018
$34.8
Income from unconsolidated operations 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 eliminating a lower level of earnings
associated with our minority interests in 2019 as compared to 2018.
We own 50% of most of our unconsolidated 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 $2.62 in 2019, compared to
$3.50 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
Decrease in interest expense
Increase in other income
Impact of income taxes
Increase in unconsolidated income
Impact of higher shares outstanding
$ 3.50
0.15
(1.13)
(0.01)
0.06
0.03
0.01
0.01
0.02
(0.02)
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. High-
er 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 unfavor-
able 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.
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 improve-
ment in gross margin.
2019 Earnings per share—diluted
$ 2.62
Flavor Solutions Segment
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
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%
Segment operating income
Segment operating income margin
$ 676.3
$ 637.1
20.7%
19.6%
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 com-
pared to 2018 and decreased 0.2% on a constant currency basis. Vol-
ume and product mix increased sales by 1.0%, led by new products and
promotions that were partially offset by declines in private label sales.
Net sales
Percent growth
Components of percent growth in net
sales—increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
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%
Segment operating income
Segment operating income margin
$ 302.2
$ 292.8
14.5%
14.2%
Sales of our flavor solutions segment increased 1.1% in 2019 as
compared to 2018 and increased by 3.2% on a constant currency
basis. Higher volume and product mix added 2.9% to sales and pric-
ing actions added 0.3%. These factors partially offset an unfavorable
impact from foreign currency exchange rates that reduced flavor solu-
tions segment 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
2020 Annual Report 43
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.
connection with the enactment of the U.S. Tax Act as that non-
recurring income tax benefit is excluded from our computation of
adjusted income taxes, adjusted net income and adjusted diluted
earnings per share, each a non-GAAP measure.
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 includ-
ed 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 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 expense. 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 expense as a percentage of net sales.
NON-GAAP FINANCIAL MEASURES
The following tables include financial measures of 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 prepared as a com-
plement to our financial results prepared in accordance with United
States generally accepted accounting principles. These financial mea-
sures 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 tim-
ing; 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 recog-
nition 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
• Transaction and integration expenses associated with the Cholula,
FONA and RB Foods acquisitions—We exclude certain costs asso-
ciated with our acquisitions of Cholula and FONA in November and
December 2020, respectively, and RB Foods in August 2017 and
their subsequent integration into the Company. Such costs, which
we refer to as “Transaction and integration expenses”, include
transaction costs associated with each acquisition, as well as inte-
gration costs following the respective acquisition, including the
impact of the acquisition date fair value adjustment for inventory,
together with the impact of discrete tax items, if any, directly
related to each acquisition.
• 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 transition tax on pre-
viously unremitted earnings of non-U.S. subsidiaries. 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, special charges and non-recurring income tax benefits asso-
ciated with the U.S. Tax Act recorded for the years and in the amounts
set forth below are included in notes 2, 3 and 13, respectively, of notes
to our consolidated 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 con-
sidered 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.
44 McCormick & Company, Inc.
A reconciliation of these non-GAAP measures to GAAP financial results is provided below:
Operating income
Impact of transaction and integration expenses
Impact of special charges
Adjusted operating income
% increase versus prior year
Adjusted operating income margin (1)
Income tax expense (benefit)
Non-recurring benefit, net, of the U.S. Tax Act (2)
Impact of transaction and integration expenses
Impact of special charges
Adjusted income tax expense
Adjusted income tax rate (3)
Net income
Impact of transaction and integration expenses
Impact of special charges
Non-recurring benefit, net, of the U.S. Tax Act (2)
Adjusted net income
% increase versus prior year
Earnings per share—diluted
Impact of transaction and integration expenses
Impact of special charges
Non-recurring benefit, net, of the U.S. Tax Act (2)
Adjusted earnings per share—diluted
2020
$ 999.5
12.4
6.9
$1,018.8
4.1 %
18.2 %
$ 174.9
—
1.9
2.1
$ 178.9
2019
$ 957.7
—
20.8
$ 978.5
5.2 %
18.3 %
$ 157.4
1.5
—
4.7
$163.6
2018
$ 891.1
22.5
16.3
$ 929.9
18.7 %
17.5 %
$(157.3)
301.5
4.9
3.8
$ 152.9
19.9%
19.5%
19.6%
$ 747.4
10.5
4.8
—
$ 762.7
$702.7
—
16.1
(1.5)
$ 717.3
$ 933.4
17.6
12.5
(301.5)
$ 662.0
6.3%
8.4%
21.1%
$ 2.78
0.04
0.01
—
$ 2.83
$ 2.62
—
0.06
—
$ 2.68
$ 3.50
0.06
0.05
(1.13)
$ 2.48
(1) Adjusted operating income margin is calculated as adjusted operating income as a percent of net sales for each period presented.
(2) 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,
respectively, is more fully described in note 13 of notes to our consolidated financial statements.
(3) Adjusted income tax rate is calculated as adjusted income tax expense as a percent of income from consolidated operations before income taxes, excluding transaction and
integration expenses and special charges, or $900.8 million, $840.0 million, and $780.1 million for the years ended November 30, 2020, 2019, and 2018, respectively.
Earnings per share—diluted
Impact of transaction and integration
expenses (1)
Impact of special charges
Estimate for the year ending
November 30, 2021
$2.71 to $2.76
0.18
0.02
Adjusted earnings per share—diluted
$2.91 to $2.96
(1) Transaction and integration expenses include estimated transaction and integration
expenses associated with our acquisitions of Cholula and FONA. These expenses
include anticipated transaction expenses, integration expenses, including the effect
of the fair value adjustment of acquired inventory on cost of goods sold and the unfa-
vorable impact of a discrete item on income tax expenses directly related to our
December 2020 acquisition of FONA, which we expect will approximate $0.04 per
diluted share, and is included in the after-tax impact of transaction and integration
expenses of $0.18 per diluted share estimated for the year ending November 30, 2021.
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 sever-
al 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 foreign currency exchange. To present this information
for historical periods, current year results for entities reporting in
currencies other than the U.S. dollar are translated into U.S. dollars
at the average exchange rates in effect during the prior fiscal year,
rather than at the actual average exchange rates in effect during the
current fiscal year. As a result, the foreign currency impact is equal to
the current year results in local currencies multiplied by the change
in the average foreign currency exchange rate between the current
year and the prior fiscal year. The tables set forth below present our
growth in net sales and adjusted operating income on a constant
currency basis as follows: (1) to present our growth in net sales and
adjusted operating income for 2020 on a constant currency basis, net
sales and adjusted operating income for 2020 for entities reporting
in currencies other than the U.S. dollar have been translated using
the average foreign exchange rates in effect for 2019 and compared
to the reported results for 2019; and (2) to present our growth in net
sales and adjusted operating income for 2019 on a constant currency
basis, net sales and 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.
2020 Annual Report 45
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
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, 2020
Percentage
change
as reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
13.9%
14.5%
(16.6)%
10.0%
(3.5)%
(5.5)%
0.4%
(3.5)%
4.7%
15.5%
(21.3)%
4.1%
(0.1)%
0.2%
(1.5)%
(0.3)%
(1.0)%
(1.3)%
(1.2)%
(1.1)%
(0.6)%
(0.2)%
(1.6)%
(0.7)%
14.0%
14.3%
(15.1)%
10.3%
(2.5)%
(4.2)%
1.6%
(2.4)%
5.3%
15.7%
(19.7)%
4.8%
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%
To present the percentage change in projected 2021 net sales, adjusted
operating income and adjusted earnings per share—diluted on a con-
stant currency basis, 2021 projected local currency net sales, adjusted
operating income, and adjusted net income for entities reporting in
currencies other than the U.S. dollar are translated into U.S. dollars at
currently prevailing exchange rates and are compared to those 2021
local currency projected results, translated into U.S. dollars at the aver-
age actual exchange rates in effect during the corresponding months in
fiscal year 2020 to determine what the 2021 consolidated U.S. dollar net
sales, adjusted operating income and adjusted earnings per share—
diluted would have been if the relevant currency exchange rates had not
changed from those of the comparable 2020 periods.
46 McCormick & Company, Inc.
Projections for the Year
Ending November 30, 2021
The following table reconciles our net income to Adjusted EBITDA for
the years ended November 30:
Percentage change in net sales
Impact of favorable foreign
currency exchange
Percentage change in net sales in
constant currency
Percentage change in adjusted
operating income
Impact of favorable foreign
currency exchange
Percentage change in adjusted operating
income in constant currency
Percentage change in adjusted earnings
per share—diluted
Impact of favorable foreign
currency exchange
Percentage change in adjusted earnings
per share—diluted in constant currency
7% to 9%
2%
5% to 7%
8% to 10%
2%
6% to 8%
3% to 5%
2%
1% to 3%
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 out-
standing 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 differ-
ent 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 amortization
(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
acquisition-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 terms of our revolving credit facilities, which
require us to maintain our leverage ratio below certain levels. Under
those agreements, the applicable leverage ratio is reduced period-
ically. As of November 30, 2020, our capacity under the revolving
credit facilities was not affected by these covenants. In early fiscal
2021 following our acquisition of FONA, the levels specified in our
revolving credit facilities under which we are required to maintain our
leverage ratios were amended by the participating banks to increase
the permitted maximum leverage ratios. We do not expect that these
covenants would limit our access to our revolving credit facilities
for the foreseeable future; however, the leverage ratio could restrict
our ability to utilize these facilities. We expect to comply with this
financial covenant for the foreseeable future.
Net income
Depreciation and amortization
Interest expense
Income tax expense (benefit)
EBITDA
Adjustments to EBITDA(1)
Adjusted EBITDA
Net debt (2)
Leverage ratio
2020
2019
2018
$ 747.4
165.0
135.6
174.9
1,222.9
57.5
$ 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
$ 1,280.4
$ 1,232.0
$ 1,158.7
$ 4,555.8
$ 4,243.8
$ 4,674.8
(Net debt/Adjusted EBITDA) (3)
3.6
3.4
4.0
(1) Adjustments to EBITDA are determined under the leverage ratio covenant in our
revolving credit facilities and include special charges, stock-based compensation
expense, interest income and, for the years ended November 30, 2020 and 2018,
transaction and integration expenses.
(2) The leverage ratio covenant in our revolving credit facilities define net debt as the
sum of short-term borrowings, current portion of long-term debt, and long-term
debt, less the amount of cash and cash equivalents that exceed $75.0 million.
(3) The leverage ratio covenant in our revolving credit facilities provide that Adjusted
EBITDA also includes the pro forma impact of acquisitions. As of November 30,
2020, our leverage ratio under the terms of those agreements, including the pro
forma impact of acquisitions was 3.5.
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 provided by (used in)
financing activities
2020
2019
2018
$1,041.3
$946.8
$821.2
(1,025.6)
(171.0)
(158.5)
220.9
(725.8)
(751.1)
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, our
cash flow from operations has historically been the strongest during
the fourth quarter.
In the cash flow statement, the changes in operating assets and
liabilities are presented excluding the effects of changes in foreign
currency exchange rates, as these do not reflect actual cash flows. In
addition, in the cash flow statement, the changes in operating assets
and liabilities are presented excluding the effect of acquired operating
assets and liabilities, as the cash flows associated with acquisition
of businesses is presented as an investing activity. 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.
2020 Annual Report 47
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, 2020, the
exchange rates for the Euro, British pound sterling, Canadian dollar,
Australian dollar, Chinese renminbi and Polish zloty were higher versus
the U.S. dollar than at November 30, 2019. During 2020, we have seen
greater-than-normal fluctuations in foreign exchanges rates as a result
of increased market volatility driven by the global COVID-19 pandemic.
Operating Cash Flow—Operating cash flow was $1,041.3 million in
2020, $946.8 million in 2019, and $821.2 million in 2018. The
increases in cash flow from operations in both 2020 and 2019 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 impacted operating cash flow. In
2020, the increases to operating cash flow were the result of a signifi-
cantly lower use of cash associated with other assets and liabilities,
including the timing of certain employee incentive and customer
related payments, which was partially offset by the use of cash asso-
ciated with working capital, driven by the increased level of inventory
to meet demand. In 2019 and 2018, our working capital management
favorably impacted operating cash flow. In 2019, those increases were
partially offset by a use of cash associated with other assets and lia-
bilities, totaling $81.5 million. In 2018, those increases were partially
offset by a higher use of cash from other operating assets and liabili-
ties partially related to the timing of our payment of transaction and
integration expenses as well as of interest on indebtedness related to
our acquisition of RB Foods.
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 2020,
2019 and 2018. The change in trade accounts receivable was a source
of cash in 2020, 2019 and 2018. 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
different 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 receivable. 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 inventory
divided by average daily cost of goods sold) less days payable out-
standing (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
2020
39
2019
43
2018
55
The decreases in CCC in 2020 from 2019 and in 2019 from 2018 were
due, in both instances, to an increase in our days payable outstanding
48 McCormick & Company, Inc.
as a result of extending our payment terms to suppliers, as more fully
described below, 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 2020 as compared to 2019 and also in 2019 as
compared to 2018.
Prior to fiscal 2018, in response to evolving market practices, we
began a program to negotiate extended payment terms with our
suppliers. We also initiated a Supply Chain Finance program (SCF)
with several global financial institutions (SCF Banks). Under the SCF,
qualifying suppliers may elect to sell their receivables from us to an
SCF Bank. These participating suppliers negotiate their receivables
sales arrangements directly with the respective SCF Bank. While we
are not party to those agreements, the SCF Banks allow the partici-
pating suppliers to utilize our creditworthiness in establishing credit
spreads and associated costs. This generally provides the suppliers
with more favorable terms than they would be able to secure on their
own. We have no economic interest in a supplier’s decision to sell a
receivable. Once a qualifying supplier elects to participate in the SCF
and reaches an agreement with a SCF Bank, the supplier elects which
of our individual invoices they sell to the SCF bank. However, all of our
payments to participating suppliers are paid to the SCF Bank on the
invoice due date, regardless of whether the individual invoice is sold
by the supplier to the SCF Bank. The SCF Bank pays the supplier on the
invoice due date for any invoices that were not previously sold by the
supplier to the SCF Bank.
The terms of our payment obligation are not impacted by a supplier’s
participation in the SCF. Our payment terms with our suppliers for
similar materials within individual markets are consistent between
those suppliers that elect to participate in the SCF and those suppliers
that do not participate. Accordingly, our average days outstanding are
not significantly impacted by the portion of suppliers or related input
costs that are included in the SCF. For our participating suppliers, we
believe substantially all of their receivables with us are sold to the
SCF Banks. Accordingly, we would expect that at each balance sheet
date, a similar proportion of amounts originally due to suppliers would
instead be payable to SCF Banks. All outstanding amounts related to
suppliers participating in the SCF are recorded within the line entitled
“Trade accounts payable” in our consolidated balance sheets, and the
associated payments are included in operating activities within our
consolidated statements of cash flows. As of November 30, 2020 and
2019, the amount due to suppliers participating in the SCF and includ-
ed in “Trade accounts payable” were approximately $273.6 million and
$206.5 million, respectively.
Future changes in our suppliers’ financing policies or economic devel-
opments, such as changes in interest rates, general market liquidity or
our creditworthiness relative to participating suppliers could impact
those suppliers’ participation in the SCF and/or our ability to negotiate
extended payment terms with our suppliers. However, any such
impacts are difficult to predict.
Investing Cash Flow—Net cash used in investing activities was
$1,025.6 million in 2020, $171.0 million in 2019, and $158.5 million in
2018. Our primary investing cash flows include the usage of cash asso-
ciated with acquisition of businesses and capital expenditures. Cash
usage related to our acquisitions of businesses were $803.0 million in
2020 and $4.2 million in 2018. Capital expenditures, including expendi-
tures for capitalized software, were $225.3 million in 2020, $173.7
million in 2019, and $169.1 million in 2018. We expect 2021 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 associated with financing activities
was a source of cash of $220.9 million in 2020. Net cash used in
financing activities was $725.8 million in 2019 and $751.1 million in
2018. The variability between years is principally a result of changes
in our net borrowings, share repurchase activity and dividends, all as
described below.
The following table outlines our net borrowing activities:
Net increase in short-term borrowings
Proceeds from issuance of long-term
debt, net of debt issuance costs
Repayments of long-term debt
Net cash provided from (used in)
borrowing activities
2020
2019
2018
$286.5
$ 41.0
$ 305.5
525.9
(257.7)
—
(447.7)
25.9
(797.9)
$ 554.7
$(406.7)
$ (466.5)
In 2020, we borrowed $527.0 million under long-term borrowing
arrangements, including net proceeds of $495.0 million of 2.5% notes
due April 2030. We also repaid $257.7 million of long-term debt,
including $250.0 million associated with our term loans due in
August 2020.
In 2019, we repaid $447.7 million of long-term debt, including $436.3
million of our $1,500.0 million term loans issued in August 2017.
In 2018, we borrowed $25.9 million under long-term borrowing
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.
Through November 30, 2020, we have repaid in full the $1,500.0
million term loans issued in connection with our acquisition of RB
Foods in August 2017, with a total of $1,275.0 million of those term
loans repaid in advance of their scheduled maturities, which were in
August 2020 and August 2022.
The following table outlines the activity in our share repurchase
programs:
Number of shares of common stock
Dollar amount
2020
0.5
$47.3
2019
1.3
$95.1
2018
1.1
$62.3
As of November 30, 2020, $585 million remained of a $600 million
share repurchase program that 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. As a result of the increased
level of indebtedness related to the acquisition of RB Foods in August
2017, we curtailed our share repurchase activity since that time.
Although we have curtailed our share repurchase activity, we repur-
chased shares in 2020, 2019 and 2018 to mitigate the effect of shares
issued upon the exercise of stock options. As a result of the additional
indebtedness associated with our acquisitions of Cholula and FONA,
we expect to continue the curtailment of share repurchase activity
in fiscal 2021 while also continuing to mitigate the effect of shares
issued upon the exercise of stock options.
During 2020, 2019 and 2018, we received proceeds of $56.6 million,
$90.9 million and $78.2 million, respectively, from exercised stock
options. We repurchased $13.0 million, $12.7 million and $11.6 million
of common stock during 2020, 2019 and 2018, respectively, in conjunc-
tion with employee tax withholding requirements associated with our
stock compensation plans.
Our dividend history over the past three years is as follows:
Total dividends paid
Dividends paid per share
Percentage increase per share
2020
2019
2018
$330.1
1.24
8.8%
$302.2
1.14
9.6%
$273.4
1.04
10.6%
In November 2020, the Board of Directors approved an 9.7% increase
in the quarterly dividend from $0.31 to $0.34 per share.
The following table presents our leverage ratios for the years ended
November 30, 2020, 2019 and 2018:
Leverage ratio (1)
2020
3.6
2019
3.4
2018
4.0
(1) The leverage ratio covenant in our revolving credit facilities provides that Adjusted
EBITDA under that covenant also include the pro forma impact of acquisitions, as
applicable. As of November 30, 2020, our leverage ratio under the terms of those
revolving credit facilities, including the pro forma impact of acquisitions, was 3.5.
Our leverage ratio was 3.6 as of November 30, 2020, as compared to the
ratios of 3.4 and 4.0 as of November 30, 2019 and 2018, respectively.
The increase in our leverage ratio from 3.4 as of November 30, 2019 to
3.6 as of November 30, 2020 is principally due to an increase in total
debt associated with the funding of our acquisition of Cholula, which
was partially offset by an increase in adjusted EBITDA.
The decrease in the ratio from 4.0 as of November 30, 2018 to 3.4 as
of November 30, 2019 is principally due to an increase in our adjusted
EBITDA, which was driven by higher operating income in 2019 as
compared to 2018. In addition, the ratio was favorably impacted by our
lower level of net debt at November 30, 2019 as compared to the prior
year-end.
In early fiscal 2021 following our acquisition of FONA, the levels spec-
ified in our revolving credit facilities under which we are required to
maintain our leverage ratios were amended by the participating banks
to increase the permitted maximum leverage ratios. As amended, the
maximum permitted leverage ratios under the terms of those revolving
credit facilities, including the pro form impact of acquisitions, is 4.5
as of the measurement date at the end of each fiscal quarter in the
year ending November 30, 2021. That maximum ratio drops to 4.25
on February 28, 2022, and drops to 3.75 for each fiscal quarter for the
remaining term of the facility. At the same time in early fiscal 2021,
a similar amendment was made to our synthetic lease agreement
for a to-be-constructed distribution center, which contains covenants
consistent with our revolving credit facilities.
2020 Annual Report 49
Most of our cash is in our subsidiaries outside of the U.S. We manage
our worldwide cash requirements by considering available funds
among the many subsidiaries through which we conduct our business
and the cost effectiveness with which those funds can be accessed.
Prior to the enactment of the U.S. Tax Act on December 22, 2017, the
permanent repatriation of cash balances from certain of our non-U.S.
subsidiaries could have had adverse tax consequences; however, those
balances are generally available without legal restrictions to fund
ordinary business operations, capital projects and future acquisitions.
As of November 30, 2020, we have $1.3 billion of earnings from our
non-U.S. subsidiaries and joint ventures that are considered indefinite-
ly reinvested. While federal income tax expense has been recognized
as a result of the U.S. Tax Act, we have not provided any additional
deferred taxes with respect to items such as foreign withholding
taxes, state income taxes, or foreign exchange gains or losses. It is
not practicable for us to determine the amount of unrecognized tax
expense on these indefinitely reinvested foreign earnings.
At November 30, 2020, we temporarily used $100.0 million of cash
from our non-U.S. subsidiaries to pay down short-term debt in the
U.S. During the year, our short-term borrowings vary, but are lower
at the end of a year or quarter. The average short-term borrowings
outstanding for the years ended November 30, 2020 and 2019 were
$518.1 million and $848.6 million, respectively. Those average short-
term borrowings outstanding for the year ended November 30, 2020
included average commercial paper outstanding of $452.0 million. The
total average debt outstanding for the years ended November 30, 2020
and 2019 was $4,327.4 million and $4,753.8 million, respectively.
See notes 6 and 8 of notes to our consolidated 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, divi-
dends and capital expenditures. We also rely on our revolving credit
facilities, or borrowings backed by these facilities, to fund seasonal
working capital needs and other general corporate requirements.
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 contains a
fully drawn maximum pricing of the credit facility equal to LIBOR plus
1.75%. In December 2020, we entered into a 364-day $1.0 billion
revolving credit facility, which will expire in December 2021. The
current pricing for that 364-day credit facility, on a fully drawn basis, is
LIBOR plus 1.25%. The pricing of the 364-day 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%. In early fiscal 2021, following
our acquisition of FONA, the levels specified in our revolving credit
facilities under which we are required to maintain our leverage ratios
were amended by the participating banks to increase the permitted
maximum leverage ratios. 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.
We generally use these revolving credit facilities 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 facilities. These facilities are made available by a syndicate of
banks, with various commitments per bank. If any of the banks in this
syndicate are unable to perform on their commitments, our liquidity
could be impacted, which could reduce our ability to grow through
funding of seasonal working capital. We engage in regular communi-
cation with all banks participating 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 periodical-
ly review our banking and financing relationships, considering the
stability of the institutions and other aspects of the relationships.
Based on these communications and our monitoring activities, we
believe our banks will perform on their commitments. In addition to our
committed revolving credit facilities, we have uncommitted facilities of
$316.6 million as of November 30, 2020 that can be withdrawn based
upon the lenders’ discretion. See note 6 of notes to our consolidated
financial statements for more details on our financing arrangements.
We will continue to have cash requirements to support seasonal work-
ing capital needs and capital expenditures, to pay interest, to service
debt, and to fund acquisitions. To meet those cash requirements, we
intend to use our existing cash, cash equivalents and internally gener-
ated funds, to borrow under our existing credit facilities or under other
short-term borrowing facilities, and depending on market conditions
and upon the significance of the cost of a particular acquisition to
our then-available sources of funds, to obtain additional short- and
long-term financing. We believe that cash provided from these sources
will be adequate to meet our cash requirements over the next twelve
months. We recently funded the Cholula and FONA acquisitions with
cash and short-term borrowings, principally under commercial paper.
We will continue to monitor our liquidity and may seek to obtain addi-
tional long-term financing to further support our business.
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 $11.9 million in 2020, $11.4 million in
2019, and $13.5 million in 2018. It is expected that the 2021 total pen-
sion plan contributions will be approximately $10.0 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 associated with our nonqualified defined
benefit pension plan are primarily invested in corporate-owned life
insurance, the value of which approximates an investment mix of 60%
in equities and 40% in fixed income investments. See note 11 of
notes to our consolidated financial statements, which provides details
on our pension funding.
CUSTOMERS AND COUNTERPARTIES—See the subsequent
section of this discussion under the heading “Market Risk Sensitivity—
Credit Risk”.
50 McCormick & Company, Inc.
ACQUISITIONS
MARKET RISK SENSITIVITY
Acquisitions are part of our strategy to increase sales and profits.
In early fiscal 2021, we purchased FONA. The purchase price was
approximately $710 million, net of cash acquired, subject to certain
customary purchase price adjustments. FONA is a leading manufac-
turer of clean and natural flavors providing solutions for a diverse cus-
tomer base across various applications for the food, beverage and
nutritional markets. Our acquisition of FONA on December 30, 2020
expands the breadth of our flavor solutions segment into attractive
categories, as well as extends our technology platform and strength-
ens our capabilities. The acquisition was funded with cash and short-
term borrowings.
On November 30, 2020, we purchased Cholula for approximately $803
million, net of cash acquired, subject to certain customary purchase
price adjustments. The acquisition was funded with cash and short-
term borrowings. Cholula, a premium Mexican hot sauce brand, is a
strong addition to McCormick’s global branded flavor portfolio, which
broadens the Company’s offering in the high growth hot sauce cate-
gory to consumers and foodservice operators and accelerates our
condiment growth opportunities with a complementary authentic
Mexican flavor hot sauce. The results of Cholula’s operations have
been included in our financial statements as a component of our con-
sumer and flavor solutions segments from the date of acquisition.
We did not have any acquisitions 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.
See notes 2 and 19 of notes to our consolidated 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 rein-
vestment 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 cumula-
tive total return of the Standard & Poor’s Packaged Foods & Meats
Index, assuming reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among McCormick & Co., Inc., the S&P 500 Index
and the S&P Packaged Foods & Meats Index
$250
$200
$150
$100
$50
$0
11/15
11/16
11/17
11/18
11/19
11/20
McCormick & Co., Inc.
S&P 500
S&P Packaged Foods & Meats
*$100 invested on 11/30/15 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.
Copyright© 2020 Standard & Poor’s, a division of S&P Global. All rights reserved.
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 instru-
ments is monitored through regular communication with senior man-
agement and the utilization of written guidelines. The information
presented below should be read in conjunction with notes 6 and 8 of
notes to our consolidated financial statements.
Foreign Exchange Risk—We are exposed to fluctuations in foreign
currency in the following main areas: cash flows related to raw mate-
rial purchases; the translation of foreign currency earnings to U.S. dol-
lars; 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, Swiss franc, Chinese
renminbi, Indian rupee and Thai baht, as well as the Euro versus the
British pound sterling and Australian dollar, and finally the Canadian
dollar versus British pound sterling. We routinely enter into foreign
currency exchange contracts to manage certain of these foreign cur-
rency risks.
During 2020, the foreign currency translation component in other
comprehensive income was principally related to the impact of exchange
rate fluctuations on our net investments in our subsidiaries with a func-
tional currency of the British pound sterling, Euro, Polish zloty, Chinese
yuan, Australian dollar, Canadian dollar and Mexican peso.
We also utilize 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 instruments are included in foreign currency translation
adjustments in accumulated other comprehensive income (loss).
The following table summarizes the foreign currency exchange
contracts held at November 30, 2020. All contracts are valued in U.S.
dollars using year-end 2020 exchange rates and have been designated
as hedges of foreign currency transactional exposures, firm commit-
ments or anticipated transactions.
FOREIGN CURRENCY EXCHANGE CONTRACTS AT
NOVEMBER 30, 2020
Currency sold
Currency received
Average
contractual
exchange
rate
Notional
value
British pound sterling
Euro
Canadian dollar
U.S. dollar
Polish zloty
Canadian dollar
British pound sterling
Australian dollar
Swiss franc
U.S. dollar
U.S. dollar
U.S. dollar
Australian dollar
U.S. dollar
British pound sterling
Euro
Euro
U.S. dollar
$31.6
29.2
96.4
14.0
6.9
30.0
36.4
45.1
73.1
1.32
1.19
0.76
0.68
3.79
1.74
0.90
1.67
1.04
Fair
value
$(0.4)
(0.3)
(1.4)
1.2
(0.1)
(0.1)
(0.1)
(1.1)
(4.6)
2020 Annual Report 51
We had a number of smaller contracts at November 30, 2020 with
an aggregate notional value of $21.1 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 $0.1 million at
November 30, 2020.
GBP LIBOR plus 0.740% and pay €221.8 million at three-month Euro
EURIBOR plus 0.808%. We entered into these cross-currency interest
rate swap contracts, which expire in August 2027, in early fiscal 2019.
For more information, refer to note 8 of notes to our consolidated
financial statements.
At November 30, 2019, 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
$489.2 million. The aggregate fair value of these contracts was a loss
of $0.3 million at November 30, 2019.
We also utilized cross currency interest rate swap contracts that are
considered net investment hedges. As of November 30, 2020, we had
cross currency interest rate swap contracts of (i) $250 million notional
value to receive $250 million at three-month U.S. LIBOR plus 0.685%
and pay £194.1 million at three-month GBP LIBOR plus 0.740% and
(ii) £194.1 million notional value to receive £194.1 million at three-month
YEARS OF MATURITY AT NOVEMBER 30, 2020
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 amortization of
any discounts or fees, by fiscal year of maturity at November 30,
2020. For foreign currency-denominated debt, the information is pre-
sented 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.
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2021
2022
2023
2024
Thereafter
Total
Fair value
$ 257.2
3.89 %
$893.4
0.34 %
$757.6
2.71 %
$ 7.4
1.38 %
$ 257.8
3.50%
$ 7.4
1.38 %
$763.2
3.50 %
$ 28.7
1.73%
$1,902.1
2.68 %
$ 12.7
1.78%
$ 3,937.9
—
$ 949.6
—
$4,294.1
—
$ 949.7
—
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 2020, our most significant raw materials were
dairy products, pepper, vanilla, 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
merchandisers, dollar stores, warehouse clubs, discount chains and
e-commerce. This has caused some customers to be less profitable
and increased our exposure to credit risk. Some of our customers and
counterparties are highly leveraged. We continue to closely monitor
the credit worthiness of our customers and counterparties. We feel
that the allowance for doubtful accounts properly recognizes trade
receivables at realizable value. We consider nonperformance credit
risk for other financial instruments to be insignificant.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
The following table reflects a summary of our contractual obligations
and commercial commitments as of November 30, 2020:
52 McCormick & Company, Inc.
CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
Short-term borrowings
Long-term debt,
including finance
leases
Operating leases
Interest payments (a)
Raw material purchase
obligations (b)
Pension and post-
retirement benefit
plans (c)
Other purchase
obligations (d)
Total contractual cash
obligations (e)
Less than
1 year
1–3
years
3–5
years
More than
5 years
Total
$ 886.7 $ 886.7 $ — $
— $ —
4,000.8
164.1
862.5
263.9
40.5
124.4
1,030.2
56.7
208.5
1,063.3
35.1
145.1
1,643.4
31.8
384.5
505.5
505.5
—
—
—
184.3
14.9
23.6
23.5
122.3
116.3
46.7
32.0
7.4
30.2
$ 6,720.2 $1,882.6 $1,351.0 $1,274.4
$2,212.2
(a) Interest payments include interest payments on short-term borrowings and long-
term debt. See notes 6 and 7 of notes to our consolidated financial statements
for additional information.
(b) Raw material purchase obligations outstanding as of year-end may not be
indicative of outstanding obligations throughout the year due to our response to
varying raw material cycles.
(c) Represents the minimum pension contributions for our U.S. and international
pension plans, which are generally determined for the next fiscal year, and our
expected benefit payments under our post-retirement medical plan.
(d) Other purchase obligations consist of information technology and other service
agreements, advertising media commitments and utility contracts.
(e) Contractual obligations do not include any potential future tax settlements. See
note 13 of notes to our consolidated financial statements for additional
information.
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.
COMMERCIAL COMMITMENTS EXPIRATION BY YEAR
Guarantees (a)
Standby letters of
credit
Total commercial
commitments
Less than
1 year
1–3
years
3–5
years
More than
5 years
Total
$ 0.7 $ 0.7 $ — $ — $ —
32.2
32.2
—
—
—
$ 32.9 $ 32.9 $ — $ — $ —
(a) Guarantees do not include any amounts associated with a residual value guarantee
that we provide under a lease arrangement, which is more fully described in note 7
of notes to our consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of November 30, 2020
and 2019.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are issued periodically that affect
our current and future operations. See note 1 of notes to our consoli-
dated financial statements for further details of these impacts.
In preparing the financial statements, we are required to make esti-
mates and assumptions that have an impact on the assets, liabilities,
revenue and expenses reported. These estimates can also affect sup-
plemental information disclosed by us, including information about
contingencies, risk and financial condition. We believe, given current
facts and circumstances, our estimates and assumptions are reason-
able, adhere to U.S. GAAP and are consistently applied. Inherent in
the nature of an estimate or assumption is the fact that actual results
may differ from estimates, and estimates may vary as new facts and
circumstances arise. In preparing the financial statements, we make
routine estimates and judgments in determining the net realizable
value of accounts receivable, inventory, fixed assets and prepaid
allowances. Our most critical accounting estimates and assumptions
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 intangi-
ble assets and conduct tests of impairment on an annual basis as
described below. We also test for impairment if events or circum-
stances 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.
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 pres-
ent 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
exceeds 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
2020 Annual Report 53
goodwill exceeds the implied fair value. As of November 30, 2020, we
had $4,986.3 million of goodwill recorded in our balance sheet
($3,711.2 million in the consumer segment and $1,275.1 million in the
flavor solutions segment). Included in those amounts are $410.5 mil-
lion ($273.7 million in the consumer segment and $136.8 million in the
flavor solutions segment) of goodwill related to our acquisition of
Cholula that, as of November 30, 2020, was determined on a prelimi-
nary basis. The final valuation of the acquired net assets of Cholula,
and the related goodwill balance by segment, will be completed in
2021.Our fiscal year 2020 impairment testing indicated that the esti-
mated fair values of our reporting units were significantly in excess of
their carrying values. Accordingly, we believe that only significant
changes in the cash flow assumptions would result in an impairment
of goodwill.
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 be 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 trademarks,
related royalty rates and appropriate discount rates, which are based,
in part, upon current interest rates adjusted for our view of reasonable
country- and brand-specific risks based upon the past and anticipated
future performance of the related brand names and trademarks.
As of November 30, 2020, we had $3,030.0 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
$3,030.0 million of brand names assets and trademarks as of Novem-
ber 30, 2020: (i) $2,320.0 million relates to the French’s, Frank’s RedHot
and Cattlemen’s brand names and trademarks, recognized as part of
our acquisition of RB Foods in August 2017, that we group for purposes
of our impairment analysis; (ii) $380.0 million relates to the Cholula
brand names and trademarks, recognized as part of the preliminary
purchase price allocation associated with the acquisition of Cholula
in November 2020, and (iii) the remaining $330.0 million represents
a number of other brand name assets and trademarks with individ-
ual 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, 2020, except for: (i) the Cholula
brand, whose preliminary fair value of $380.0 million was determined
as of its November 30, 2020 acquisition date; and (ii) one additional
brand with a carrying value of $7.4 million whose fair value modestly
exceeds its carrying value as of year-end 2020.
The brand names and trademarks related to recent acquisitions,
including our recent acquisitions of Cholula and, in early fiscal 2021,
FONA, may be more susceptible to future impairment as their carrying
values represent recently determined fair values. A change in assump-
tions 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.
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 2021 pension and postretirement benefit expense by approxi-
mately $1 million. A 1% increase or decrease in the expected return
on plan assets would impact 2021 pension expense by approximately
$10 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 11 of notes to our consolidat-
ed 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 of Financial Condition and
Results of Operations” and in note 8 of our notes to consolidated
financial statements.
5 4 McCormick & Company, Inc.
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 audi-
tors report to the Audit Committee and accordingly have full and free
access to the Audit Committee at any time.
We conducted an assessment of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework). This
assessment included review of the documentation of controls, evalu-
ation 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, 2020.
Our internal control over financial reporting as of November 30, 2020
has been audited by Ernst & Young LLP.
Lawrence E. Kurzius
Chairman, President &
Chief Executive Officer
Michael R. Smith
Executive Vice President &
Chief Financial Officer
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
2020 Annual Report 55
2020 Annual Report 55
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, 2020, 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, 2020, 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, 2020
and 2019, 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, 2020, and the related notes and the financial statement
schedule listed in the Index at item 15(2) and our report dated January
28, 2021 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.
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.
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.
Baltimore, Maryland
January 28, 2021
Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
56 McCormick & Company, Inc.
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, 2020 and 2019, the related consolidated income statements, state-
ments of comprehensive income, cash flow statements and statements
of shareholders’ equity for each of the three years in the period ended
November 30, 2020, and the related notes and financial statement
schedule listed in the Index at item 15(2) (collectively referred to as
the “consolidated financial statements”). In our opinion, the consoli-
dated financial statements present fairly, in all material respects, the
financial position of the Company at November 30, 2020 and 2019, and
the results of its operations and its cash flows for each of the three
years in the period ended November 30, 2020, 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
Company’s internal control over financial reporting as of November 30,
2020, 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, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. 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 procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communi-
cating the critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to which
they relate.
2020 Annual Report 57
Valuation of Indefinite-lived Intangible Assets
Description of
the Matter
At November 30, 2020, the Company’s indefinite-lived intangible assets consist of brand names and trademarks with an aggregate car-
rying value of approximately $3.0 billion (of which $0.4 billion related to the Cholula brand name, which was acquired on November 30,
2020). As explained in Note 1 to the consolidated financial statements, these assets are assessed for impairment at least annually pri-
marily 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 was 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 Company’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
involved 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.
Valuation of Acquired Intangible Assets
Description of
the Matter
During 2020, the Company completed its acquisition of the parent company of Cholula Hot Sauce (“Cholula”) for net consideration of
$803 million, and recognized identifiable intangible assets of $401 million, as disclosed in Note 2 to the consolidated financial state-
ments. The transaction was accounted for as a business combination.
Auditing the Company’s purchase accounting for its acquisition of Cholula was complex due to the significant estimation required by
management to determine the fair value of the acquired intangible assets, which principally consisted of brand names and trademarks.
The estimation complexity was primarily due to the valuation models used to measure the fair value of the intangible assets and the
sensitivity of the respective fair values to the significant underlying assumptions. The significant assumptions used to estimate the fair
value of the intangible assets included discount rates, royalty rates and certain assumptions that form the basis of the forecasted re-
sults (e.g., revenue growth rates and operating profit margin). These significant assumptions are forward-looking and could be affected
by future economic and market conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its account-
ing for acquisitions. For example, we tested controls over the recognition and measurement of intangible assets, including the valuation
models and underlying assumptions used to develop such estimates. We also tested management’s controls over the completeness and
accuracy of the data used in the models.
To test the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating the
Company’s valuation models and testing the significant assumptions used in the models, as well as testing the completeness and
accuracy of the underlying data. We compared the significant assumptions to current industry, market and economic trends, to the
assumptions used to value similar assets in other acquisitions, and to the historical results of the acquired business. We also involved
an internal valuation specialist to assist in our evaluation of the significant assumptions and those procedures included the completion
of independent calculations of the fair value of the acquired intangible assets.
We have served as the Company’s auditor since 1982.
Baltimore, Maryland
January 28, 2021
58 McCormick & Company, Inc.
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
Special charges
Operating income
Interest expense
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 for 2018)
Currency translation adjustments
Change in derivative financial instruments
Deferred taxes
Total other comprehensive income (loss)
Comprehensive income
See Notes to Consolidated Financial Statements.
2020
$5,601.3
3,300.9
2,300.4
1,281.6
12.4
6.9
999.5
135.6
17.6
881.5
174.9
706.6
40.8
$ 747.4
$ 2.80
$ 2.78
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
$ 2.65
$ 2.62
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
$ 3.55
$ 3.50
2020
$ 747.4
4.3
2019
$ 702.7
1.9
2018
$ 933.4
3.3
(80.4)
89.7
(0.9)
18.1
26.5
(149.8)
(25.5)
1.1
33.2
(141.0)
72.6
(119.8)
2.3
(17.2)
(62.1)
$ 778.2
$ 563.6
$ 874.6
2020 Annual Report 59
CONSOLIDATED BALANCE SHEETS
at November 30 (millions)
2020
2019
Assets
Cash and cash equivalents
Trade accounts receivable, less allowances of $5.2 for 2020 and $5.6 for 2019
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:
2020—18.0 shares, 2019—18.6 shares
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:
2020—248.9 shares, 2019—247.2 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.
$ 423.6
528.5
1,032.6
98.9
2,083.6
1,028.4
4,986.3
3,239.4
752.0
$ 155.4
502.9
801.2
90.7
1,550.2
952.6
4,505.2
2,847.0
507.1
$12,089.7
$10,362.1
$ 886.7
263.9
1,032.3
863.6
3,046.5
3,753.8
727.2
622.2
8,149.7
$ 600.7
97.7
846.9
609.1
2,154.4
3,625.8
697.6
427.6
6,905.4
484.0
447.6
1,497.3
2,415.6
(470.8)
3,926.1
13.9
3,940.0
1,441.0
2,055.8
(500.2)
3,444.2
12.5
3,456.7
$12,089.7
$10,362.1
60 McCormick & Company, Inc.
CONSOLIDATED CASH FLOW STATEMENTS
for the year ended November 30 (millions)
2020
2019
2018
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Non-cash nonrecurring income tax benefit (related to enactment of the U.S. Tax Act)
Non-cash special charges
Loss (gain) on sale of assets
Deferred income tax (benefit) expense
Income from unconsolidated operations
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
Common stock acquired by purchase
Dividends paid
Net cash provided by (used in) 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.
$ 747.4
$ 702.7
$ 933.4
165.0
46.0
—
—
3.0
(11.2)
(40.8)
4.8
(200.2)
164.2
133.8
29.3
1,041.3
(803.0)
(225.3)
2.7
(1,025.6)
286.5
527.0
(1.1)
(257.7)
56.6
(13.0)
—
—
(47.3)
(330.1)
220.9
31.6
268.2
155.4
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
$ 423.6
$ 155.4
$ 96.6
2020 Annual Report 61
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interests
Total
Shareholders’
Equity
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(millions)
Balance, November 30, 2017
Net income
Net income attributable to non-controlling interest
Other comprehensive income (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
Common
Stock
Shares
Common
Stock
Non-Voting
Shares
20.0
242.0
(0.6)
3.4
(3.7)
(0.8)
0.2
3.7
19.1
245.1
(0.4)
3.0
(3.1)
(1.2)
0.2
3.1
Common
Stock
Amount
$1,672.9
—
—
—
—
—
—
25.6
(16.8)
88.9
—
$1,770.6
—
—
—
—
37.2
(15.4)
96.2
—
Retained
Earnings
$1,166.5
933.4
—
—
(280.5)
20.9
(12.4)
—
(67.7)
—
—
$1,760.2
702.7
—
—
(309.3)
—
(97.8)
—
—
$ (279.5)
—
—
(59.5)
—
(20.9)
—
—
—
—
—
$ (359.9)
—
—
(140.3)
—
—
—
—
—
Balance, November 30, 2019
18.6
247.2
$1,888.6
$2,055.8
$ (500.2)
Net income
Net income attributable to non-controlling
interest
Other comprehensive income (loss), net of tax
Dividends
Stock-based compensation
Shares purchased and retired
Shares issued
Equal exchange
(0.3)
1.6
(1.9)
(0.2)
—
1.9
—
747.4
—
—
—
46.0
(13.6)
60.3
—
—
—
(338.5)
—
(49.1)
—
—
—
—
29.4
—
—
—
—
—
$ 11.0
—
3.3
(2.6)
—
—
(0.4)
—
—
—
—
$ 11.3
—
1.9
(0.7)
—
—
—
—
—
$ 12.5
—
4.3
(2.9)
—
—
—
—
—
$ 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
—
$ 3,456.7
747.4
4.3
26.5
(338.5)
46.0
(62.7)
60.3
—
Balance, November 30, 2020
18.0
248.9
$1,981.3
$2,415.6
$ (470.8)
$ 13.9
$ 3,940.0
See Notes to Consolidated Financial Statements.
62 McCormick & Company, Inc.
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 separate
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 controlled
subsidiaries and affiliates—that is, transactions denominated in other
than their functional currency—other than intercompany transactions
designated as long-term investments, 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 ad-
justments included in accumulated other comprehensive income (loss) of
those affiliates. Income and expense items of those affiliates are trans-
lated 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 unconsolidated 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 depre-
ciated over its estimated useful life using the straight-line method for
financial reporting and both accelerated and straight-line methods for
tax reporting. 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.
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 $116.0 million
and $76.4 million at November 30, 2020 and 2019, respectively. Such
amounts are recorded within “Other long-term assets” in the consolidat-
ed 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 $86.7
million and $44.9 million at November 30, 2020 and 2019, respectively,
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 reporting 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, 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 acquired 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.
2020 Annual Report 63
Long-lived Asset Impairment
Fixed assets and amortizable intangible assets are reviewed for impair-
ment 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 businesses. We recog-
nize 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 discounts, 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 proba-
ble 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)
2020
Net sales
2019
Net sales
2018
Net sales
Americas
EMEA
APAC
Total
$3,974.9
$1,046.7 $579.7
$5,601.3
$3,711.3
$ 986.1 $650.0
$5,347.4
$3,627.5
$1,021.1 $654.2
$5,302.8
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 ser-
vices) that is distinct. To identify the performance obligations, we con-
sider 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
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
64 McCormick & Company, Inc.
incentives or product returns are realized. The adjustments recognized
during the year ended November 30, 2020, 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 $183.3 million and $137.2 million at
November 30, 2020 and 2019, 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 our con-
solidated income statement in the line entitled “Selling, general and
administrative expense”, were $230.3 million, $214.6 million and $218.7
million for 2020, 2019 and 2018, 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. Development
and production costs are expensed in the period in which the advertise-
ment is first run. All other costs of advertising are expensed as incurred.
Advertising expense was $174.8 million, $150.8 million and $147.2
million for 2020, 2019 and 2018, respectively.
Research and Development
Research and development costs are expensed as incurred and are
included in our consolidated income statement in the line entitled
“Selling, general and administrative expense”. Research and develop-
ment expense was $68.6 million, $67.3 million and $69.4 million for
2020, 2019 and 2018, respectively.
Income Taxes
Income taxes are recognized in accordance with the liability method
of accounting. Deferred taxes are recognized for the estimated taxes
ultimately payable or recoverable based on enacted tax law. Changes
in enacted tax rates are reflected in the tax provision as they occur.
As more fully described in note 13, the U.S. Tax Act created a new
requirement that certain income earned by foreign subsidiaries, referred
to 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 beginning on December 1,
2018. Accounting principles generally accepted in the U.S. provide for
an accounting policy election of either recognizing deferred taxes for
temporary differences 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.
In accordance with ASC 740, Income Taxes, we recognize a tax
position in our financial statements when it is more likely than not
that the position will be sustained upon examination based on the
technical merits of the position. That position is then measured at the
largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement.
Stock-Based Compensation
Stock-based compensation expense is recognized in accordance with ASC
718, Compensation—Stock Compensation. We recognize stock-based
compensation expense associated with options and restricted stock
units (RSUs), which contain provisions that such awards fully vest upon
an employee’s retirement, ratably over the shorter of the vesting period
or the employees’ retirement eligibility date. Accordingly, we recognize
stock-based compensation associated with options and RSUs subject to
immediate retirement eligible vesting provisions on the date of grant.
Compensation expense associated with our long-term performance
plan (LTPP) 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. We estimate forfeitures
at the time of grant based on historical experience and revises this
estimate in subsequent periods if actual forfeitures differ.
We recognize stock-based compensation expense associated with
price-vested stock options ratably over the vesting period as such
options do not contain provisions that fully vest these awards upon an
employee’s retirement.
Stock Split
On September 28, 2020, our Board of Directors approved a 2-for-1
stock split in the form of a stock dividend on all shares of the Compa-
ny’s two classes of common stock, Common Stock and Common Stock
Non-Voting. On November 30, 2020, one like share was issued for each
share outstanding to shareholders of record as of November 20, 2020.
Trading of the Company’s common stock began on a split-adjusted
basis on December 1, 2020. All common stock and per-share data have
been retroactively adjusted for the impact of the stock split.
Derivative Instruments
We record all derivatives on our balance sheet at fair value. The fair
value of derivative instruments is recorded in our consolidated balance
sheet on the lines entitled “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 our consolidated income
statement in the lines entitled “Other income (expense), net” or “Inter-
est expense”. In our 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 consis-
tent 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 our consolidated
balance sheet on the line entitled “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)” in our consolidated
balance sheet to our consolidated income statement on the same line
items as the underlying transactions.
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, a component of “Accumulated other compre-
hensive income (loss)” in our consolidated balance sheet.
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.
We recognize the overfunded or underfunded status of our defined
benefit pension plans as an asset or a liability in our 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.
Accounting Pronouncements Adopted in 2020
We adopted the new accounting standard for leases, Accounting Stan-
dards Codification Topic 842 Leases (ASC 842), as of December 1, 2019
and we elected to do so using a modified retrospective transition meth-
od. That modified retrospective transition method allowed us to initially
apply the standard at the adoption date and recognize a cumulative-
effect adjustment to retained earnings in the opening balance sheet
in the period of adoption without restating prior periods. ASC 842
revised prior practice related to accounting for leases under Accounting
Standards Codification Topic 840 Leases (ASC 840) for both lessees and
2020 Annual Report 65
lessors and requires lessees to recognize most leases on their balance
sheets as lease liabilities with corresponding right-of-use (ROU) assets.
Under ASC 842, the lease liability is equal to the present value of lease
payments, and the ROU asset is based on the lease liability, subject
to adjustments, such as for deferred rent and initial direct costs. For
income statement purposes, ASC 842 retains a dual model similar to
ASC 840, requiring leases to be classified as either operating or finance.
For lessees, operating leases result in straight-line expense (similar to
prior accounting by lessees for operating leases under ASC 840) while
finance leases result in a front-loaded expense pattern (similar to prior
accounting by lessees for capital leases under ASC 840).
We elected the package of practical expedients permitted under the
transition guidance, which, among other things, allows us to carry
forward the historical lease classification. In addition, we made
accounting policy elections to combine the lease and non-lease com-
ponents for all asset categories other than real estate. We also made
elections to exclude from balance sheet reporting those leases with
initial terms of 12 months or less (short-term leases).
Adoption of the new standard resulted in the recording of oper-
ating lease ROU assets and lease liabilities of $136.5 million and
$140.0 million, respectively, with the difference due to prepaid and
deferred rents that were reclassified to the ROU asset value. No
cumulative-effect adjustment to opening retained earnings was re-
quired as of December 1, 2019. The standard did not materially affect
our consolidated net income or cash flows for our fiscal year ended
November 30, 2020. See note 7 for further details.
Recently Issued Accounting Pronouncements—Pending
Adoption
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 good-
will impairment charge. Instead, a company will record an impairment
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. We 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 Instruments—
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 it will primarily impact our credit losses
recognized for trade accounts receivable. This guidance will not have
a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes, which
simplifies the accounting for income taxes. The new guidance removes
certain exceptions to the general principles for income taxes and
also improves consistent application of accounting by clarifying or
amending existing guidance. The new standard is effective for the
first quarter of our fiscal year ending November 30, 2022, and interim
periods within those years. We are currently evaluating the impact that
the new guidance will have on our consolidated financial statements.
66 McCormick & Company, Inc.
In March 2020, the FASB issued ASU No. 2020-04 Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting that provides optional expedients for a
limited period of time for accounting for contracts, hedging relation-
ship, and other transactions affected by the London Interbank Offered
Rate (LIBOR) or other reference rate expected to be discontinued.
These optional expedients can be applied from March 2020 through
December 31, 2022. We are currently evaluating the impact that the
new guidance will have on our consolidated financial statements.
2. ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
Acquisition of Cholula Hot Sauce
On November 30, 2020, we completed the acquisition of the parent
company of Cholula Hot Sauce® (Cholula) from L Catterton. The
purchase price was approximately $803.0 million, net of cash acquired,
subject to certain customary purchase price adjustments. The acqui-
sition was funded with cash and short-term borrowings. Cholula, a
premium Mexican hot sauce brand, is a strong addition to McCormick’s
global branded flavor portfolio, which we believe broadens our offering
in the high growth hot sauce category to consumers and foodservice
operators and accelerate our condiment growth opportunities with a
complementary authentic Mexican flavor hot sauce. At the time of the
acquisition, annual sales of Cholula were approximately $96 million.
The results of Cholula’s operations have been included in our financial
statements as a component of our consumer and flavor solutions
segments from the date of acquisition.
The purchase price of Cholula was preliminarily allocated to the underly-
ing assets acquired and liabilities assumed based upon their estimated
fair values at the date of acquisition. We estimated the fair values based
on in-process independent valuations, discounted cash flow analyses,
quoted market prices, and estimates made by management, a number of
which are subject to finalization. The allocation of the purchase price will
be finalized within the allowable measurement period. The preliminary
allocation, net of cash acquired, of the fair value of the Cholula acquisi-
tion is summarized in the table below (in millions):
Trade accounts receivable
Inventories
Goodwill
Intangible assets
Other assets
Trade accounts payable
Other accrued liabilities
Deferred taxes
Other long-term liabilities
Total
$ 15.2
16.5
410.5
401.0
12.5
(6.8)
(7.4)
(35.6)
(2.9)
$ 803.0
The preliminary fair value of intangible assets was determined using
income methodologies. We valued the acquired brand names and
trademarks using the relief from royalty method, an income approach. For
customer relationships, we used the distributor method, a variation of the
excess earnings method that uses distributor-based inputs for margins
and contributory asset charges. Some of the more significant assumptions
inherent in developing the preliminary valuations included the estimated
annual net cash flows for each indefinite-lived or definite-lived intan-
gible asset (including net sales, operating profit margin, and working
capital/contributory asset charges), royalty rates, the discount rate that
appropriately reflects the risk inherent in each future cash flow stream,
the assessment of each asset’s life cycle, and competitive trends, as well
as other factors. We determined the assumptions used in the financial
forecasts using historical data, supplemented by current and anticipated
market conditions, estimated product category growth rates, management
plans, and market comparables.
We used carrying values to value trade receivables and payables, as
well as certain other current and non-current assets and liabilities, as we
determined that they represented the fair value of those items. We val-
ued finished goods and work-in-process inventory using a net realizable
value approach, which resulted in a step-up of $4.9 million that will be
recognized in cost of goods sold in 2021 as the related inventory is sold.
Raw materials and packaging inventory was valued using the replace-
ment cost approach.
Deferred income tax assets and liabilities represent the expected future
tax consequences of temporary differences between the fair values of
the assets acquired and liabilities assumed and their tax bases.
The preliminary valuation of the acquired net assets of Cholula includes
$380.0 million allocated to indefinite-lived brand assets and $21.0 million
allocated to definite-lived intangible assets with a weighted-average
life of 15 years. As a result of the acquisition, we recognized a total
of $410.5 million of goodwill. That goodwill primarily represents the
intangible assets that do not qualify for separate recognition, such as
the value of leveraging our brand building expertise, our insights in
demand from consumer and flavor solutions customers for value-added
flavor solutions, and our supply chain capabilities, as well as expected
synergies from the combined operations and assembled workforce.
Our income tax basis in the acquired intangible assets and goodwill
approximates $285 million. The final allocation of the fair value of the
Cholula acquisition, including the allocation of goodwill to our reporting
units, which are the consumer and flavor solutions segments, was not
complete as of November 30, 2020, but will be finalized within the
allowable measurement period.
We expect transaction and integration expenses related to our acquisition
of Cholula to total approximately $35 million, of which $11.2 million of
transaction expenses were incurred in 2020. We anticipate incurring the
balance of those transaction and integration expenses in fiscal 2021.
We incurred an additional $1.2 million of transaction and integration
expenses in 2020 related to our acquisition of FONA International, LLC
and certain of its affiliates. See footnote 19 for additional details.
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 statement for 2018.
3. SPECIAL CHARGES
In our consolidated income statement, we include a separate line
item captioned “Special charges” in arriving at our consolidated
operating income. Special charges consist of expenses, includ-
ing related impairment charges, associated with certain actions
undertaken to reduce fixed costs, simplify or improve processes, and
improve our competitiveness and are of such significance in terms of
both up-front costs and organizational/structural impact to require
advance approval by our Management Committee, comprised of our
senior management, including our Chairman, President and Chief
Executive Officer. Upon presentation of any such proposed action
(generally including details with respect to estimated costs, which
typically consist principally of employee severance and related
benefits, together with ancillary costs associated with the action that
may include a non-cash component, such as an asset impairment,
or a component which relates to inventory adjustments that are
included in cost of goods sold; impacted employees or operations;
expected timing; and expected savings) to the Management Com-
mittee 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 distribute 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 13.
The following is a summary of special charges recognized for the years
ended November 30 (in millions):
2020
2019
2018
$ 4.1
2.8
$ 6.2
14.6
$ 2.0
14.3
$ 6.9
$20.8
$16.3
The impact of Cholula on our 2020 consolidated income before taxes,
was principally the effect of the previously noted transaction expens-
es, and an insignificant amount of interest expense.
Employee severance and related benefits
Other costs (1)
Total special charges
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. In December 2017, we paid
$4.2 million associated with the final working capital adjustment.
(1) Included in other costs for 2018 are non-cash fixed asset impairment charges of
$3.0 million.
The following is a summary of special charges by business segments
for the years ended November 30 (in millions):
Total transaction and integration expenses related to the RB Foods ac-
quisition totaled $22.5 million in 2018, of which $0.3 million and $22.2
million represented transaction expenses and integration expenses,
respectively.
Consumer segment
Flavor solutions segment
Total special charges
2020
2019
2018
$ 5.5
1.4
$13.1
7.7
$10.0
6.3
$ 6.9
$20.8
$16.3
2020 Annual Report 67
We continue to evaluate changes to our organization structure to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness.
During 2020, we recorded $6.9 million of special charges, consisting
of (i) $5.3 million related to streamlining actions in our EMEA region,
including $3.8 million related to severance and related benefits and
$1.0 million of third party expenses and $0.5 million related to other
costs; and (ii) $1.6 million related to our GE initiative. Of the $6.9 million
in special charges recorded during 2020, approximately $4.8 million
were paid in cash, with the remaining accrual expected to be paid
in 2021. As of November 30, 2020, reserves associated with special
charges are included in the line entitled “Trade accounts payable” and
“Other accrued liabilities” in our consolidated balance sheet.
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 spe-
cial charges recorded during 2019, approximately $16.8 million were
paid in cash, with the remaining accrual paid in 2020.
During 2018, we recorded $16.3 million of special charges, consisting
primarily of: (i) $11.5 million related to our global enablement initiative,
as more fully described below; (ii) a one-time payment, in the aggre-
gate amount of $2.2 million made to certain U.S. hourly employees to
distribute a portion of the non-recurring net income tax benefit recog-
nized 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 opera-
tions 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 severance 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.
During 2017, our Management Committee approved a multi-year initia-
tive during which we have executed and expect to continue to execute
significant changes to our global processes, capabilities and operating
model to provide a 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 through-
out 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.
68 McCormick & Company, Inc.
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. Since its inception through
November 30, 2020, we have recognized a total of $39.9 million of
special charges associated with our GE initiative.
4. GOODWILL AND INTANGIBLE ASSETS
The following table displays intangible assets as of November 30:
2020
2019
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
(millions)
Definite-lived
intangible assets
$ 336.8
$127.4
$ 308.3
$104.3
Indefinite-lived
intangible assets:
Goodwill
Brand names and
trademarks
Total goodwill and
intangible assets
4,986.3
3,030.0
8,016.3
—
—
—
4,505.2
2,643.0
7,148.2
—
—
—
$8,353.1
$127.4
$7,456.5
$104.3
We acquired Cholula in November 2020 (see note 2). A preliminary
valuation of the acquired net assets of Cholula resulted in the allo-
cation of $410.5 million to goodwill, $380.0 million to indefinite-lived
intangible assets associated with the acquired brand names and
trademarks, and $21.0 million to definite-lived intangible assets. We
expect to finalize the valuation of the acquired net assets of Cholula,
including the related goodwill and intangible assets, within the one-
year measurement period from the date of acquisition.
Intangible asset amortization expense was $20.2 million, $20.3 million
and $20.6 million for 2020, 2019 and 2018, respectively. At November 30,
2020, 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:
2020
2019
(millions)
Consumer
Flavor
Solutions
Consumer
Flavor
Solutions
Beginning of year
Increases from
acquisitions
Foreign currency
fluctuations
$3,377.6
$1,127.6
$3,398.9
$ 1,129.0
273.7
136.8
—
—
59.9
10.7
(21.3)
(1.4)
End of year
$3,711.2
$ 1,275.1
$3,377.6
$1,127.6
A preliminary valuation of the acquired net assets of Cholula resulted
in the allocation of $273.7 million and $136.8 million of goodwill to the
consumer segment 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
2020
2019
2018
$870.3
318.0
93.7
$421.7
126.2
192.3
12.2
$863.0
316.2
90.5
$426.3
134.0
223.8
9.2
$807.9
290.5
78.9
$342.1
129.9
172.1
10.0
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, 2020 was 1.44%).
(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, 2020 was 0.91%).
(6) Includes unamortized discounts, premiums and debt issuance costs of $(24.4)
million and $(23.6) million as of November 30, 2020 and 2019, respectively.
Includes fair value adjustment associated with interest rate swaps designated as
fair value hedges of $41.3 million and $20.5 million as of November 30, 2020 and
2019, respectively.
Maturities of long-term debt, including capital leases, during the fiscal
years subsequent to November 30, 2020 are as follows (in millions):
Royalty income from unconsolidated affiliates was $19.5 million, $19.0
million and $18.5 million for 2020, 2019 and 2018, 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 75% of income from unconsolidated operations in
2020, 72% in 2019 and 76% in 2018.
2021
2022
2023
2024
2025
Thereafter
$ 263.9
765.0
265.2
791.9
271.4
1,643.4
6. FINANCING ARRANGEMENTS
Our outstanding debt, including capital leases, was as follows at
November 30:
(millions)
Short-term borrowings
Commercial paper
Other
Weighted-average interest rate of short-term
borrowings at year-end
Long-term debt
3.90% notes due 7/8/2021(1)
2.70% notes due 8/15/2022
Term loan due 8/17/2022(2)
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)
2.50% notes due 4/15/2030
4.20% notes due 8/15/2047
7.63%–8.12% notes due 2024
Other, including capital leases
Unamortized discounts, premiums, debt issuance
costs and fair value adjustments(6)
Less current portion
2020
2019
$ 845.8
40.9
$ 575.3
25.4
$ 886.7
$ 600.7
0.3%
2.5%
$ 250.0
750.0
—
250.0
700.0
250.0
750.0
500.0
300.0
55.0
195.8
16.9
4,017.7
263.9
$ 250.0
750.0
250.0
250.0
700.0
250.0
750.0
—
300.0
55.0
171.6
(3.1)
3,723.5
97.7
$3,753.8
$3,625.8
(1) 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%.
(2) The term loan was prepayable in whole or in part. Also, the term loan due in 2022
required quarterly principal payments of 2.5% of the initial principal amount.
(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
In April 2020, we issued $500.0 million of 2.50% notes due April 15,
2030, with cash proceeds received of $495.0 million, net of discounts
and underwriters’ fees. Interest is payable semiannually in arrears in
April and October of each year.
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 connection with our acquisition of RB Foods, we entered into a Term
Loan Agreement (Term Loan) in August 2017. The Term Loan provides for
three-year and five-year senior unsecured term loans, each for $750 mil-
lion. 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 was 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 were each prepay-
able 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 2020, 2019 and 2018, we repaid $250.0 million, $306.3 million and
$175.0 million, respectively, of the five-year loan. Prior to payoff, the
five-year loan bore interest at LIBOR plus 1.25%. The interest rates were
based on our credit rating.
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
2020 Annual Report 69
commercial paper program and, after $845.8 million was used to support
issued commercial paper, we have $154.2 million of capacity at November
30, 2020. In December 2020, we entered into a 364-day $1.0 billion
revolving credit facility which will expire in December 2021. The current
pricing for that credit facility, on a fully drawn basis, is LIBOR plus
1.25%. The pricing of the credit facility is based on a credit rating grid
that contains a fully drawn maximum pricing of the credit facility equal
to LIBOR plus 1.75%. The provisions of our revolving credit facilities
restrict subsidiary indebtedness and require us to maintain certain min-
imum and maximum financial ratios for interest expense coverage and
our leverage ratio. The applicable leverage ratio is reduced periodically.
As of November 30, 2020, our capacity under the five-year $1.0 billion
revolving credit facility was not affected by these covenants. We do
not expect that these covenants would limit our access to our revolving
credit facilities for the foreseeable future; however, the leverage ratio
could restrict our ability to utilize this facility.
In addition, we have several uncommitted lines totaling $316.6 million,
which have a total unused capacity at November 30, 2020 of $212.8
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 2020 and 2019.
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
annual basis as specified in the lease agreement. Upon commence-
ment of fit-out in the second quarter of 2018, we obtained access
to the building, which resulted in the lease commencement date for
accounting purposes. We have recognized this lease as a capital
lease, with the leased asset of $116.1 million and $124.7 million
included in property, plant and equipment, net, as of November 30,
2020 and 2019, respectively. As of November 30, 2020, the total lease
obligation was $130.9 million, of which $7.1 million was included in
the current portion of long-term debt and $123.8 million was included
in long-term debt. 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. During 2020, 2019 and 2018, respectively, we recognized amorti-
zation expense of $8.7 million, $8.7 million and $5.2 million related to
the leased asset.
At November 30, 2020, we had guarantees outstanding of $0.7 million
with terms of one year or less. As of both November 30, 2020 and 2019,
we had outstanding letters of credit of $32.2 million. 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, 2020.
7. LEASES
Our lease portfolio primarily consists of (i) certain real estate, including
those related to a number of administrative, distribution and manufac-
turing locations; (ii) certain machinery and equipment, including fork-
lifts; and (iii) automobiles, delivery trucks and other vehicles, including
an airplane. When our real estate lease arrangements include lease
and non-lease components (for example, common area maintenance),
70 McCormick & Company, Inc.
we account for each component separately, based on their relative
standalone prices. For all other asset categories, we combine lease
components and non-lease components into a single lease commit-
ment. We determine if an agreement is a lease or contains a lease at
inception. Leases with an initial term of 12 months or less (short-term
leases) are not recorded on the balance sheet.
ROU assets represent our right to use an underlying asset for the
lease term, and lease liabilities represent our obligation to make lease
payments arising from the lease. ROU assets and liabilities are based
on the estimated present value of lease payments over the lease term
and are recognized at the lease commencement date.
As most of our leases do not provide an implicit borrowing rate, we use
our estimated incremental borrowing rate in determining the present
value of lease payments. The estimated incremental borrowing rate is
derived from information available at the lease commencement date.
Our lease terms may include options to extend or terminate the lease
when it is reasonably certain that we will exercise that option. A
limited number of our lease agreements include rental payments that
are adjusted periodically based on a market rate or index. Our lease
agreements generally do not contain residual value guarantees or ma-
terial restrictive covenants, with the exception of the non-cancellable
synthetic lease discussed below.
The following presents the components of our lease expense for the
year ended November 30, 2020 (in millions):
Operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Net lease cost
$ 41.2
9.0
4.5
$ 54.7
(1) Net lease cost does not include short-term leases, variable lease costs or sublease
income, all of which are immaterial.
Rental expense under operating leases (primarily buildings and equip-
ment) was $48.1 million in 2019 and $58.5 million in 2018.
Supplemental balance sheet information related to leases as of
November 30, 2020 were as follows (in millions):
Leases
Assets:
Operating lease ROU
assets
Finance lease ROU assets
Classification
Other long-term assets
Property, plant and
equipment, net
Total leased assets
Liabilities:
Current
Operating
Finance
Non-current
Operating
Finance
Total lease liabilities
Other accrued liabilities
Current portion of
long-term debt
Other long-term liabilities
Long-term debt
$ 136.8
120.7
$257.5
$ 37.3
7.3
103.5
125.5
$ 273.6
Information regarding our lease terms and discount rates as of
November 30, 2020 were as follows:
Weighted-average
remaining lease term
(years)
Weighted-average
discount rate
Operating leases
Finance leases
5.6
13.9
1.9%
3.3%
The future maturity of our lease liabilities as of November 30, 2020
were as follows (in millions):
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Operating
leases
$ 39.4
29.2
22.3
15.3
12.6
28.8
147.6
6.8
Finance
leases
$ 11.4
11.4
11.4
11.5
11.7
114.0
171.4
38.6
Total
$ 50.8
40.6
33.7
26.8
24.3
142.8
319.0
45.4
Total lease liabilities
$ 140.8
$ 132.8
$ 273.6
Supplemental cash flow and other information related to leases for the
year ended November 30, 2020 were as follows (in millions):
Cash paid for amounts included in the measurements of
lease liabilities:
Operating cash flows used for operating leases
Operating cash flows used for finance leases
Financing cash flows used for finance leases
ROU assets obtained in exchange for lease liabilities
Operating leases
$ 41.5
4.5
6.9
$ 36.6
During October 2020, we entered into a non-cancellable synthetic
lease for a distribution facility with an estimated construction cost of
$315 million. The lease will commence upon completion of construc-
tion of the facility, for which we are the construction agent, which is
expected to be in the later part of fiscal 2022. The term of the lease is
five years after commencement. The lease contains options to negotiate
a renewal of the lease or to purchase or sell the facility at the end of
the lease term. Upon lease commencement, the ROU asset and lease
liability will be determined and recorded. The lease arrangement also
contains a residual value guarantee of approximately 75% of the total
construction cost. The lease also contains covenants that are consistent
with our revolving credit agreements as disclosed in Note 6.
8. FINANCIAL INSTRUMENTS
We use derivative financial instruments to enhance our ability to
manage 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 inter-
company) and earnings denominated in foreign currencies. Management
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 agreements are established in
conjunction with the terms of the underlying debt issues.
At November 30, 2020, we had foreign currency exchange contracts
to purchase or sell $383.8 million of foreign currencies as compared
to $489.2 million at November 30, 2019. 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. All foreign currency
exchange contracts outstanding at November 30, 2020 have durations
of less than 18 months.
Contracts which are designated as hedges of anticipated purchases
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 as well as currency exposure to third-party
non-functional currency assets or liabilities. The notional value of
these contracts was $212.3 million and $357.5 million at November 30,
2020 and 2019, respectively. Any gains or losses recorded based on
both the change in fair value of these contracts and the change in
the currency component of the underlying loans are recognized in our
consolidated income statement as other income, net.
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, 2020, we had cross currency interest rate
swap contracts of (i) $250 million notional value to receive $250 million
at three-month U.S. LIBOR plus 0.685% and pay £194.1 million at three-
month GBP LIBOR plus 0.740% and (ii) £194.1 million notional value
to receive £194.1 million at three-month GBP LIBOR plus 0.740% and
pay €221.8 million at three-month Euro EURIBOR plus 0.808%. These
cross-currency interest rate swap contracts expire in August 2027.
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 worldwide financing
costs and to achieve a desired mix of variable and fixed rate debt.
As of November 30, 2020 and 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%
2020 Annual Report 7 1
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. 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 our 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.
The following tables disclose the notional amount and fair values of derivative instruments on our consolidated balance sheet:
As of November 30, 2020:
(millions)
Asset Derivatives
Liability Derivatives
Derivatives
Balance sheet location
Notional amount
Fair value Balance sheet location Notional amount
Fair value
Interest rate contracts
Other current assets/
Other long-term assets
Foreign exchange contracts Other current assets
Cross currency contracts
Other current assets/
Other long-term assets
Total
As of November 30, 2019:
(millions)
Derivatives
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
$350.0
27.5
$43.1 Other accrued liabilities
1.4 Other accrued liabilities
$ —
356.3
—
— Other long-term liabilities
524.4
$44.5
$ —
8.2
18.8
$ 27.0
Asset Derivatives
Liability Derivatives
Balance sheet location
Notional amount
Fair value
Balance sheet location
Notional amount
Fair value
$350.0
293.1
495.5
$ 20.9 Other accrued liabilities
3.3 Other accrued liabilities
$ —
196.1
3.2 Other accrued liabilities
—
$ 27.4
$ —
3.6
—
$ 3.6
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, 2020, 2019 and 2018:
Fair value hedges (millions)
Derivative
Interest rate contracts
Income statement
location
Interest expense
Income (expense)
2020
$5.2
2019
2018
$ —
$ (0.1)
Derivative
Income statement
location
Gain (loss) recognized in income
2020
2019
2018
Hedged Item
Income statement
location
Foreign exchange contracts
Other income, net
$ (4.0)
$ 0.2
$ (2.9)
Intercompany loans
Other income, net
Gain (loss) recognized in income
2020
$3.0
2019
2018
$ (0.9)
$ 2.7
Cash flow hedges (millions)
Derivative
Interest rate contracts
Foreign exchange contracts
Total
Gain (loss)
recognized in OCI
2020
2019
2018
Income statement location
$ —
1.9
$ 1.9
$ — $ —
2.6
(0.2)
$ (0.2)
$ 2.6
Interest expense
Cost of goods sold
Gain (loss)
reclassified from AOCI
2020
$ 0.5
1.6
$ 2.1
2019
2018
$ 0.5
1.6
$ 2.1
$ 0.5
(3.3)
$ (2.8)
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 $0.7 million increase to earnings.
72 McCormick & Company, Inc.
Net investment hedges (millions)
Derivative
Cross currency contracts
Gain (loss)
recognized in OCI
2020
$ (20.8)
2019
$ 1.1
Income statement location
Interest expense
Gain (loss)
excluded from the assessment of hedge
effectiveness
2020
$ 3.1
2019
$ 5.4
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)
Level 1 valuation techniques
Level 2 valuation techniques
Derivatives related to:
Interest rates (assets)
Foreign currency (assets)
Foreign currency (liabilities)
Cross currency (assets)
Cross currency (liabilities)
Because of their short-term nature, the amounts reported in the bal-
ance sheet for cash and cash equivalents, receivables, short-term bor-
rowings and trade accounts payable approximate fair value. 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 con-
sumer segment are predominantly food retailers and food wholesalers.
Consolidations in these industries have created larger customers. In ad-
dition, 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, 2020, we did not have amounts due from any sin-
gle 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
2020
2019
Carrying amount
Fair value
Carrying amount
Fair value
$ 129.9
4,017.7
43.1
1.4
8.2
—
18.8
$ 129.9
4,357.1
4,161.3
195.8
43.1
1.4
8.2
—
18.8
$ 124.4
3,723.5
20.9
3.3
3.6
3.2
—
$ 124.4
3,859.0
3,437.5
421.5
20.9
3.3
3.6
3.2
—
do not require collateral. We believe that the allowance for doubtful
accounts properly recognized trade receivables at realizable value.
We consider nonperformance credit risk for other financial instruments
to be insignificant.
9. 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.
2020 Annual Report 73
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
Total
Liabilities:
Foreign currency derivatives
Cross currency contracts
Total
(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
Fair value measurements
using fair value hierarchy as
of November 30, 2020
Fair value
Level 1
Level 2
$423.6
126.0
3.9
43.1
1.4
$598.0
8.2
18.8
$ 27.0
$423.6
—
3.9
—
—
$427.5
—
—
$ —
126.0
—
43.1
1.4
$170.5
8.2
18.8
$ —
$ 27.0
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
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, 2020 and 2019, we had no financial assets or liabili-
ties that were subject to a level 3 fair value measurement.
10. 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
2020
2019
$ (174.0)
(0.4)
(0.1)
(296.3)
$ (266.5)
—
0.3
(234.0)
$ (470.8)
$ (500.2)
(1) During the year ended November 30, 2020, the foreign currency translation adjustment of accumulated other comprehensive loss decreased by $92.5 million, including the impact of a
$20.8 million increase associated with net investment hedges. During the year ended November 30, 2019, the foreign currency translation adjustment of accumulated other
comprehensive loss increased by $24.9 million, of which $0.9 million was associated with net investment hedges. These net investment hedges are more fully described in Note 8.
74 McCormick & Company, Inc.
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
2020
2019
2018
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)
0.5
$ (0.5)
(1.6)
(2.1)
0.4
$ (0.5)
3.3
2.8
(0.6)
$ (1.6)
$ (1.7)
$ 2.2
$ (4.0)
11.0
7.0
(1.6)
$ (8.0)
2.6
(5.4)
1.2
$ (8.5)
12.6
4.1
(1.0)
$ 5.4
$ (4.2)
$ 3.1
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 11 for
additional details).
11. 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 year 2017, we made significant changes to certain of our
employee benefit plans and retirements plans that froze the accrual
of certain defined benefit pension plans in the U.S. and the United
Kingdom. Also, on December 1, 2017, our Management Committee
approved the freezing of benefits under our pension plans in Canada.
The effective 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.
As a result of the change to our pension plans in Canada, we
remeasured pension assets and benefit obligations as of the date of
the approval indicated above and, in fiscal year 2018, we reduced the
Canadian plan benefit obligations by $17.5 million. These remea-
surements resulted in a non-cash, pre-tax net actuarial gain of $17.5
million in fiscal year 2018. These net actuarial gains consist principally
of a curtailment gain of $18.0 million, which is included in our consoli-
dated statement of comprehensive income for 2018 as a component of
“Other comprehensive income (loss)” on the line entitled “Unrealized
components of pension plans”. Deferred taxes associated with this
actuarial gain, together with other unrealized components of pension
plans recognized during 2018, are also included in that statement as a
component of “Other comprehensive income (loss)”.
Included in our consolidated balance sheet as of November 30, 2020
on the line entitled “Accumulated other comprehensive loss” was
$383.4 million ($296.3 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 recognize $13.5
million ($9.7 million net of tax) in net periodic pension and postretire-
ment benefit costs during 2021 related to the amortization of actuarial
losses of $13.2 million and the amortization of prior service cost of
$0.3 million.
2020 Annual Report 75
Defined Benefit Pension Plans
The significant assumptions used to determine benefit obligations are as follows as of November 30:
Discount rate—funded plans
Discount rate—unfunded plan
Salary scale
United States
International
2020
2.8%
2.7%
—
2019
3.4%
3.3%
—
2020
1.9%
—
2.9%
2019
2.2%
—
2.9%
The significant assumptions used to determine pension expense for the years ended November 30 are as follows:
Discount rate—funded plans
Discount rate—unfunded plan
Salary scale
Expected return on plan assets
United States
International
2020
2019
2018
2020
2019
2018
3.4%
3.3%
— %
6.8%
4.7%
4.6%
— %
7.0%
4.0%
3.9%
3.8%
7.3%
2.2%
—
2.9%
4.9%
3.3%
—
3.4%
5.5%
2.9%
—
3.5%
5.6%
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
2020
2019
2018
2020
2019
$ 3.2
29.3
(40.6)
0.5
7.8
—
$ 0.2
$ 2.1
34.4
(42.5)
0.5
2.3
—
$ 17.0
31.6
(43.4)
—
9.9
—
$ 1.3
7.5
(15.3)
0.1
2.0
1.3
$ 3.6
9.5
(16.4)
0.2
1.2
—
$ (3.2)
$ 15.1
$ (3.1)
$ (1.9)
2018
$ 4.3
9.2
(16.6)
0.1
2.8
0.5
$ 0.3
76 McCormick & Company, Inc.
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
Actuarial loss
Benefits paid
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
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
2020
2019
2020
2019
$ 884.8
3.2
29.3
—
82.1
(41.4)
—
—
$ 752.6
2.1
34.4
—
134.6
(38.9)
—
—
$ 345.6
1.3
7.5
—
19.1
(14.1)
(0.2)
12.5
$ 292.9
3.6
9.5
0.6
51.8
(14.7)
(0.3)
2.2
$ 958.0
$ 884.8
$ 371.7
$ 345.6
$ 671.9
47.3
10.4
—
(41.4)
—
$ 640.4
62.2
8.2
—
(38.9)
—
$ 340.9
28.6
1.5
—
(14.1)
11.8
$ 306.5
42.4
3.2
0.8
(14.7)
2.7
$ 688.2
$ 671.9
$ 368.7
$ 340.9
$ (269.8)
$(212.9)
$ (3.0)
$ (4.7)
$ 958.0
945.1
688.2
$ 884.8
874.8
671.9
$ 110.4
106.5
87.7
$ 103.9
100.4
83.6
Included in the U.S. in the preceding table is a benefit obligation of $110.5 million and $105.4 million for 2020 and 2019, respectively, related to our
Supplemental Executive Retirement Plan (SERP). The assets related to this plan, which totaled $86.4 million and $85.5 million as of November 30, 2020
and 2019, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table.
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
2020
$ —
269.8
74.0
235.5
2019
$ —
212.9
58.5
183.9
2020
$ 19.6
22.6
14.3
63.7
2019
$ 15.6
20.3
13.3
60.1
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 obliga-
tion differs from the projected benefit obligation in that it includes no
assumption about future compensation or service levels. The accumu-
lated benefit obligation for the U.S. pension plans was $945.1 million
and $874.8 million as of November 30, 2020 and 2019, respectively.
The accumulated benefit obligation for the international pension plans
was $367.9 million and $342.2 million as of November 30, 2020 and
2019, 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.
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.
2020 Annual Report 7 7
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
2020
2019
63.2%
22.0%
14.8%
63.3%
21.5%
15.2%
2020
Target
59.0%
23.2%
17.8%
100.0%
100.0% 100.0%
The allocations of the international pension plans’ assets as of No-
vember 30, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2020
2019
50.9%
48.3%
0.8%
50.4%
48.9%
0.7%
2020
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 9, pension plan assets at their fair value as of
November 30 for the United States and international plans:
As of November 30, 2019
United States
(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)
Total
fair value
Level 1
Level 2
$ 15.3
$ 15.3
$ —
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
United States
As of November 30, 2019
International
Total
fair value
Level 1
Level 2
(millions)
As of November 30, 2020
(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)
$ 28.1
$ 28.1
$ —
271.1
159.2
138.2
147.6
132.9
11.6
57.1
37.3
29.1
1.1
24.5
9.7
54.9
—
29.1
—
20.6
—
2.2
37.3
—
1.1
3.9
9.7
Total
$ 617.2
$ 418.5
$ 198.7
Investments measured at net asset
value(i)
Hedge funds(j)
Private equity funds(k)
Private debt funds(l)
Total investments
As of November 30, 2020
(millions)
Cash and cash equivalents
International equity securities(b)
Fixed income securities:
International/government/
corporate bonds(e)
Insurance contracts(f)
39.5
4.8
26.7
$ 688.2
Total
fair value
$ 3.1
187.6
International
Level 1
Level 2
$ 3.1
—
$ —
187.6
155.4
22.6
—
—
155.4
22.6
Total investments
$ 368.7
$ 3.1
$ 365.6
78 McCormick & Company, Inc.
Cash and cash equivalents
International equity securities(b)
Fixed income securities:
International/government/
corporate bonds(e)
Insurance contracts(f)
Total investments
Total
fair value
Level 1
Level 2
$ 2.5
171.6
$ 2.5
—
$ —
171.6
144.7
22.1
—
—
144.7
22.1
$340.9
$ 2.5
$338.4
(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 benchmark
is the Alerian master limited partnership (MLP) Index.
(i) Certain investments that are valued using the net asset value per share (or its equiva-
lent) 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 underlying
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 un-
observable 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 val-
uation models include unobservable inputs that cannot be corroborated using verifiable
observable market data. These funds typically have redemption periods of approximately
10 years.
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.
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 $50.6 million (0.6 million shares and 7.4% of total
U.S. pension plan assets) and $64.4 million (0.8 million shares and
9.6% of total U.S. pension plan assets) at November 30, 2020 and
2019, respectively. Dividends paid on these shares were $0.9 million in
both 2020 and 2019.
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)
2021
2022
2023
2024
2025
2026–2030
United States
International
$ 43.7
43.7
44.7
47.5
48.7
252.8
$ 12.0
11.7
12.8
12.4
12.8
66.0
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 partici-
pant’s salary. In addition, we make contributions of 3% of the partici-
pant’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 contribu-
tion 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
benefit plan. Some of our smaller U.S. subsidiaries sponsor separate
401(k) retirement plans. We also sponsor a non-qualified defined con-
tribution retirement plan. Our contributions charged to expense under
all U.S. defined contribution retirement plans were $30.8 million, $28.2
million and $15.5 million in 2020, 2019 and 2018, respectively.
At the participant’s election, 401(k) retirement plans held 2.9 million
shares of McCormick stock, with a fair value of $267.3 million, at
November 30, 2020. Dividends paid on the shares held in the 401(k)
retirement plans in 2020 and 2019 were $3.8 million and $3.9 million,
respectively, 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
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
Postretirement benefit (income) expense
2020
2019
2018
$ 1.9
2.0
(4.6)
(0.1)
$ (0.8)
$ 1.8
2.7
(8.7)
(0.9)
$ (5.1)
$ 2.0
2.4
(8.6)
(0.1)
$ (4.3)
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the plans’ funded status at November 30, the mea-
surement date, follow:
(millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Participant contributions
Plan amendments
Actuarial loss
Benefits paid
2020
2019
$ 67.2
1.9
2.0
2.1
—
3.9
(6.4)
$ 62.9
1.8
2.7
0.3
(0.4)
4.1
(4.2)
Benefit obligation at end of year
$ 70.7
$ 67.2
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Participant contributions
Benefits paid
Fair value of plan assets at end of year
Other postretirement benefit liability
$ — $ —
3.9
0.3
(4.2)
4.3
2.1
(6.4)
$ —
$ —
$ 70.7
$ 67.2
Estimated future benefit payments (net of employee contributions) for
the next 10 fiscal years are as follows:
(millions)
2021
2022
2023
2024
2025
2026–2030
Retiree
medical
Retiree life
insurance
$ 3.6
3.6
3.7
3.7
3.7
17.5
$1.5
1.5
1.4
1.4
1.4
6.5
Total
$ 5.1
5.1
5.1
5.1
5.1
24.0
The assumed discount rate in determining the benefit obligation was
2.3% and 3.1% for 2020 and 2019, respectively.
For 2020, the assumed annual rate of increase in the cost of covered
health care benefits is 6.8% (6.5% last year). It is assumed to decrease
gradually to 4.5% in the year 2032 (4.5% in 2030 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 2020.
2020 Annual Report 79
12. STOCK-BASED COMPENSATION
We have four types of stock-based compensation awards: restricted
stock units (RSUs), stock options, company stock awarded as part
of our long-term performance plan (LTPP), and beginning in 2020,
price-vested stock options. Total stock-based compensation expense
for 2020, 2019 and 2018 was $46.0 million, $37.2 million and $25.6
million, respectively. Total unrecognized stock-based compensation
expense related to our RSUs and stock options at November 30,
2020 was $23.2 million and the weighted-average period over which
this will be recognized is 1.3 years. Total unrecognized stock-based
compensation expense related to our price-vested stock options at
November 30, 2020 was $23.3 million and the weighted-average peri-
od over which this will be recognized is 3.0 years. Total unrecognized
stock-based compensation expense related to our LTPP is variable in
nature and is dependent on the company’s execution against estab-
lished performance metrics under performance cycles related to this
A summary of our RSU activity for the years ended November 30 follows:
plan. As of November 30, 2020, we have 6.6 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
retirement eligibility date of the holder.
(shares in thousands)
Beginning of year
Granted
Vested
Forfeited
Outstanding—end of year
2020
Weighted-average
price
$ 57.95
67.03
57.56
62.96
$ 61.74
2019
Weighted-average
price
$ 51.53
71.62
52.08
56.78
$ 57.95
Shares
534
556
(226)
(18)
846
Shares
846
258
(318)
(24)
762
2018
Weighted-average
price
$ 43.24
56.36
44.08
48.27
$ 51.53
Shares
762
296
(325)
(19)
714
Stock Options (Other than Price-Vested 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,
with the exception of price-vested options detailed below, 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 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. Compensation
expense is calculated based on the fair value of the options on the date
of grant.
The per share weighted-average fair value for all options granted was
$13.27, $13.76 and $10.15 in 2020, 2019 and 2018, 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
2020
2019
2018
0.0–0.6%
1.8%
22.8%
7.9 years
2.2–2.5%
1.5%
17.4%
7.5 years
1.7–2.9%
2.0%
18.4%
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:
2020
2019
2018
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
5.2
0.7
(1.4)
4.5
3.2
$ 48.09
69.31
41.01
53.56
$ 47.76
7.2
0.6
(2.6)
5.2
3.8
$ 41.30
73.70
35.54
48.09
$ 43.31
9.6
0.8
(3.2)
7.2
5.6
$35.96
52.98
27.64
41.30
$38.27
(shares in millions)
Beginning of year
Granted
Exercised
Outstanding—end of year
Exercisable—end of year
80 McCormick & Company, Inc.
As of November 30, 2020, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding was
$178.7 million and for options currently exercisable was $146.0 million. At November 30, 2020, the differences between options outstanding and op-
tions 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, 2020, 2019 and 2018 was $68.4 million, $111.0 million
and $108.0 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2020 follows:
(shares in millions)
Options outstanding
Options exercisable
Range of
exercise price
$23.00–$37.50
$37.51–$56.00
$56.01–$74.50
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
0.5
2.7
1.3
4.5
2.8
5.9
8.9
6.5
$33.99
48.36
71.27
$53.56
0.5
2.5
0.2
3.2
2.8
5.8
8.3
5.6
$33.99
47.97
73.64
$47.76
Price-Vested Stock Options
In November 2020, we granted approximately 2,482,000 price-vested
stock options to certain employees. The price-vested stock options
were granted with an exercise price of $93.49 which was equal to the
market price of our stock on the date of grant. The price-vested options
are not exercisable until a three year service condition is achieved,
and will become exercisable after that time period only if the average
closing price of our stock price equals or exceeds thresholds of 60%,
80% or 100% appreciation from the exercise price for 30 consecutive
trading days within a five-year period from the date of grant. If the op-
tions become exercisable, they are exercisable up to 10 years from the
date of grant. The options granted were divided equally between the
three appreciation thresholds. Employees who are retirement eligible
vest on a pro-rata basis over a three-year period if the market
condition is met in the five-year period from the date of grant. If the
market conditions are not met in the five-year period from the date of
grant, the options do not become exercisable and will be forfeited.
The fair value of the price-vested options was estimated using a
lattice model. The per share weighted-average fair value for the
price-vested stock options granted was $11.88, $9.26, and $7.05, for
the 60%, 80% and 100% appreciation thresholds, respectively. These
fair values were computed using the following range of assumptions:
Risk-free interest rates
Dividend yield
Expected volatility
Expected lives
0.85%
1.5%
21.2%
5.6–6.2 years
LTPP
Our LTPP grants in 2018 will deliver awards in a combination of cash and company stock. The stock compensation portion of the LTPP grants in 2018
awards shares of company stock if certain company performance objectives are met at the end of a three-year period. LTPP awards granted in 2020 and
2019 will be delivered entirely in company stock, with the target award calculated using a combination of a market-based total shareholder return and
performance-based components. These awards are valued based on the fair value of the underlying stock on the date of grant.
A summary of the LTPP award activity for the years ended November 30 follows:
(shares in thousands)
Beginning of year
Granted
Vested
Performance adjustment
Forfeited
Outstanding—end of year
2020
2019
2018
Shares
Weighted-
average price
392
130
(88)
(44)
(8)
382
$ 57.98
86.14
44.98
50.95
65.68
$ 71.20
Shares
436
136
(114)
(66)
—
392
Weighted-
average price
Shares
Weighted-
average price
$ 41.78
75.26
43.20
44.98
—
$ 57.98
440
172
(120)
(52)
(4)
436
$42.16
50.95
37.01
43.20
48.71
$41.78
2020 Annual Report 81
13. 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)
2020
2019
2018
$ 98.3
14.8
73.0
186.1
4.6
0.5
(16.3)
(11.2)
$ 174.9
$ 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)
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 provides
for significant changes in the U.S. Internal Revenue Code of 1986, as
amended. Certain provisions of the U.S. Tax Act were effective during
our fiscal year ended November 30, 2018 with all provisions 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 provisions with separate
effective dates but is generally effective for taxable years beginning
after December 31, 2017. The U.S. Tax Act creates a new requirement
that certain income earned by foreign subsidiaries, 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.
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 imposed 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, 2020,
our remaining unpaid transition tax is $39.7 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.
82 McCormick & Company, Inc.
The components of income from consolidated operations before
income taxes for the years ended November 30 follow:
(millions)
Pretax income
United States
International
2020
2019
2018
$ 624.3
257.2
$569.0
250.2
$492.2
249.1
$ 881.5
$819.2
$741.3
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
Valuation allowance release
Intra-entity asset transfer
Other, net
Total
2020
21.0 %
1.5
1.3
0.8
(1.5)
—
(0.3)
—
(1.4)
(1.1)
(0.5)
19.8 %
2019
2018
21.0 % 22.2 %
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)
19.2 % (21.2)%
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
Operating lease liabilities
Other
Valuation allowance
Deferred tax liabilities
Depreciation
Intangible assets
Lease ROU assets
Other
2020
2019
$ 121.9
40.3
10.6
59.7
33.0
47.9
(31.5)
281.9
89.1
815.1
32.2
4.5
940.9
$ 103.3
32.3
7.5
46.8
—
48.1
(32.4)
205.6
82.6
770.5
—
5.5
858.6
Net deferred tax liability
$(659.0)
$(653.0)
At November 30, 2020, we have tax loss carryforwards of $214.4 million.
Of these carryforwards, $0.1 million expire in 2021, $9.6 million from
2022 through 2023, $77.9 million from 2024 through 2037 and $126.8
million may be carried forward indefinitely. In addition, one of our non-
U.S. subsidiaries has a capital loss carryforward of $5.0 million which
may be carried forward indefinitely. At November 30, 2020, we also have
U.S. foreign tax credit carryforwards of $7.3 million which expire in 2030.
A valuation allowance has been provided to cover deferred tax assets
that are not more likely than not realizable. The net decrease of
$0.9 million in the valuation allowance from November 30, 2019 to
November 30, 2020 resulted primarily from the net reversal of valua-
tion allowances for net operating losses, capital losses and other tax
attributes in certain non-US jurisdictions.
Prior to the U.S. Tax Act, we asserted that substantially all of the
undistributed earnings of our international subsidiaries and joint
ventures were considered indefinitely invested and accordingly, no
deferred taxes were provided. Pursuant to the provisions of the U.S.
Tax Act, these earnings were subjected to a one-time transition tax
in 2018. The transition tax was recognized in 2018 and was based on
cumulative earnings prior to the U.S. Tax Act. Our intent is to continue
to reinvest undistributed earnings of our international subsidiaries
and joint ventures indefinitely. As of November 30, 2020, we have
$1.3 billion of earnings that are considered indefinitely reinvested.
While federal income tax expense has been recognized as a result of
the U.S. Tax Act, we have not provided any additional deferred taxes
with respect to items such as foreign withholding taxes, state income
tax or foreign exchange gain or loss. It is not practicable for us to
determine the amount of unrecognized tax expense on these reinvest-
ed international earnings.
The following table summarizes the activity related to our gross unrec-
ognized tax benefits for the years ended November 30:
(millions)
2020
2019
2018
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
$32.0
7.8
2.5
—
—
(4.2)
1.2
$39.3
$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
As of November 30, 2020, November 30, 2019, and November 30, 2018,
if recognized, $39.3 million, $32.0 million and $27.5 million, respectively,
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 $0.8 million,
$2.1 million and $0.1 million in 2020, 2019 and 2018, respectively. As
of November 30, 2020 and 2019, we had accrued $8.3 million and $7.1
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,
2020 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 2017. In other major jurisdictions, we are no longer
subject to income tax audits by taxing authorities for years before 2014.
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.
14. CAPITAL STOCK AND EARNINGS PER SHARE
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
Common 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 votes 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 Common 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 compa-
ny or any amendment to our charter repealing the right of the Common
Stock Non-Voting to vote on any such matters.
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
2020
2019
2018
266.5
265.1
263.1
2.6
3.0
3.4
Average shares outstanding—diluted
269.1
268.1
266.5
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
2020
2019
2018
0.1
0.2
0.4
15. 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, 2020 and 2019,
no material reserves were recorded. The determination of probability
and the estimation of the actual amount of any such loss are inherently
unpredictable, and it is therefore possible that the eventual outcome of
such claims and litigation could exceed the estimated reserves, if any.
However, we do not expect the outcome of the matters currently pend-
ing will have a material adverse effect on our financial statements.
16. 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,
2020 Annual Report 83
discount and drug stores, and e-commerce under the “McCormick”
brand and a variety of brands around the world, including “French’s,”
“Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Simply Asia,” “Thai
Kitchen,” “Ducros,” “Vahiné,” “Cholula,” “Schwartz,” “Club House,”
“Kamis,” “Kohinoor,” “DaQiao,” “Drogheria & Alimentari,” “Stubb’s,”
“OLD BAY” and “Gourmet Garden.” Our flavor solutions segment sells
to food manufacturers and the foodservice industry both directly and
indirectly through distributors, with the exception of our businesses in
China and India, where foodservice sales are managed by and reported
in our consumer segment.
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.
We measure segment performance based on operating income
excluding special charges as this activity is managed separately from
the business segments. We also excluded transaction and integration
expenses related to our acquisitions of Cholula, FONA and 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 businesses. Although the segments
are managed separately due to their distinct distribution channels
and marketing strategies, manufacturing and warehousing are often
integrated to maximize cost efficiencies. We do not segregate jointly
utilized assets by individual segment for purposes of internal reporting,
performance evaluation, or capital allocation.
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 12% of consolidated sales in 2020 and 11% of con-
solidated sales in 2019 and 2018. Sales to one of our flavor solutions
segment customers, PepsiCo, Inc., accounted for approximately 11%
of consolidated sales in 2020 and 10% of consolidated sales in both
2019 and 2018.
Accounting policies for measuring segment operating income and
assets are consistent with those described in note 1. Because of
integrated 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 materi-
al. Corporate assets include cash, deferred taxes, investments and
certain fixed assets.
Business Segment Results
(millions)
2020
Net sales
Operating income excluding special charges
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
2019
Net sales
Operating income excluding special charges and transaction and integration expenses
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
Consumer
Flavor
Solutions
Total
segments
Corporate
& other
Total
$3,596.7
780.9
34.1
—
—
—
$3,269.8
676.3
31.8
—
—
—
$3,247.0
637.1
29.5
—
—
—
$2,004.6
237.9
6.7
—
—
—
$2,077.6
302.2
9.1
—
—
—
$2,055.8
292.8
5.3
—
—
—
$ 5,601.3
1,018.8
40.8
11,339.2
150.1
123.9
$ 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
$ —
—
—
750.5
75.2
41.1
$ —
—
—
411.8
51.9
40.8
$ —
—
—
240.6
42.8
35.7
$ 5,601.3
1,018.8
40.8
12,089.7
225.3
165.0
$ 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
84 McCormick & Company, Inc.
A reconciliation of operating income excluding special charges and, for 2020 and 2018, transaction and integration expenses, to operating income for
2020, 2019 and 2018 is as follows:
(millions)
2020
Operating income excluding special charges and transaction and integration expenses
Less: Special charges
Less: Transaction and integration expenses
Operating income
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
Geographic Areas
We have net sales and long-lived assets in the following geographic areas:
(millions)
2020
Net sales
Long-lived assets
2019
Net sales
Long-lived assets
2018
Net sales
Long-lived assets
Consumer
Flavor
Solutions
$780.9
5.5
7.5
$767.9
$676.3
13.1
$663.2
$637.1
10.0
15.0
$612.1
$237.9
1.4
4.9
$231.6
$302.2
7.7
$294.5
$292.8
6.3
7.5
$279.0
Total
$1,018.8
6.9
12.4
$ 999.5
$ 978.5
20.8
$ 957.7
$ 929.9
16.3
22.5
$ 891.1
United States
EMEA
Other countries
Total
$3,445.9
7,202.0
$3,226.3
6,397.0
$3,145.0
6,411.0
$1,046.7
1,135.6
$ 986.1
1,032.4
$1,108.7
916.5
$1,135.0
875.4
$1,021.1
1,057.1
$1,136.7
874.6
$5,601.3
9,254.1
$5,347.4
8,304.8
$5,302.8
8,342.7
Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.
17. SUPPLEMENTAL FINANCIAL STATEMENT DATA
At November 30 (millions)
2020
2019
Supplemental consolidated information with respect to our income
statement, balance sheet and cash flow follow:
For the year ended November 30 (millions)
2020
2019
2018
Other income, net
Pension and other postretirement
benefit income
Interest income
Other
At November 30 (millions)
Inventories
Finished products
Raw materials and work-in-process
Prepaid expenses
Other current assets
$10.0
7.8
(0.2)
$17.6
17.7
10.1
(1.1)
$26.7
12.2
7.1
5.5
$24.8
2020
2019
$ 498.7
533.9
$ 413.3
387.9
$1,032.6
$ 801.2
$ 38.0
$ 36.0
60.9
54.7
$ 98.9
$ 90.7
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
Right of use asset
Software, net of accumulated amortization
$281.8 for 2020 and $275.0 for 2019
Other
Other accrued liabilities
Payroll and employee benefits
Sales allowances
Dividends payable
Other
$ 87.2
698.2
1,102.9
125.5
(985.4)
$ 67.5
658.5
1,007.8
85.8
(867.0)
$1,028.4
$ 952.6
$ 193.0
129.9
136.8
$ 186.0
124.4
—
116.0
176.3
76.4
120.3
$ 752.0
$ 507.1
$ 260.7
183.3
90.7
328.9
$ 184.9
137.2
82.4
204.6
$ 863.6
$ 609.1
2020 Annual Report 85
At November 30 (millions)
Other long-term liabilities
Pension
Postretirement benefits
Operating lease liability
Unrecognized tax benefits
Other
2020
2019
$ 286.1
66.2
103.5
46.0
120.4
$ 226.9
62.7
—
37.6
100.4
$622.2
$427.6
For the year ended November 30 (millions)
2020
2019
2018
Depreciation
Software amortization
Interest paid
Income taxes paid
$ 121.1
12.4
134.1
183.3
$ 113.6
13.7
169.8
137.2
$ 104.8
14.0
179.8
154.6
Dividends paid per share were $1.24 in 2020, $1.14 in 2019 and $1.04
in 2018. Dividends declared per share were $1.27 in 2020, $1.17 in
2019, and $1.07 in 2018.
18. SELECTED QUARTERLY DATA (UNAUDITED)
(millions except per share data)
First
Second
Third
Fourth
$1,212.0 $1,401.1 $1,430.3 $1,557.9
660.7
274.9
200.7
0.75
0.74
579.5
257.4
195.9
0.74
0.73
590.3
273.0
206.1
0.77
0.76
469.9
194.2
144.7
0.54
0.54
0.31
0.31
0.31
0.31
—
0.31
0.31
0.65
$1,231.5 $1,301.9 $1,329.2 $1,484.8
630.0
299.2
213.4
0.80
0.79
539.9
253.5
191.9
0.72
0.72
466.9
196.9
148.0
0.56
0.55
508.5
208.1
149.4
0.56
0.56
2020
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
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
for both basic and diluted earnings per share. Operating income for
the fourth quarter of 2020 included $12.4 million of transaction and
integration expenses, with an after-tax impact of $10.5 million and a
per share impact of $0.04 for both basic and diluted earnings per share.
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. Oper-
ating 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 $0.02 for both basic and diluted earnings per share. Operat-
ing 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 $0.01 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 benefit related to enactment of the U.S. Tax Act, with no per share
impact 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.
See note 3 for details with respect to actions undertaken in connection
with these special charges. See note 13 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.
19. SUBSEQUENT EVENT (UNAUDITED)
On December 30, 2020, we purchased FONA International, LLC
and certain of its affiliates (FONA), a privately held company, for a
purchase price of approximately $710 million, net of cash acquired,
subject to certain customary purchase price adjustments. FONA is a
leading manufacturer of clean and natural flavors providing solu-
tions for a diverse customer base across various applications for the
food, beverage and nutritional markets. The acquisition of FONA in
fiscal 2021 expands the breadth of our flavor solutions segment into
attractive categories, as well as extends our technology platform and
strengthens our capabilities. The acquisition was funded with cash
and commercial paper.
0.28
0.29
0.28
0.29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
—
0.29
0.28
0.60
None.
Operating income for the first quarter of 2020 included $1.0 million of
special charges, with an after-tax impact of $0.7 million and no per
share impact for both basic and diluted earnings per share. Operating
income for the second quarter of 2020 included $2.9 million of special
charges, with an after-tax impact of $2.0 million and a per share im-
pact of $0.01 for both basic and diluted earnings per share. Operating
income for the third quarter of 2020 included $0.1 million of special
charges, with an after-tax impact of $0.1 million and no per share
impact for both basic and diluted earnings per share. Operating income
for the fourth quarter of 2020 included $2.9 million of special charges,
with an after-tax impact of $2.0 million and a per share impact of $0.01
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.
86 McCormick & Company, Inc.
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 2020
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” and “Election of Directors” in our 2021 Proxy
Statement, incorporated by reference 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.mccormickcorporation.com. We will satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding any material
amendment to our code of ethics, and any waiver from a provision of
our code of ethics that applies to our principal executive officer, princi-
pal 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 2021 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 2021 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 2021 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 2021 Proxy Statement.
2020 Annual Report 87
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, 2021,
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
reference from the Exhibit Index included in this Report.
88 McCormick & Company, Inc.
The following exhibits are attached or incorporated herein by reference:
Exhibit Number
Description
EXHIBIT INDEX
(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
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.
By-Laws of McCormick & Company, Incorporated Amended
and Restated on November 26, 2019
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)
(ix)
(x)
(xi)
(xii)
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.
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.
Form of 2.50% Notes due 2030, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated April 13, 2020,
File No. 1-14920, as filed with the Securities and Exchange Commission on April 16, 2020.
Description of Securities of McCormick & Company, Incorporated, incorporated by reference from Exhibit 4(xi) of McCormick’s Form
10-K for the fiscal year ended November 30, 2019, File No. 1-14920, as filed with the Securities and Exchange Commission on
January 28, 2020.
(10)
Material contracts
(i)
(ii)
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.*
2020 Annual Report 89
Exhibit Number
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(i)
(ii)
(i)
(ii)
(21)
(23)
(31)
(32)
(101)
(104)
Description
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
Exchange 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, incorporated by reference from Exhibit 10(vi) of McCormick’s Form 10-K for the
fiscal year ended November 30, 2019, File No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2020.
Form of Restricted Stock Units Agreement, incorporated by reference from Exhibit 10(vii) of McCormick’s Form 10-K for the fiscal
year ended November 30, 2019, File No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2020.
Form of Restricted Stock Units Agreement for Directors, incorporated by reference from Exhibit 10(viii) of McCormick’s Form 10-K for
the fiscal year ended November 30, 2019, File No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2020.
Form of Non-Qualified Stock Option Agreement, incorporated by reference from Exhibit 10(ix) of McCormick’s Form 10-K for the
fiscal year ended November 30, 2019, File No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2020.
Form of Non-Qualified Stock Option Agreement for Directors, incorporated by reference from Exhibit 10(x) of McCormick’s Form 10-K
for the fiscal year ended November 30, 2019, File No. 1-14920, as filed with the Securities and Exchange Commission on January 28,
2020.
Form of Stock Option Agreement for the Value Creation Acceleration Program, incorporated by reference from Exhibit 99.1 of
McCormick’s Form 8-K, File No. 1-14920, as filed with the Securities and Exchange Commission on December 3, 2020.
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.
Subsidiaries of McCormick
Consents of experts and counsel
Rule 13a-14(a)/15d-14(a) Certifications
Filed herewith
Filed herewith
Filed herewith
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, 2020, 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, 2020, 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).
90 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, 2021
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, 2021
Executive Vice President & Chief Financial Officer
January 28, 2021
By:
/s/ christina M. McMuLLen
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
January 28, 2021
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:
/s/ anne L. BraMMan
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, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
2020 Annual Report 91
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, 2020:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
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
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
$ 5.6
32.4
$38.0
$ 6.4
32.9
$39.3
$ 6.6
26.0
$32.6
$ 0.8
11.8
$12.6
$ 1.1
2.6
$ 3.7
$ 1.1
11.1
$12.2
$ (1.4)
(0.1)
$ (1.5)
$(1.8)
(0.5)
$ (2.3)
$ (0.6)
(2.2)
$ (2.8)
$ 0.2
(12.6)
$(12.4)
$ (0.1)
(2.6)
$ (2.7)
$ (0.7)
(2.0)
$ (2.7)
$ 5.2
31.5
$36.7
$ 5.6
32.4
$38.0
$ 6.4
32.9
$39.3
92 McCormick & Company, Inc.
INVESTOR INFORMATION
GLOBAL HEADQUARTERS
McCormick & Company, Incorporated
24 Schilling Road
Hunt Valley, MD 21031 USA
(410) 771-7301
www.mccormickcorporation.com
STOCK LISTING
New York Stock Exchange
Symbols: MKC, MKC.V
ANTICIPATED DIVIDEND DATES—2021
Record Date
4/12/21
7/12/21
10/11/21
12/31/21
Payment Date
4/26/21
7/26/21
10/25/21
1/10/22
McCormick has paid dividends every year since 1925.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
1201 Wills Street, Suite 310
Baltimore, MD 21231
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 global
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 conducted
exclusively online. The meeting will be held Wednesday,
March 31, 2021, at 10 a.m. EST. Details can be found at
ir.mccormick.com.
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.
Visit our company and consumer
brands on:
McCormick has offset 20,000 lbs. of paper
used for the production of this report by
planting 241 trees in Madagascar.
TX_59EF05F9C60B
Please visit www.printreleaf.com
to learn more.
McCormick & Company, Incorporated
24 Schilling Road, Hunt Valley, MD 21031 USA
mccormickcorporation.com