2021 Annual Report
ACCELERATING
GROWTH
for a purpose-
driven future
TABLE of CONTENTS
02 LETTER TO SHAREHOLDERS
13 FINANCIAL HIGHLIGHTS
14 PURPOSE-LED PERFORMANCE
16 DIRECTORS AND OFFICERS
19 FORM 10-K
Investor Information on Inside Back Cover
McCORMICK’S FOUNDATION
is ROOTED IN PURPOSE
Purpose is integrated into everything we do. From
driving top-tier results to positively impacting
the society in which we live, we are accelerating
growth for a purpose-driven future.
Cinnamon, one of McCormick’s five iconic ingredients and
one of the world’s oldest spices, is best known for its versatility.
It brings a deep, warm sweetness to many dishes and also has
a savory side that can be used to add richness and heat. Our
cinnamon is primarily sourced from the central Sumatra region
of Indonesia where cinnamon trees such as these mature to yield
100% pure flavor. The irresistible woody aroma of cinnamon was
used to scent this year’s annual report.
1 M cCORMICK & COMPA N Y
2 0 21 A NNUA L REPOR T 1
Fellow SHAREHOLDERS,
Dividends Declared
(Per Share Data)
1.5
1.2
0.9
0.3
2021 has been another year of global challenge, change, and opportunity. Through it all, McCormick
is stronger than ever. We delivered on our purpose to stand together for the future of flavor, remained
forward-looking, and came together through our Power of People™ culture to strengthen our foundation
and grow our business. We are relentlessly focused on growth, performance and people, actively
0.6
$1.17
$0.97
$1.07
responding to changing consumer behavior, and capitalizing on new opportunities from our relative
$1.27
strength. As we envision a world united by flavor where healthy, sustainable, and delicious go hand
$1.39
2017
2018
2019
2020
2021
0.0
in hand, we are accelerating growth for a purpose-driven future.
5 Year Return vs. S&P 500 and
S&P Packaged Foods Index
20
We are DELIVERING TOP-TIER
BUSINESS PERFORMANCE
We drove record sales growth in 2021, demonstrating again
15
that the combination of our broad and advantaged portfolio, the
effective execution of our strategies to capitalize on accelerat-
10
ing consumer trends, and the engagement of our employees
have positioned us well to continue driving differentiated
5
growth. Notably, on a two-year basis, we have grown sales by
nearly a billion dollars, which reflects our robust and sustained
growth momentum in both segments and strong contributions
0
from our Cholula® and FONA® acquisitions.
• Net sales rose a record 13%, surpassing
Dividends Declared
(Per Share Data)
$6 billion in annual revenue in 2021. In
1.5
constant currency, sales grew 11%.
Incremental sales from our Cholula and
1.2
FONA acquisitions contributed 4% to
the increase. Our Consumer segment
0.9
growth of 9%, or 7% in constant
13%
RECORD NET
SALES
GROWTH
in 2021
currency, was driven by consumers’
0.6
sustained preference for cooking more at home,
fueled by our brand marketing, strong digital engagement,
0.3
new products, and Cholula growth. Sales in our Flavor
Solutions segment grew 19%, or 16% in constant currency,
0.0
reflecting contributions from our FONA and Cholula acquisi-
tions as well as growth driven equally from our packaged food
and beverage customers and the robust demand recovery
5 Year Return vs. S&P 500 and
S&P Packaged Foods Index
20
2 M cCORMICK & COMPA N Y
15
10
5
0
5-YEAR RETURN VS. S&P 500 AND
S&P PACKAGED FOODS INDEX
15%
18%
MKC
S&P
500
Packaged
Foods Index
4%
As of 11/30/2021
DIVIDENDS DECLARED
(Per Share Data)
2017
2018
2019
2020
2021
MKC
S&P
500
$0.97
$1.07
$1.17
$1.27
$1.39
McCormick has increased its dividends each
of the past 36 years. We have paid a dividend
for 97 consecutive years.
15%
18%
Packaged
Foods Index
4%
“ With our overarching focus on growth and
the successful execution of our strategies,
we have consistently delivered industry-
leading revenue growth. This performance
resulted in McCormick’s inclusion in the
2021 Fortune 500. We are proud of being
included on this prestigious list. Our
sustained performance positions us for
continued success in 2022 and beyond. ”
– LAWRENCE E. KURZIUS
Chairman, President and
Chief Executive Officer
from our restaurant and other foodservice customers,
• At the end of 2021, our Board of Directors authorized a
which were impacted by COVID-19 restrictions and con-
9% increase in the quarterly dividend, continuing our long
sumers’ reluctance to dine out last year.
history of returning cash to shareholders. We are proud to
• Operating income increased 2%, driven by higher sales,
and our Comprehensive Continuous Improvement (CCI)
be a dividend aristocrat, having paid a dividend each year
since 1925 with increases for the past 36 years.
led cost savings, partially offset by special charges, trans-
Our 2021 operating performance amidst a dynamic environ-
action and integration expenses, cost inflation, and incre-
ment proves the strength of our business model and the
mental strategic investments. Excluding special charges
value of our products and capabilities as well as the success-
and transaction and integration expenses, adjusted operat-
ful execution of our strategies. We have delivered strong
ing income increased 8%, or 6% in constant currency.
underlying performance while making strategic investments
• Our earnings per share increased to $2.80 in 2021 from
$2.78 in 2020. Excluding special charges, transaction and
integration expenses, and income from sale of unconsoli-
dated operations, adjusted earnings per share grew to
$3.05 in 2021 from $2.83 in 2020, driven primarily by
higher adjusted operating income. This increase of 8%
includes a favorable impact from foreign currency.
that provide a foundation for long-term sustainable growth.
Our strong fundamentals and performance give us confi-
dence in our continuing momentum. With our steadfast
focus on growth, performance and people, we are confident
we will continue to build long-term shareholder value.
2 0 21 A NNUA L REPOR T 3
We are END-TO-END FLAVOR
McCormick’s broad and advantaged global flavor portfolio
or where you eat or drink, you’re likely enjoying something
ideally positions us to fully meet the demand for flavor
flavored by McCormick. McCormick is end-to-end flavor.
around the world and grow our business. This has never
been more evident than over the last two years as con-
Deliberately in Great Categories
sumers adapted to the ever-changing environment. The
breadth and reach of our portfolio across segments, geog-
raphies, channels, customers, and product offerings creates
a balanced portfolio to drive growth and consistency in our
performance. It gives us significant flexibility to adapt to
changing conditions, wherever they may arise, and continue
on our growth trajectory. This is a significant differentiator in
the dynamic environment in which we currently operate.
Consumers are increasingly seeking authentic flavor expe-
riences for every meal occasion, regardless of whether
Global
Net Sales
by Segment
and Region
The rising global demand for flavor remains the foundation
of our sales growth. Growth in global flavor, which includes
categories across our broad portfolio, is projected to accel-
erate over the next several years. Many of our top global
Consumer segment categories are driving that acceleration
and outpacing most food categories. Other high-growth
categories are key ones for which our Flavor Solutions
segment develops custom flavors. We have deliberately
focused on great categories and have continued to expand
our portfolio to meet the evolving tastes and needs of our
2021 Net Sales by Segment and Region
Consumer
43.7%
Europe, Middle East and Africa 11.0%
Americas
Asia/Pacific
7.5%
Global
Net Sales
by Segment
and Region
that meal is consumed at home or away from home. As a
consumers and customers around the world.
global leader in flavor, we are delivering these experiences
through our products and our customers’ products. Our
Flavor Solutions
25.8%
7.8%
4.1%
Consumer segment brings great-tasting and trusted flavor
to global consumers at every price point, ranging from pre-
mium brands to private label. Consumers know our leading
iconic brands at first sight and taste. Our Flavor Solutions
segment has a diverse portfolio of product offerings,
enabling us to collaborate with a wide range of customers
and channels. We provide the flavor for consumer pack-
We are driving undisputed leadership in our core consumer
categories, with a strong heritage in our largest category,
spices and seasonings. We are the global market leader,
nearly four times the size of the nearest branded compet-
itor, with a leading brand share position in many markets.
Spices and seasonings is one of the fastest growing global
flavor categories, and we are fueling its growth by inspiring
consumers’ flavor and cooking experiences.
aged goods manufacturers, restaurants, and distributors to
Condiments and Sauces is our second largest consumer
deliver great taste to the products they make or sell across
the food and beverage industry. Every day, no matter what
Global
Net Sales
by Product
Category
category and also a major part of our branded foodservice
category within our Flavor Solutions segment. These
2021 Net Sales by Segment and Region
Americas
Asia/Pacific
Europe, Middle East and Africa 11.0%
Consumer
43.7%
7.5%
Flavor Solutions
25.8%
7.8%
4.1%
Net Sales by Segment and Product Category
Flavors
Branded Food Service
Custom Condiments
Ingredients & Coatings
U.S. Spices & Seasonings
Non-U.S. Spices & Seasonings
Recipe Mixes
Condiments & Sauces
Regional Leaders
20.13%
7.91%
4.55%
4.83%
16.83%
9.94%
6.88%
12.76%
16.17%
Net Sales by Segment and Product Category
Flavors
Branded Food Service
Custom Condiments
Ingredients & Coatings
U.S. Spices & Seasonings
Non-U.S. Spices & Seasonings
Recipe Mixes
Condiments & Sauces
Regional Leaders
20.13%
7.91%
4.55%
4.83%
16.83%
9.94%
6.88%
12.76%
16.17%
Global
Net Sales
by Segment
and Region
Global
Net Sales
by Product
Category
Global
Net Sales
by Product
Category
Consumer Segment
Flavor Solutions Segment
Americas
Americas
Europe, Middle East
and Africa
Asia/Pacific
Europe, Middle East
and Africa
Asia/Pacific
Consumer Segment
U.S. Spices &
Seasonings
International Spices &
Seasonings
Recipe Mixes
Condiments & Sauces
Regional Leaders
Flavor Solutions Segment
Flavors
Branded Foodservice
Custom Condiments
Coatings, Bulk Spices
& Herbs
4 M cCORMICK & COMPA N Y
products represent significant profitable top line
growth opportunities. We have intentionally grown
our condiments portfolio through base business
growth and acquisitions, with the addition of Frank’s
RedHot®, French’s® and Cholula advancing us to a
leading market position.
LEADING CONSUMER BRANDS
In nearly 170 countries and territories
across the globe
#1HOT SAUCE
COMPANY IN
THE WORLD1
Frank’s RedHot the #1
and Cholula the #2
hot sauce in the U.S.2
McCormick is winning in hot sauce. In 2021,
McCormick rose to be the #1 hot sauce company
in the world, and Frank’s RedHot, the #1 brand in
the U.S., was joined at the top of the category by
Cholula, which we have driven to the #2 ranking. We
are incredibly proud of these positions and are confi-
dent our initiatives will allow us to continue to deliver
strong growth in this highly attractive category. With
over half of global consumers choosing spicy flavors
and younger consumers outpacing older generations
in their preference, we believe hot sauce is the con-
diment of the next generation. We are in the perfect
position to capitalize on this opportunity through our
global heat platform.
In our Flavor Solutions segment, we have continued
to successfully execute on our strategy to migrate
our portfolio to more value-add categories. Our fla-
vors product category now comprises over half of
the segment and is about the same size as our U.S.
spices and seasonings category. We are accelerating
this growth by focusing on flavor development for
fast-growing end market applications such as bever-
ages and snack seasonings, particularly hot and spicy
flavors, as well as performance nutrition.
[mm]
0
10
20
30
40
50
60
70
80
90
100
Użyte kolory/Used colors:
Klient/Client
Praca/Artwork
Data/Date
KAMIS
LOGO KAMIS.ai
2016.01.05
Cyan
Magenta
Yellow
Black
Agencja Reklamowa Opus B, ul. Pijarska 9, 31-015 Kraków, Polska/Poland, www.opusb.pl
-
-
-
-
Bertie
FLAVOR SOLUTIONS
Flavors designed for a wide range
of applications
Beverages
Snacks
Dairy
Bakery/Confectionary
Savory
1 Euromonitor International Limited; based on custom research conducted August
2021 for value sales in 2020 through all retail channels. Hot sauce defined as
spicy table sauce/condiment made from chilies and excludes chili paste and dried
chili powder/flakes.
2 IRI; Total U.S. Multi-Outlet; Dollar Share of Hot/Wing Sauce_112821_L13W
Performance Nutrition
Health
2 0 21 A NNUA L REPOR T 5
Accelerating Our Condiment and
Flavors Platforms
Capitalizing on Long-term
Accelerating Trends
In 2021, we celebrated the one-year anniversaries of our two
We are capitalizing on the long-
fantastic acquisitions, Cholula and FONA, and have created
term consumer trends in healthy
value and achieved synergies according to our plans.
and flavorful cooking, increased digital
The addition of the beloved, iconic Cholula brand is accel-
erating the growth of our global condiments platform. With
Cholula’s authentic, bold, and spicy Mexican flavors, we
increased our breadth and reach in the hot sauce category,
providing consumers and foodservice operators with an
even more diverse product offering. We are unlocking
Cholula’s significant growth potential through effective
brand marketing investments and innovation as well as
increased menu participation with our foodservice custom-
ers. Our momentum with Cholula is very strong, and we are
excited to build upon consumers’ growing passion for heat.
engagement, trusted brands, and pur-
pose-minded practices. These long-term
trends and the rising global demand for great
taste are as relevant today as ever, with the
younger generations fueling the demand for flavor at a
greater rate. Consumers are enjoying the cooking experi-
ence, particularly scratch cooking, as it provides a creative
outlet and makes them feel adventurous. Flavor fuels the
cooking at home momentum by enabling exploration and
allowing families to connect. Consumers are also enjoying
dining out; however, most restaurant meals are now con-
sumed as delivery or takeaway, and consumers are adding
The addition of FONA to our Flavor Solutions segment
flavor at home. We are well positioned to benefit from
is accelerating the growth of our global flavors platform.
both at-home and away-from-home behaviors with the
FONA expanded our breadth in developing flavors for
strength and diversity of our broad global portfolio.
attractive and fast-growing categories, extended our tech-
nology platform and capabilities, including expertise in
health and performance nutrition, and strengthened our
clean and natural leadership. We are providing our custom-
ers with an even more comprehensive product offering to
meet the growing demand for clean and flavorful eating,
drinking, and nutrition experiences. FONA’s performance
has been very strong, and we are excited about the growth
opportunities it is fueling across our entire portfolio.
We are meeting consumers at the intersection of flavor
and health. Many of our products are inherently good for
you, delivering flavor that is not just delicious but healthy,
and we are continually driving innovation to expand those
offerings even further. We are also raising the awareness
of our products with clean and healthier labels as well
as the contribution they can make in helping consumers
achieve their increasingly important health and wellness
lifestyle goals. For our Flavor Solutions customers, making
We are thrilled with both Cholula and FONA. Our enthusi-
products that taste great is complicated by ever-changing
asm for these acquisitions, as well as our confidence that
consumer preferences and dietary guidelines. Our capa-
we will continue to achieve our plans, deliver differentiated
bilities allow our customers to balance nutrition with
growth with these portfolios and drive shareholder value,
great taste, as developing clean-label, organic, natural,
has only continued to strengthen.
75%
OF CONSUMERS
FEEL MEALS
PREPARED AT HOME
ARE HEALTHIER1
6 Mc CORMICK & COMPA N Y
50%
OF CONSUMERS
ARE COOKING MEALS
ENTIRELY FROM
SCRATCH1
48%
OF CONSUMERS
ADD FLAVOR
TO DELIVERY &
TAKEAWAY AT
HOME1
and better-for-you solutions is at the core of what we do.
Finally, with our relentless focus on quality—starting in
Delivering a superior flavor experience is what makes our
the communities around the world from which we source
brands great, and we are providing solutions to help make
until our flavors reach the table—we are the Taste You
our customers’ brands great as well.
Trust®. Our reputation for sustainability, transparency, and
We are continuing to strengthen our consumer connec-
tions by meeting them where they are thriving—online. As
community support strongly resonates with our customers
and consumers.
consumers increasingly rely on their digital connections to
We expect these long-term consumer trends and behav-
experiment with new flavors and cooking techniques, we
iors will continue globally, driving sustained demand for
are there empowering them to further hone their cooking
our products. The combination of the breadth and reach
skills and delve deeper into flavor exploration. Our invest-
of our global portfolio and our alignment with these trends
ments in this space continue to bolster our online shelf
to drive new, passionate users to our brands and digital
continues to sustainably position us to drive growth for a
purpose-driven future.
properties, resulting in both McCormick
and category growth. We expect to
further capitalize on consumers’
increased digital engagement
with significant opportunities
ahead of us.
88%
OF CONSUMERS
PLAN TO COOK AS
MUCH OR MORE
THAN NOW WHEN
THINGS RETURN
TO NORMAL1
1 Proprietary McCormick global consumer survey among
3,187 consumers, fielded between December 27,
2021 and January 5, 2022 across six countries; U.S.,
Canada, UK, France, China, Australia with sample size
per country ranging from 500 to 618 consumers.
2 0 21 A NNUA L REPOR T 7
IT’S GONNA BE GREAT
#
GirlDad
GrillDad
+1.4 BILLION
impressions
Director of
Taco Relations
+1.6 BILLION
impressions
Design & Art Direction
2021 Award Winner
Our 2021 investments spanned our portfolio as we connected with our consumers, particularly online.
We are DRIVING GROWTH
We are driving growth with our brand marketing investments
and new products, as well as our category management
initiatives and our differentiated customer engagement.
Investing in Brand Marketing
We are continually building our brand equity through
increasing the level and effectiveness of our brand
marketing investments. As a percentage of sales, our
Consumer segment brand marketing is among the
highest of our consumer industry peers and we are
achieving returns above industry norms. From building
confidence in the kitchen to inspiring healthy choices,
we will continue to fuel differentiated growth through
our strong brand marketing initiatives.
Launching Insight-driven New Products
New product innovation is instrumental in uniting people
through flavor. Our innovation, across both segments,
attracts global consumers to just about every store
shelf, real or virtual, and into restaurants across the
world to discover new tastes and packaging innovation
while seeking healthier, flavorful options. Our proprietary
product development tool, SAGE, plays a key role in our
innovation. It combines artificial intelligence with unpar-
alleled insights from our consumer preference data and
is a real competitive advantage in the development of
our new products. SAGE provides a great starting point
in delivering fresh, new flavor ideas faster. It has enabled
us to win exciting opportunities, such as in flavors for
hard seltzers in our Flavor Solutions segment, and in our
Consumer segment to develop new recipe mix flavors,
including our Instant Pot® series.
In our Consumer segment, new product innovation differ-
entiates our brands and strengthens our relevance with
our consumers. Our 2021 launches broadened our global
heat portfolio, advanced our sustainable packaging com-
mitment, and met consumers’ demand for healthy and
convenient solutions. In Flavor Solutions, by capitalizing on
our culinary foundation and insights from our own consum-
ers, we not only solve our customers’ flavor challenges,
but also spur their innovation further. In 2021, we had
strong new product momentum in this segment as our
customers continue to move their portfolios to on-trend fla-
vors, including hot and spicy, and better-for-you products,
while not compromising taste. Across both segments, our
2021 launches drove strong growth, and we are excited
about our robust pipeline as we move forward.
8 Mc CORMICK & COMPA N Y
Transforming Our Categories
Our category management initiatives are strengthen-
ing our category leadership by driving growth for both
McCormick and retailers. The new product innovation
we are bringing to the spices and sea-
sonings category, as well as
the global rollout of our
FIRST CHOICE
BOTTLE GLOBAL
ROLLOUT
First Choice bottle,
with its consum-
er-preferred design
and reinforcement
of fresh flavor, are
driving growth. In
markets where the
First Choice bottle has
been launched, such as Eastern
Europe and Canada, it is elevating both the category
and our performance. In the U.S., our initiative to
reinvent the in-store experience for spices and sea-
sonings consumers is continuing on plan, and we are
realizing the results. In stores where retailers have
already implemented the new merchandising ele-
ments, both the category and McCormick’s branded
portfolio are growing faster than stores which have
not yet been implemented. These initiatives are just
the beginning, as we plan to continue to bring in new
benefits to the category centered around freshness,
sustainability, and consumer pantry organization to fur-
ther strengthen our leadership and drive growth.
Winning Through Customer Engagement
In our Flavor Solutions segment, we have a passion for
creating a flawless customer experience through our
differentiated customer engagement. Our culinary foun-
dation and the collaborative approach of our experts, all
of whom are focused on flavor every day, are differenti-
ators for us and at the heart of the consumer-preferred
flavors which we develop to drive wins for our custom-
ers. Our differentiation is further enhanced by our broad
technology platform, as well as the unique consumer
insights we’ve gained from being a global consumer
brand leader in flavor. We create an engaging and
inspiring customer experience that builds confidence in
our unique capabilities and has contributed to our high
win rates. Through our partnerships, we are driving
growth for both McCormick and our customers.
2021 NEW PRODUCT
Innovation
Heat Portfolio Expansion
Health & Wellness
Packaging Innovation
Convenience with Flavor
2 0 21 A NNUA L REPOR T 9
Optimizing our distribution network with our
state-of-the-art U.S. Northeast distribution
center, planned to open in 2022.
Expanding the manufacturing footprint
of our FONA site, enabling future
flavor growth.
Increasing our hot sauce capacity
to support the fast-growing hot
sauce category.
AMERICAS
We are FOCUSED on the FUTURE
We are operating in a challenging global environment
where the only thing that we know with certainty is that
things will continue to be dynamic. As evidenced by our
consistent delivery of industry-leading results, we have
a demonstrated history of managing through short-term
pressures, while delivering strong growth. Like most other
companies, we are experiencing cost inflation and broad-
based supply chain pressures, which accelerated as we
progressed through 2021 and persist as we begin 2022,
and have been amplified by continued elevated demand.
We have a solid foundation rooted in purpose and are well
equipped to navigate through this environment, responding
with agility to volatility and disruptions while remaining
focused on the long-term objectives, strategies, and values
that have made us so successful. Through the combination
of our strong business model, the investments we have
made, the capabilities we have built and the commitment
of our people, we are executing from a position of strength.
With an overarching focus on growth, we continue to
look to the future and are executing on our strategies that
are designed to build long-term value.
Investing in Our Global Supply Chain
demand levels, and we are making strategic supply chain
investments across all regions to optimize our global net-
work through expanding our infrastructure and capabilities
as well as increase our resiliency. These transformative
investments will enable us to remain agile and scalable
as well as deliver growth in line with our aspirations and
enhance our competitiveness for years to come while also
incorporating principles related to sustainability.
Pursuing What is Next
For over 130 years, we have been guided by a passion for
flavor. This passion fuels our constant pursuit of what’s
next in flavor through deep insights, global optimization,
and forward focus enabled by technology and empowered
by science. Whether it is the use of artificial intelligence
in product development, the implementation of our enter-
prise resource planning system, our proprietary research
or our supply chain network optimization, we continue to
propel our business forward as we build for tomorrow.
The McCormick Flavor Forecast® has been uncovering the
trends that transform the way we cook, flavor, and eat for
over two decades. Through this sought-after predictor of
future flavor trends, we connect food lovers and profes-
sional chefs alike with the latest global flavors and ingredi-
Our global supply chain has been critical to our success in
ents to delight the senses and bring great-tasting, healthy
the current environment, and our global sourcing organiza-
eating experiences to the next level. The four flavor trends
tion has been a real differentiator. At a time when consumer
identified in our 2021 edition move plants further into the
expectations have elevated and global supply chains have
spotlight, invite comforting global flavors to the table, dive
been tested throughout the pandemic, we truly are the
into fresh coastal ingredients, and promote health and well-
Taste you Trust with our unrivalled commitment to product
ness through mindful eating. We leverage these discoveries
quality and integrity. In our manufacturing and distribution
to drive our innovation and inspire flavor exploration around
facilities, our employees have worked to support higher
the world, making every meal and moment better.
10 M cCORMICK & COMPA N Y
Completing our U.K. Flavor Solutions
net-zero manufacturing facility, which
will be operational in 2022.
Leveraging our flavor capability invest-
ments from 2021 to drive more substantial
growth in the region.
Opening our state-of-the-art,
environmentally friendly Australian
facility in 2022.
EUROPE, MIDDLE EAST AND AFRICA
ASIA/PACIFIC
Our vision is to create a world united by flavor where
not just because it’s the right thing to do, but because a
healthy, sustainable, and delicious go hand in hand.
successful business, thriving people, and a flavorful future
Creating a sustainable future is at the heart of our
Purpose-led Performance agenda, and, as a global leader
in flavor, we are driving transformation across the industry
with innovative sustainability initiatives such as our
first-of-its-kind Grown for Good standard. Underscoring
our commitment to sustainable sourcing, our third-party
verified sustainability standard goes beyond industry
norms to drive community resilience, including economic
stability for farmers, gender equality and women’s
empowerment, as well as biodiversity conservation
and regenerative farming practices.
We are differentiated by OUR
PEOPLE and OUR CULTURE
depend on it.
Our approximately 14,000 employees across the world
are at the center of our success. I am inspired by the
resilience of our employees as we have worked through
another challenging year. This is a testament to our
high-performance culture, which is rooted in our fundamental
values of integrity, fairness, mutual respect, teamwork,
and innovation. This culture dates back to the 1930s with
C.P. McCormick’s introduction of The Power of People,
which engages all employees through our multiple
management philosophy of encouraging participation and
inclusion. We are differentiated by this culture, which
helps McCormick remain a great place to work and aids
in our ability to both attract and retain great talent. This
We stand for the future of flavor, and we bring our commit-
is more critical than ever in today’s highly competitive,
ment to work every day. We encourage growth, respect
rapidly evolving talent market, in which finding and
everyone’s contributions and do what’s right to create value
retaining talent is increasingly challenging.
for our business and the world we share. We are doing this
2 0 21 A NNUA L REPOR T 11
MANAGEMENT
Committee
LAWRENCE KURZIUS
As a result, we’re focused on ensuring McCormick is the employer of
choice for top talent today and tomorrow through our comprehensive
compensation and benefits packages, career and learning opportunities
and flexible work arrangements. We are creating a healthy, thriving, and
inclusive environment that top talent seeks. Diversity, equity, and inclu-
sion are at the core of our values and strategic business priorities. We
know a diverse, equitable, and inclusive workplace results in business
growth, increased innovation, and a more engaged workforce. Our robust
initiatives in this area ensure that we are championing equality, advocat-
ing for women and ethnically diverse talent in our workforce and across
our supply chain, and developing their leadership potential. We look
forward to continuing our actions and thoughtful conversations to further
foster a diverse, equitable, and inclusive workplace.
On behalf of the executive team, I want to express my deep appreciation
and recognize McCormick employees around the world for their dedicated
efforts and engagement. They have done a tremendous job navigating this
past year’s volatile environment. Their agility, teamwork, and passion for
flavor drive our momentum and success.
MIKE SMITH
We are CONTINUOUSLY
CREATING VALUE
BRENDAN FOLEY
I am extremely proud of McCormick’s 2021 accomplishments. We
remained focused on growth, committed to people, and driven by purpose
during another dynamic year. Throughout our history, we have grown and
compounded our growth successfully, regardless of short-term pressures.
We are disciplined in our focus on the right opportunities, investing in our
business, and attracting and retaining the talent to meet our ambitions. Our
recipe for success is our strong foundation, proven strategies and engaged
employees, who are driving McCormick forward with relentless focus. Our
fundamentals, momentum, and growth outlook are stronger than ever,
bolstering our confidence in accelerating growth for a purpose-driven future
and driving continued value creation in 2022 and beyond. On behalf of the
McCormick Board of Directors and the executive team, I would like to thank
you for your continued support and confidence.
LISA MANZONE
Sincerely,
Lawrence E. Kurzius
Chairman, President and Chief Executive Officer
MALCOLM SWIFT
12 M cCORMICK & COMPA N Y
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
2021
$6,317.9
2,494.6
39.5%
1,015.1
16.1%
755.3
2.80
828.3
363.3
1.36
2020
% Change
$5,601.3
2,300.4
41.1%
999.5
17.8%
747.4
2.78
1,041.3
330.1
1.24
12.8%
8.4%
1.6%
1.1%
0.7%
-20.5%
10.1%
9.7%
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 within Management’s Discussion and Analysis in the Company’s Form 10-K.
Adjusted gross profit
Adjusted gross profit margin
Adjusted operating income
Adjusted operating income margin
Adjusted net income
Adjusted earnings per share—diluted
Results SINCE 2016
% Represents 5-Year Compound Annual Growth Rate
2021
2020
% Change
$2,505.6
$2,300.4
39.7%
41.1%
1,101.5
1,018.8
17.4%
823.9
3.05
18.2%
762.7
2.83
8.9%
8.1%
8.0%
7.8%
DELIVERING ON OBJECTIVES
Consumer Segment
Generated Fuel for Growth
Achieved Top-tier Performance
$170 M
INCREASE IN CASH FLOW
FROM OPERATIONS
210 BPS
ADJUSTED OPERATING
MARGIN EXPANSION1
>$580 M
CUMULATIVE COST
SAVINGS ACHIEVED
8%
NET
SALES1
11%
ADJUSTED OPERATING
INCOME1
10%
ADJUSTED EARNINGS
PER SHARE
8% NET
SALES1
10% ADJUSTED
OPERATING
INCOME1
Flavor Solutions
Segment
8% NET
SALES1
13% ADJUSTED
OPERATING
INCOME1
1 Net sales, adjusted operating income and adjusted operating margin are stated in constant currency. The reported amounts are
consistent with those in constant currency other than the 5-year compounded annual growth rate for adjusted operating income
for the Flavor Solutions segment, which reflects a 1% unfavorable impact from foreign currency.
2 0 21 A NNUA L REPOR T 13
Purpose-led
PERFORMANCE
In today’s rapidly changing world, McCormick is firmly
committed to improving the lives of people, communities
where we live, work and source, and the planet we share.
Delivering top-tier financial results while doing what’s
right remains a top priority as we progress on our
Purpose-led Performance journey.
PEOPLE
Significant progress on our 2025 goals to champion
equality in senior leadership roles.
Women Globally
Ethnically Diverse
Talent in the U.S.
42%
OF OUR
25%
OF OUR
GOAL
50%
30%
GOAL
Promoting
employee health,
wellness, and
nutrition globally
through our new
Nourish global
wellbeing program.
Launched our 9th Employee
Ambassador Group ADAPT to
benefit more underrepresented groups.
COMMUNITIES
Increased the
resilience of nearly
23,000
smallholder farmers who
grow our iconic herbs
and spices.
Launched the McCormick
Women’s Empowerment
Framework, an integrated
global approach to gender
equality and economic
empowerment for women
farmers throughout our
supply chain.
Introduced new programs to improve farmer livelihoods
Sustainability-linked Financing
Collaboration with IFC and Citi to provide
our suppliers with financial incentives linked
to improvements in measures of social and
environmental sustainability.
McCormick partnered with Heifer International
to implement the Cardaforestry project,
which aims to increase smallholder farmer
resilience and improve the quality of
cardamom and allspice in Guatemala.
14 Mc CORMICK & COMPA N Y
ADAPTAbled and Disabled Associates Partnering Together Read more about our 2025 commitments and performance targets progress as
well as our additional commitments to achieve Net Zero by 2050 and to limit
climate change to 1.5°C in our Purpose-led Performance 2021 Progress Report:
www.mccormickcorporation.com/en/responsibility/purpose-led-performance
PLANET
Advanced our Grown for Good sustainable
sourcing standard to drive community resilience,
including economic stability for farmers, gender equality
and women’s empowerment, as well as biodiversity
conservation and regenerative farming practices.
Moving toward net-zero
emissions by 2050 and have
committed to setting science-
based targets to limit the overall
warming threshold to 1.5˚C.
Named a 2021 United Nations
Global Compact LEAD Company.
100%
of branded red pepper
is sustainably sourced.
Awards and Recognition
“
We’re proud to be recognized
for our contributions to
sustainability, but we know
we can continue to enhance
our impact. We don’t embed
Purpose-led Performance
throughout our business to
garner awards; we do it to
positively impact society
and to successfully drive
our global business. ”
– LAWRENCE E. KURZIUS
Chairman, President and
Chief Executive Officer
McCormick was one of only 44
companies awarded the inaugural
2021 Terra Carta Seal from His Royal
Highness the Prince of Wales.
In 2021, McCormick was
named a DiversityInc Top 50
Company for Diversity for the
fifth year in a row.
McCormick was ranked the world’s 14th
most sustainable corporation and No. 1 in
the Food Products sector by the Corporate
Knights 2022 Global 100 Sustainability Index.
2 0 21 A NNUA L REPOR T 15
BOARD of DIRECTORS
Anne Bramman 54
Chief Financial Officer
Nordstrom, Inc.
Seattle, Washington
Director since 2020
Audit Committee
Michael A. Conway 55
Group President, International and
Channel Development
Starbucks Corporation
Seattle, Washington
Director since 2015
Nominating and Corporate
Governance Committee
Freeman A. Hrabowski, III 71
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating and Corporate
Governance Committee*
Lawrence E. Kurzius 63
Chairman, President and
Chief Executive Officer
McCormick & Company, Inc.
Director since 2015
Patricia Little 61
Former Senior Vice President
and Chief Financial Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2010
Nominating and Corporate
Governance Committee
Michael D. Mangan 65
Former President
Worldwide Power Tools & Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**
Maritza G. Montiel 70
Former Deputy Chief Executive
Officer and Vice Chairman
Deloitte LLP
Washington, D.C.
Director since 2015
Compensation and Human Capital Committee
Audit Committee*
Nominating and Corporate
Governance Committee
Margaret M.V. Preston 64
Managing Director
Cohen Klingenstein LLC
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
Jeffery D. Schwartz
Vice President, General Counsel
and Secretary
Malcolm Swift
President Global Flavor Solutions,
EMEA and Chief Administrative Officer
Gary M. Rodkin 69
Former Chief Executive Officer
ConAgra Foods, Inc.
Omaha, Nebraska
Director since 2017
Audit Committee
Jacques Tapiero 63
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 M cCORMICK & COMPA N Y
16 M cCORMICK & 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
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
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
[Reserved]
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
33
33
33
33
34
34
35
53
54
54
55
58
58
59
60
61
62
85
85
85
85
86
86
86
86
86
86
2021 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, 2021
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, Par Value $0.01 per share
Common Stock Non-Voting, Par Value $0.01 per share
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 £
2021 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, 2021: $1,571,749,434
The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2021: $22,192,789,818
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
17,789,317
249,742,929
December 31, 2021
December 31, 2021
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of 10-K into Which Incorporated
Proxy Statement for
McCormick’s March 30, 2022
Annual Meeting of Stockholders
(the “2022 Proxy Statement”)
Part III
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. 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 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,
Central America, Thailand and South Africa.
On December 30, 2020, we completed the purchase of FONA
International, LLC and certain of its affiliates (FONA), a privately held
company. The purchase price was approximately $708 million, net of
cash acquired. FONA is a leading manufacturer of clean and natural
flavors providing solutions for a diverse customer base across various
applications for the food, beverage and nutritional markets. The
acquisition of FONA broadens our value-add offerings with products
that are highly complementary to our existing portfolio. By combining
the portfolios and infrastructures, we have added manufacturing
capacity as well as greater scale and expect to accelerate our global
flavor growth. At the time of the acquisition, annual sales of FONA
were approximately $114 million. The results of FONA’s operations
have been included in our financial statements as a component of our
flavor solutions segment from the date of acquisition.
On November 30, 2020, we completed the purchase of the parent
company of Cholula Hot Sauce® (Cholula) from L Catterton. The
purchase price was approximately $801 million, net of cash acquired.
Cholula, a premium Mexican hot sauce brand, is a strong addition to
McCormick’s global branded flavor portfolio, which broadens the
Company’s offering in the high growth hot sauce category to consum-
ers 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 con-
sumer 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
purchase price was approximately $4.2 billion. The iconic 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 clean-label,
organic, natural, 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
segment. In 2021, the consumer segment contributed approximately
62% of consolidated net sales and 75% of consolidated operating
income, and the flavor solutions segment contributed approximately
38% of consolidated net sales and 25% 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. Elsewhere in the Asia/Pacific region, we market our
products under the McCormick brand as well as other brands.
Approximately two thirds of our consumer segment sales are spices
and seasonings and condiments and sauces. Within the spices and
seasoning category, we are the brand leader globally and a category
leader in our key markets. In the condiments and sauces category,
we are one of the brand leaders globally and in the U.S. There are
numerous competitive brands of spices and seasonings, and condi-
ments and sauces in the U.S. and additional brands in international
markets. Some are owned by large food manufacturers, while others
are supplied by small privately-owned companies. In this competitive
environment, we are leading with innovation and brand marketing, and
applying our analytical tools to help customers optimize the profitabil-
ity of their sales of these categories 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, foodservice
sales are managed by and reported in our consumer segment.
2021 Annual Report 21
Flavor Solutions Segment. In our flavor solutions segment, we provide
a wide range of products to multinational food manufacturers and
foodservice customers. The foodservice customers are supplied with
branded, packaged products both directly by us and indirectly through
distributors, with the exception of our businesses in China and India,
where foodservice sales are managed by and reported in our consumer
segment. We supply food manufacturers and foodservice customers with
customized flavor solutions, and many of these customer relationships
have been active for decades. Our range of flavor solutions remains one
of the broadest in the industry and includes seasoning blends, spices and
herbs, condiments, coating systems and compound flavors. In addition
to a broad range of flavor solutions, our long-standing customer relation-
ships 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 large publicly held flavor
companies that are more global in nature, but which also tend to focus
on providing integrated solutions extending beyond flavor through the
use of other functional and nutritional ingredients.
Raw Materials
The most significant raw materials used in our business are dairy
products, pepper, capsicums (red peppers and paprika), onion, vanilla,
garlic, and salt. Pepper and other spices and herbs are generally
sourced from countries other than the United States. Other raw mate-
rials, like dairy products and onion, are primarily sourced locally,
either within the United States or from our international locations.
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.
In addition, we rely on third-party transportation providers to deliver
raw materials as well as our product to our customers. Reduced avail-
ability of transportation capacity due to labor shortages, primarily as a
result of the COVID-19 pandemic, has caused an increase in the cost of
transportation for us and our suppliers.
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
through a variety of channels including directly and indirectly through
distributors, wholesale foodservice suppliers and e-commerce.
22 McCormick & Company, Inc.
We have a large number of customers for our products. Sales to one
of our consumer segment customers, Wal-Mart Stores, Inc., accounted
for approximately 11% of consolidated sales in 2021 and 2020 and
12% of consolidated sales in 2019. Sales to one of our flavor solutions
segment customers, PepsiCo, Inc., accounted for approximately 11%
of consolidated sales in 2021, 2020 and 2019. In 2021, 2020 and 2019,
the top three customers in our flavor solutions segment represented
between 48% and 52% of our global flavor solutions sales.
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,” and “Gourmet Garden” trademarks, would not have a mate-
rial adverse effect on our business. The “Mc – McCormick” trademark is
extensively used by us in connection with the sale of our food products
in the U.S. and certain non-U.S. markets. The terms of the trademark
registrations are as prescribed by law, and the registrations will be
renewed for as long as we deem them to be useful.
We 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
two to three years or until such time as either party terminates the
agreement. Those agreements with specific terms may be 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 seasonality reflects cus-
tomer 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 Financial
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 engagement and product innovation based on con-
sumer insights. Additionally, in the consumer segment, we are build-
ing brand recognition and loyalty through advertising and promotions.
Additionally, in our flavor solutions segment, we are differentiated by
our culinary and consumer inspired flavor development as well the
breadth of our product offering and customer engagement.
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 federal, state and local
environmental protection laws; and various other federal, state and local
statutes and regulations. Outside the United States, our business is sub-
ject 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 programs in sup-
port of these objectives. We believe diversity, equity and inclusion are
at the core of our values and strategic business priorities. Throughout
our business, we champion equality, supporting parity for women and
under-represented groups as we work to create ethical, safe and sup-
portive 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 work-
force. 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 had approximately 14,000 full-time employees worldwide as of
November 30, 2021. Our operations have not been affected signifi-
cantly by work stoppages, other than those associated with temporary
closures of plants related to the COVID-19 pandemic in fiscal 2020
and, in the opinion of management, employee relations are good.
Since the onset of COVID-19 in 2020, our employees have demon-
strated resiliency, agility and engagement in support of business con-
tinuity despite the challenges that have arisen in the pandemic. We
have approximately 400 employees in the United States who are cov-
ered by a collective bargaining contract. At our subsidiaries outside
the U.S., approximately 2,600 employees are covered by collective
bargaining agreements or similar arrangements.
Through our continuous listening strategy, we measure employee
engagement on an ongoing basis to solicit feedback and understand
views of our employees, work environment and culture. The results
from these surveys are used to implement programs and processes de-
signed 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 indicated in the 2022 Proxy
Statement incorporated by reference in Part III, Item 10 of this Report,
the other executive officer of McCormick is Lisa B. Manzone.
Ms. Manzone is 57 years old and has held the position of Senior Vice
President, Human Relations since June 2015.
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 2021, 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 the inflationary cost environment,
including commodity, packaging materials and transportation costs on
our business; the expected impact of pricing actions on the company’s
results of operations and gross margins; the expected impact of fac-
tors affecting our supply chain, including transportation capacity, labor
shortages, and absenteeism; the expected impact of productivity
improvements, including those associated with our Comprehensive
Continuous Improvement (CCI) program and global enablement initia-
tive; expected working capital improvements; expectations regarding
growth potential in various geographies and markets, including the
impact from customer, channel, category, and e-commerce expansion;
expected trends in net sales and earnings performance and other
financial measures; the expected timing and costs of implementing our
business transformation initiative, which includes the implementation
of a global enterprise resource planning (ERP) system; the expected
impact of accounting pronouncements; the expectations of pension
and postretirement plan contributions and anticipated charges associ-
ated with those plans; the holding period and market risks associated
with financial instruments; the impact of foreign exchange fluctuations;
the adequacy of internally generated funds and existing sources of
liquidity, such as the availability of bank financing; the anticipated suf-
ficiency of future cash flows to enable the payments of interest and
repayment of short- and long-term debt as well as quarterly dividends
and the ability to issue additional debt securities; and expectations
regarding purchasing shares of McCormick’s common stock under the
existing repurchase authorization.
These and other forward-looking statements are based on manage-
ment’s current views and assumptions and involve risks and uncertain-
ties that could significantly affect expected results. Results may be
materially affected by factors such as: the company’s ability to drive
revenue growth; the company’s ability to increase pricing to offset,
or partially offset, inflationary pressures on the cost of our products;
damage to the company’s reputation or brand name; loss of brand
2021 Annual Report 23
relevance; increased private label use; product quality, labeling, or
safety concerns; negative publicity about our products; actions by, and
the financial condition of, competitors and customers; the longevity of
mutually beneficial relationships with our large customers; the ability
to identify, interpret and react to changes in consumer preference and
demand; business interruptions due to natural disasters, unexpected
events or public health crisis, including COVID-19; issues affecting the
company’s supply chain and procurement of raw materials, including
fluctuations in the cost and availability of raw and packaging mate-
rials; labor shortage, turnover and labor cost increases; government
regulation, and changes in legal and regulatory requirements and
enforcement practices; the lack of successful acquisition and inte-
gration of new businesses; global economic and financial conditions
generally, including the on-going impact of the exit of the United
Kingdom (U.K.) from the European Union, availability of financing,
interest and inflation rates, and the imposition of tariffs, quotas, trade
barriers and other similar restrictions; foreign currency fluctuations;
the effects of increased level of debt service following the Cholula
and FONA acquisitions as well as the effects that such increased
debt service may have on the company’s ability to borrow or the cost
of any such additional borrowing, our credit rating, and our ability to
react to certain economic and industry conditions; risks associated
with the phase-out of LIBOR; impairments of indefinite-lived intangible
assets; assumptions we have made regarding the investment return
on retirement plan assets, and the costs associated with pension
obligations; the stability of credit and capital markets; risks associated
with the company’s information technology systems, including the
threat of data breaches and cyber-attacks; the company’s inability to
successfully implement our business transformation initiative; funda-
mental changes in tax laws; including interpretations and assumptions
we have made, and guidance that may be issued, and volatility in our
effective tax rate; climate change; Environmental, Social and Gover-
nance (ESG) matters; infringement of intellectual property rights, and
those of customers; litigation, legal and administrative proceedings;
the company’s inability to achieve expected and/or needed cost sav-
ings 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 docu-
ments are electronically filed with, or furnished to, the United States
Securities and Exchange Commission (the SEC). The information and
other content contained on our website are not part of (or incorpo-
rated by reference in) this report or any other document we file with
the SEC. The SEC maintains an internet website at www.sec.gov that
contains reports, proxy and information statements, and other infor-
mation 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
A pandemic, including COVID-19, could have an adverse
impact on our business, financial condition, and results of
operations.
The COVID-19 pandemic has had, and could continue to have, a
negative impact on financial markets, economic conditions, and
portions of our industry as a result of changes in consumer behavior,
retailer inventory levels, cost inflation, manufacturing and supply
chain disruption, and overall macroeconomic conditions. The extent
and nature of government actions, including limitations on crowd size,
closures of dine-in restaurants and bars, and significant restrictions
on travel, as well as work restrictions that prohibited many employees
from going to work, varied during fiscal 2020 and 2021 based upon the
then-current extent and severity of the COVID-19 pandemic within the
respective countries and localities. Although our consumer business
has benefited from increased at-home consumption due to restric-
tions related to COVID-19, our ability to sustain heightened sales is
dependent on consumer purchasing behavior. The COVID-19 mitigation
measures impacting certain of our flavor solutions customers have
included the following: (i) with respect to dine-in restaurants, closures,
limitations on dine-in capacity, or restrictions on the operations of those
restaurants to carry-out or delivery only; and (ii) with respect to quick
service restaurants, limitations on operations to drive-through pick-up
or delivery. The continued availability and effectiveness of vaccines and
treatments may partially mitigate the risks around the continued spread
of COVID-19, however, with the spread of the COVID-19 variants, the
ongoing implications of the COVID-19 pandemic could adversely impact
our business and results of operations in a number of ways, including
but not limited to:
• Significant reductions in demand or significant volatility in demand
for one or more of our products, which may be caused by, among
other things: the temporary inability of consumers to purchase our
products due to illness, quarantine or other travel restrictions, or
financial hardship, shifts in demand away from one or more of our
more discretionary or higher priced products to lower priced prod-
ucts, or stockpiling or similar activity. If prolonged, such impacts can
further increase the difficulty of business or operations planning
and may adversely impact our results of operations and cash flows;
• Inability to meet our customers’ needs and achieve cost targets
due to disruptions in our manufacturing and supply arrangements
caused by constrained workforce capacity or the loss or disruption
of other essential manufacturing and supply elements such as raw
materials or other finished product components, transportation,
enhanced cleaning and sanitation protocols, or other manufactur-
ing and distribution capability;
• Failure of third parties on which we rely, including our suppliers,
contract manufacturers, distributors, contractors, commercial banks,
joint venture partners and external business partners, to meet their
obligations to the Company, or significant disruptions in their ability
to do so, which may be caused by their own financial or operational
difficulties and may adversely impact our operations; or
• Significant changes in the political conditions in markets in which
we manufacture, sell or distribute our products, including quaran-
tines, import/export restrictions, price controls, or governmental or
regulatory actions, closures or other restrictions that limit or close
our operating and manufacturing facilities, restrict our employees’
ability to travel or perform necessary business functions, or other-
wise prevent our third-party partners, suppliers, or customers from
sufficiently staffing operations, including operations necessary for
the production, distribution, sale, and support of our products, which
could adversely impact our results of operations and cash flows.
The duration and extent of the impact from the COVID-19 pandemic
depends on future developments that cannot be accurately predicted
at this time, such as the severity and transmission rate of the virus, the
emergence and spread of variants, infection rates in areas where we
operate, the extent and effectiveness of containment actions, including
the continued availability and effectiveness of vaccines in the markets
where we operate, the impact of actions taken by governmental
authorities and other third parties in response to the pandemic, each
of which is uncertain, rapidly changing and difficult to predict, and
the impact of these and other factors on our employees, customers,
and suppliers. Should these conditions persist for a prolonged period,
including any of the above factors and others that are currently
unknown, the COVID-19 pandemic could have a material adverse
effect on our business, financial condition, and results of operations.
The impact of the COVID-19 pandemic may also exacerbate other risks
discussed in this Item 1A, Risk Factors, any of which could have a
material effect on us.
Damage to our reputation or brand name, loss of brand
relevance, increase in use of private label or other competitive
brands by customers or consumers, or product quality or
safety concerns could negatively impact our business,
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
measures. From time to time, our customers reevaluate their mix of
product offerings, and consumers have the option to purchase private
label or other competitive products instead of our branded products.
In the event that we are unable to supply our products to customers
in the time frame and quantities that they desire, whether due to
increased demand or other factors, our customers may discontinue all
or a portion of their purchases from us and source competitive brands.
If a significant portion of our branded business was switched to private
label or competitive products, it could have a material negative impact
on our consumer segment.
Our reputation for manufacturing high-quality products is widely
recognized. In order to safeguard that reputation, we have adopted
rigorous quality assurance and quality control procedures which are
designed to ensure the safety of our products. A serious breach of our
quality assurance or quality control procedures, deterioration of our
quality image, impairment of our customer or consumer relationships
or failure to adequately protect the relevance of our brands may lead
to litigation, customers purchasing from our competitors or consumers
purchasing other brands or private label items that may or may not
be manufactured by us, any of which could have a material negative
impact on our business, financial condition or results of operations.
The food industry generally is subject to risks posed by food spoilage
and contamination, product tampering, product recall, import alerts and
consumer product liability claims. For instance, we may be required to
recall certain of our products should they be mislabeled, contaminated
or damaged. Additionally, certain of our raw materials could be blocked
from entering the country if they were subject to government-imposed
actions. We have and may continue to become involved in lawsuits
and legal proceedings if it is alleged that the consumption of any of our
products could cause injury or illness, or that any of our products are
mislabeled or fail to meet applicable legal requirements (even if the
allegation is untrue). A product recall, import alert or an adverse result
in any such litigation, or negative perceptions regarding food products
and ingredients, could result in our having to pay fines or damages,
incur additional costs or cause customers and consumers in our
principal markets to lose confidence in the safety and quality of certain
products or ingredients, any of which could have a negative effect on
our business or financial results and, depending upon the significance
of the affected product, that negative effect could be material to our
business or financial results. Negative publicity about these concerns,
whether or not valid, may discourage customers and consumers from
buying our products or cause disruptions in production or distribution
of our products and adversely affect our business, financial condition
or results of operations.
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, consumer behaviors, and competitive,
economic and other pressures facing our customers, may
impact our financial condition or results of operations.
A number of our customers, such as supermarkets, warehouse clubs
and food distributors, have consolidated in recent years and consoli-
dation could continue. Such consolidation could present a challenge to
margin growth and profitability in that it has produced large, sophisti-
cated customers with increased buying power who are more capable
of operating with reduced inventories; resisting price increases;
demanding lower pricing, increased promotional programs and specif-
ically 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.
2021 Annual Report 25
The trend towards e-commerce and its impact of consumer habits and
preferences has accelerated since the onset of the COVID-19 pandemic
in many of the markets we serve and our financial results may be
impacted if we are unable to adapt to changing consumer preferences
and market dynamics. In addition, our flavor solutions segment may
be impacted if the reputation or perception of the customers of our
flavor solutions segment declines. These factors could have an adverse
impact on our business, financial condition or results of operations.
The inability to maintain mutually beneficial relationships with
large customers could adversely affect our business, financial
condition and results of operations.
We have a number of major customers, including two large customers
that, in the aggregate, constituted approximately 22% of our consol-
idated sales in 2021. The loss of either of these large customers due
to events beyond our control, or a material negative change in our
relationship with these large customers or other major customers could
have an adverse effect on our business, financial condition and results
of operations.
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 con-
ditions, climate change, market conditions, governmental actions and
other factors beyond our control, including the COVID-19 pandemic.
The most significant raw materials used by us in our business are dairy
products, pepper, capsicums (red peppers and paprika), onion, vanilla,
garlic, and salt. While future price movements of raw material costs
are uncertain, we seek to mitigate the market price risk in a number
of ways, including strategic raw material purchases, purchases of
raw material for future delivery, customer price adjustments and cost
savings from our CCI program. We generally have not used derivatives
to manage the volatility related to this risk. To the extent that we
have used derivatives for this purpose, it has not been material to our
business. Any actions we take in response to market price fluctuations
may not effectively limit or eliminate our exposure to changes in raw
material prices. Therefore, we cannot provide assurance that future
raw material price fluctuations will not have a negative impact on our
business, financial condition or operating results.
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.
26 McCormick & Company, Inc.
Disruption of our supply chain could adversely affect our
business.
Our ability to make, move, and sell products is critical to our success.
Damage or disruption to raw material supplies or our manufacturing
or distribution capabilities due to weather, climate change, natural
disaster, fire, terrorism, cyber-attack, pandemics (such as the COVID-19
pandemic), governmental restrictions or mandates, strikes, import/
export restrictions, or other factors could impair our ability to manufac-
ture or sell our products. Many of our product lines are manufactured
at a single location. The failure of third parties on which we rely,
including those third parties who supply our ingredients, packaging,
capital equipment and other necessary operating materials, contract
manufacturers, commercial transport, distributors, contractors, and
external business partners, to meet their obligations to us, or
significant disruptions in their ability to do so, may negatively impact
our operations. Our suppliers’ policies and practices can damage
our reputation and the quality and safety of our products. Disputes
with significant suppliers, including disputes regarding pricing or
performance, could adversely affect our ability to supply products to
our customers and could materially and adversely affect our sales,
financial condition, and results of operations. Failure to take adequate
steps to mitigate the likelihood or potential impact of such events, or
to effectively manage such events if they occur, particularly when a
product is manufactured from a single location, could adversely affect
our business and results of operations, as well as require additional
resources to restore our supply chain.
Moreover, short term or sustained increases in consumer demand at
our customers may exceed our production capacity or otherwise strain
our supply chain. Our failure to meet the demand for our products
could adversely affect our business and results of operations.
Our results of operations can be adversely affected by labor
shortages, turnover and labor cost increases.
Labor is a primary component of operating our business. A number of
factors may adversely affect the labor force available to us or increase
labor costs, including high unemployment levels, federal unemployment
subsidies, including unemployment benefits offered in response to the
COVID-19 pandemic, and other government regulations. We are also
experiencing and may continue to experience additional pressure in our
supply chain due to labor shortages and absenteeism associated with
COVID-19, together with the impact of the continued elevated demand.
A sustained labor shortage or increased turnover rates within our
employee base, caused by COVID-19 or as a result of general macro-
economic factors, could lead to increased costs, such as increased over-
time to meet demand and increased wage rates to attract and retain
employees, and could negatively affect our ability to efficiently operate
our manufacturing and distribution facilities and overall business.
If we are unable to hire and retain employees capable of performing
at a high-level, or if mitigation measures we may take to respond to
a decrease in labor availability, such as overtime and third-party
outsourcing, have negative effects, our business could be adversely
affected. In addition, we distribute our products and receive raw
materials primarily by truck. Reduced availability of trucking capacity
due to shortages of drivers, primarily as a result of the COVID-19
pandemic, has caused an increase in the cost of transportation for us
and our suppliers. An overall labor shortage, lack of skilled labor,
increased turnover or labor inflation, caused by COVID-19 or as a result
of general macroeconomic factors, could have a material adverse
impact on our business, financial condition or operating results.
We may not be able to increase prices to fully offset inflationary
pressures on costs, such as raw and packaging materials,
labor and distribution costs, which may impact our financial
condition or results of operations.
As a manufacturer and distributor of flavor products, we rely on raw
materials, packaging materials, plant labor, distribution resources, and
transportation providers. In 2021 and the early part of 2022, the costs
of raw materials, packaging materials, labor, energy, fuel, transpor-
tation and other inputs necessary for the production and distribution
of our products have rapidly increased. In addition, many of these
materials are subject to price fluctuations from a number of factors,
including, but not limited to, market conditions, demand for raw
materials, weather, growing and harvesting conditions, climate
change, energy costs, currency fluctuations, supplier capacities,
governmental actions, import and export requirements (including
tariffs), and other factors beyond our control. Although we are unable
to predict the impact on our ability to source materials in the future,
we expect these supply pressures to continue into 2022. We also
expect the pressures of input cost inflation to continue into 2022.
Our attempts to offset these cost pressures, such as through increases
in the selling prices of some of our products, may not be successful.
Higher product prices may result in reductions in sales volume. Con-
sumers may be less willing to pay a price differential for our branded
products and may increasingly purchase lower-priced offerings, or may
forego some purchases altogether, during an economic downturn. To
the extent that price increases or packaging size decreases are not suf-
ficient to offset these increased costs adequately or in a timely manner,
and/or if they result in significant decreases in sales volume, our busi-
ness, financial condition or operating results may be adversely affected.
Furthermore, we may not be able to offset any cost increases through
productivity initiatives or through our commodity hedging activity.
Our profitability may suffer as a result of competition in our
markets.
The food industry is intensely competitive. Competition in our product
categories is based on price, product innovation, product quality, brand
recognition and loyalty, effectiveness of marketing and promotional
activity, and the ability to identify and satisfy consumer preferences.
From time to time, we may need to reduce the prices for some of our
products to respond to competitive and customer pressures, which
may adversely affect our profitability. Such pressures could reduce our
ability to take appropriate remedial action to address commodity and
other cost increases.
Our operations may be impaired as a result of disasters,
business interruptions or similar events.
We could have an interruption in our business, loss of inventory or
data, or be rendered unable to accept and fulfill customer orders as a
result of a natural disaster, catastrophic event, epidemic or computer
system failure. Natural disasters could include an earthquake, fire,
flood, tornado or severe storm. A catastrophic event could include a
terrorist attack. An epidemic or pandemic could affect our operations,
major facilities or employees’ and consumers’ health. In addition,
some of our inventory and production facilities are located in areas
that are susceptible to harsh weather; a major storm, heavy snowfall
or other similar event could prevent us from delivering products in a
timely manner. Production of certain of our products is concentrated in
a single manufacturing site.
We cannot provide assurance that our disaster recovery plan will
address all of the issues we may encounter in the event of a disaster
or other unanticipated issue, and our business interruption insurance
may not adequately compensate us for losses that may occur from any
of the foregoing. In the event that a natural disaster, terrorist attack
or other catastrophic event were to destroy any part of our facilities
or interrupt our operations for any extended period of time, or if harsh
weather or health conditions prevent us from delivering products in a
timely manner, our business, financial condition or operating results
could be adversely affected.
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.
An impairment of the carrying value of goodwill or other
indefinite-lived intangible assets could adversely affect our
results.
As of November 30, 2021, we had approximately $5.3 billion of goodwill
and approximately $3.5 billion of other indefinite-lived intangible assets.
Goodwill and indefinite-lived intangible assets are initially recorded at
fair value and not amortized but are tested for impairment at least annu-
ally or more frequently if impairment indicators arise. We test goodwill
at the reporting unit level by comparing the carrying value of the net
assets of the reporting unit, including goodwill, to the unit’s fair value.
Similarly, we test indefinite-lived intangible assets by comparing the fair
value of those assets to their carrying values. If the carrying values of the
reporting unit or indefinite-lived intangible assets exceed their fair value,
the goodwill or indefinite-lived intangible assets are considered impaired
and reduced to their implied fair value or fair value, respectively. Factors
that could result in an impairment include a change in revenue growth
rates, operating margins, weighted average cost of capital, future
economic and market conditions, higher income tax rates, or assumed
royalty rates. The impairment of our goodwill or indefinite-lived intangi-
ble 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.
2021 Annual Report 27
Streamlining actions to reduce fixed costs, simplify or improve
processes, and improve our competitiveness may have a
negative effect on employee relations.
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 regularly evaluate whether to implement changes to our organiza-
tion structure to reduce fixed costs, simplify or improve processes, and
improve our competitiveness, and we expect to continue to evaluate
such actions in the future. From time to time, those changes are of
such significance that we may transfer production from one manufac-
turing facility to another; transfer certain selling and administrative
functions from one location to another; eliminate certain manufactur-
ing, selling and administrative positions; and exit certain businesses
or lines of business. These actions may result in a deterioration of em-
ployee 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.
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 unconsolidated
affiliates. Primary exposures include the U.S. dollar versus the Euro,
British pound sterling, Chinese renminbi, Canadian dollar, Australian
dollar, Polish zloty, and Mexican peso, as well as the Euro versus the
British pound sterling and Australian dollar, and finally the Canadian
dollar versus British pound sterling. We routinely enter into foreign
currency exchange contracts to facilitate managing certain of these
foreign currency risks. However, these contracts may not effectively
limit or eliminate our exposure to a decline in operating results due
to foreign currency exchange changes. Therefore, we cannot provide
assurance that future exchange rate fluctuations will not have a
negative impact on our business, financial position or operating results.
The on-going effects of the decision by British voters to exit
the European Union may negatively impact our operations.
On January 1, 2021, the EU-UK Trade and Cooperation Agreement (the
EU-UK trade deal) took effect. The EU-UK trade deal was formally
approved by the European Union legislature on April 28, 2021. While
the EU-UK trade deal has removed uncertainty and a significant
amount of financial risk associated with the U.K.’s exit from the Euro-
pean 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 move-
ment 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
28 McCormick & Company, Inc.
We face risks associated with certain pension assets and
obligations.
We hold investments in equity and debt securities in our qualified
defined benefit pension plans and in a rabbi trust for our U.S. non-
qualified pension plan. Deterioration in the value of plan assets
resulting from a general financial downturn or otherwise, or an
increase in the actuarial valuation of the plans’ liability due to a low
interest rate environment, could cause (or increase) an underfunded
status of our defined benefit pension plans, thereby increasing our
obligation to make contributions to the plans. An obligation to make
contributions to pension plans could reduce the cash available for
working capital and other corporate uses, and may have an adverse
impact on our operations, financial condition and liquidity.
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. As a result of climate
change, we may also be subjected to decreased availability of water,
deteriorated quality of water or less favorable pricing for water, which
could adversely impact our manufacturing and distribution operations.
In addition, such climate change may result in modifications to the eat-
ing preferences of the ultimate consumers of certain of our products,
which may also unfavorably impact our sales and profitability.
ESG issues, including those related to climate change and
sustainability, may have an adverse effect on our business,
financial condition and results of operations and damage our
reputation.
Companies across all industries are facing increasing scrutiny relating
to their ESG policies. If we are unable to meet our ESG goals or evolv-
ing investor, industry or stakeholder expectations and standards, or if
we are perceived to have not responded appropriately to the growing
concern for ESG issues, customers and consumers may choose to stop
purchasing our products or purchase products from another company
or a competitor, and our reputation, business or financial condition may
be adversely affected. Increased focus and activism on ESG topics may
hinder our access to capital, as investors may reconsider their capital
investment as a result of their assessment of our ESG practices. In
particular, these constituencies are increasingly focusing on environ-
mental issues, including climate change, water use, deforestation,
plastic waste, and other sustainability concerns. Changing consumer
preferences may result in increased demands regarding plastics and
packaging materials, including single-use and non-recyclable plastic
packaging, and other components of our products and their environ-
mental impact on sustainability; a growing demand for natural or
organic products and ingredients; or increased consumer concerns or
perceptions (whether accurate or inaccurate) regarding the effects of
ingredients or substances present in certain consumer products. These
demands could cause us to incur additional costs or to make changes
to our operations to comply with such demands.
In addition to environmental issues these constituencies are also
focused on social and other governance issues, including matters
such as, but not limited to, human capital and social issues. We also
have established diversity, equity and inclusion goals as part of our
ESG initiative. Our initiatives also extend from individuals to entire
communities, including those we serve and, just as importantly, those
from which we source.
Concern over climate change, including plastics and packaging
materials, in particular, may result in new or increased legal and
regulatory requirements. Increased regulatory requirements related to
environmental causes, and related ESG disclosure rules, may result in
increased compliance costs or increased costs of energy, raw materials
or compliance with emissions standards, which may cause disruptions
in the manufacture of our products or an increase in operating costs.
Any failure to achieve our ESG goals or a perception (whether or not
valid) of our failure to act responsibly with respect to the environmen-
tal, human capital, or social issues, or to effectively respond to new, or
changes in, legal or regulatory requirements concerning environmental
or other ESG matters, or increased operating or manufacturing costs
due to increased regulation or environmental causes could adversely
affect our business and reputation and increase risk of litigation.
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, 2021, we had total outstanding variable rate debt
of approximately $613 million, including $539 million of short-term
borrowings, at a weighted-average interest rate of approximately
0.2%. The interest rates under our revolving credit facility can vary
based on our credit ratings. Our policy is to manage our interest rate
risk by entering into both fixed and variable rate debt arrangements.
We also use interest rate swaps to minimize worldwide financing cost
and to achieve a desired mix of fixed and variable rate debt. We utilize
derivative financial instruments to enhance our ability to manage risk,
including interest rate exposures that exist as part of our ongoing
business operations. We do not enter into contracts for trading pur-
poses, nor are we a party to any leveraged derivative instruments. Our
use of derivative financial instruments is monitored through regular
communication with senior management and the utilization of written
guidelines. However, our use of these instruments may not effectively
limit or eliminate our exposure to changes in interest rates. Therefore,
we cannot provide assurance that future credit rating or interest rate
changes will not have a material negative impact on our business,
financial position or operating results.
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
condition and liquidity.
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 may incur additional indebtedness to finance our acquisi-
tions 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.
We have a significant amount of indebtedness outstanding. As of
November 30, 2021, the indebtedness of McCormick and its subsidiar-
ies is approximately $5.3 billion. 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;
• 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 facility, or borrowings backed by this
facility, to fund a portion of our seasonal working capital needs and
other general corporate purposes, including funding of acquisitions. If
any of the banks in the syndicates backing these facilities were unable
to perform on its commitments, our liquidity could be impacted, which
could adversely affect funding of seasonal working capital requirements.
We engage in regular communication with all of the banks participating
in our revolving credit facility. During these communications, none of the
2021 Annual Report 29
banks have indicated that they may be unable to perform on their com-
mitments. 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
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 planned 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, synthetic
lease, interest rate swaps, and cross currency interest rate swaps is
expected to be phased out beginning after December 31, 2021 when
private-sector banks are no longer required to report the information
used to set the rate. Without this data, LIBOR may no longer be pub-
lished, or the lack of quality and quantity of data may cause the rate to
no longer be representative of the market. On March 5, 2021, the U.K.
Financial Conduct Authority (FCA) published a statement confirming
that all LIBOR settings will either cease to be provided or no longer be
representative (i) immediately after December 31, 2021, in the case
of all sterling, euro, Swiss franc and Japanese yen settings, and the
1-week and 2-month US dollar settings, and (ii) immediately after
June 30, 2023, in the case of all remaining US dollar settings. The
International Swaps and Derivative Association (ISDA) or Alternative
Reference Rates Committee (ARRC) fallback spread adjustments were
fixed as of the FCA announcement date and are expected to be imple-
mented at the point each relevant reference rate ceases or becomes
non-representative.
There continue to be many uncertainties regarding a transition from
LIBOR, including but not limited to the need to amend all contracts with
LIBOR as the referenced rate and how this will impact the Company’s
cost of variable rate debt and certain derivative financial instruments.
The Company will also need to consider new contracts and if they
should reference an alternative benchmark rate or include suggested
fallback language, as published by the ARRC. The consequences of
these developments with respect to LIBOR cannot be entirely predicted
and span multiple future periods but could result in an increase in the
cost of our variable rate debt or derivative financial instruments which
may be detrimental to our financial position or operating results.
The declaration, payment and amount of 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
30 McCormick & Company, Inc.
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
information 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, and the systems of
our customers, vendors, suppliers, and other third-party service provid-
ers, are subject to cyber-attacks or other security incidents including
computer viruses or other malicious codes, phishing attacks, ransom-
ware, or other service disruptions, or other system or process failures.
Such incidents could result in unauthorized access to information
including customer, consumer or other company confidential data as
well as disruptions to operations. We, and the third-parties we do
business with, have experienced in the past, and expect to continue to
experience, cybersecurity threats and attacks, although to date none
has been material. To address the risks to our information technology
systems and data, we maintain an information security program
that includes updating technology, developing security policies and
procedures, implementing and assessing the effectiveness of controls,
monitoring and routine testing of our information systems, conducting
risk assessments of third party service providers and designing busi-
ness processes to mitigate the risk of such breaches. We believe that
these preventative actions provide adequate measures of protection
against security breaches and generally reduce our cybersecurity
risks. However, cyber-threats are constantly evolving, are becoming
more sophisticated and are being made by groups of individuals with
a wide range of expertise and motives, which increases the difficulty
of detecting and successfully defending against them. There can be
no assurance that these measures will prevent or limit the impact of a
future incident. Moreover, the development and maintenance of these
measures requires continuous monitoring as technologies change and
efforts to overcome security measures evolve. Additionally, we rely
on services provided by third-party vendors for certain information
technology processes and functions, which makes our operations
vulnerable to a failure by any one of these vendors to perform
adequately or maintain effective internal controls. If we are unable to
prevent or adequately respond to and resolve an incident, it may have
a material, negative impact on our operations or business reputation,
and we may experience other adverse consequences such as loss of
assets, remediation costs, litigation, regulatory investigations, and the
failure by us to retain or attract customers following such an event.
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, capa-
bilities 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 transforma-
tion 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
(due to operational limitations caused by COVID-19 or otherwise), or
anticipate the necessary readiness and training 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 effective 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,
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
regulations relating to the growing, sourcing, manufacturing, storage,
labeling, marketing, advertising and distribution of food products, as
well as laws and regulations relating to financial reporting require-
ments, the environment, consumer protection, competition, anti-
corruption, privacy, relations with distributors and retailers, foreign
supplier verification, customs and trade laws, including the import and
export of products and product ingredients, employment, and health
and safety. Enforcement of existing laws and regulations, changes in
legal requirements, and/or evolving interpretations of existing regula-
tory requirements may result in increased compliance costs and create
other obligations, financial or otherwise, that could adversely affect
our business, financial condition or operating results. Increased reg-
ulatory scrutiny of, and increased litigation involving, product claims
and concerns regarding the attributes of food products and ingredients
may increase compliance costs and create other obligations that could
adversely affect our business, financial condition or operating results.
Governments may also impose requirements and restrictions that
impact our business, such as labeling disclosures pertaining to ingredi-
ents. For example, “Proposition 65, the Safe Drinking Water and Toxic
Enforcement Act of 1986,” in California exposes all food companies to
the possibility of having to provide warnings on their products in that
state. If we were required to add warning labels to any of our products
or place warnings in locations where our products are sold in order
to comply with Proposition 65, the sales of those products and other
products of our company could suffer, not only in those locations but
elsewhere.
In addition, there are various compliance obligations for companies that
process personal data of certain individuals, including such obligations
required by the European Union’s General Data Protection Regulation
(GDPR), which came into effect in May 2018, and the California Consum-
er Privacy Act (CCPA), which came into effect in January 2020. These
types of data privacy laws create a range of compliance obligations for
2021 Annual Report 31
companies that process personal data of certain individuals and increases
financial penalties for non-compliance. For example, the CCPA imposes
requirements on companies that do business in California and collect
personal information from customers, including notice, consent and
service provider requirements. The CCPA also provides for civil penalties
for companies that fail to comply with these requirements, as well as a
private right of action for data breaches. Further, in November 2020, the
California Privacy Rights Act (“CPRA”) was passed into law and goes
into full effect on January 1, 2023 (with a ‘look-back’ to January 1,
2022). The CPRA builds on the CCPA and among other things, requires
the establishment of a dedicated agency to regulate privacy issues.
In 2021, Virginia and Colorado adopted laws which will take effect on
January 1, 2023, and July 1, 2023, respectively, introducing new privacy
obligations, which may require us to develop additional compliance
mechanisms and processes. As a company that is subject to data privacy
laws, we bear the costs of compliance with them, including the GDPR and
U.S. state laws, and are subject to the potential for fines and penalties in
the event of a breach of these laws, which continue to evolve. These fac-
tors 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 ordinary
course of business. Since litigation is inherently uncertain, there is no
guarantee that we will be successful in defending ourselves against
such claims or proceedings, or that management’s assessment of the
materiality or immateriality of these matters, including any reserves
taken in connection with such matters, will be consistent with the
ultimate outcome of such claims or proceedings. In the event that
management’s assessment of the materiality or immateriality of
current claims and proceedings proves inaccurate, or litigation that is
material arises in the future, there may be a material adverse effect on
our financial condition. Any adverse publicity resulting from allegations
made in litigation claims or legal or administrative proceedings (even
if untrue) may also adversely affect our reputation. These factors and
others could have an adverse impact on our business and financial
condition or damage our reputation.
Our international and cross-border operations are subject to
additional risks.
We operate our business and market our products internationally. In
fiscal year 2021, approximately 40% of our sales were generated in
countries other than the U.S. Our international operations are subject
to additional risks, including fluctuations in currency values, foreign
currency exchange controls, discriminatory fiscal policies, 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 affected
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 dispositions,
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.
32 McCormick & Company, Inc.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Italy:
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:
Florence–consumer and flavor solutions (2 principal plants)
China:
Guangzhou–consumer and flavor solutions
Shanghai–consumer and flavor solutions
Wuhan–consumer
Australia:
Melbourne–consumer and flavor solutions
Palmwoods–consumer
Thailand:
Chonburi–consumer and flavor solutions
In addition to distribution facilities and warehouse space available at
our manufacturing facilities, we lease regional distribution facilities
as follows (i) in the U.S.: Belcamp and Aberdeen, Maryland; Salinas,
California; Byhalia, Mississippi; Irving, Texas; and Springfield,
Missouri; (ii) in Canada: Mississauga and London, Ontario; (iii) in
Heywood, U.K. and (iv) in 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
Peterborough, England–flavor solutions
France:
Carpentras–consumer and flavor solutions
Monteux–consumer and flavor solutions
Poland:
Stefanowo–consumer
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.
2021 Annual Report 33
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 MKC.V and MKC, respectively. We have disclosed in note 17 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, 2021 was $95.39 per share for the Common Stock and $96.61 per share for the Common Stock Non-Voting.
The approximate number of holders of our common stock based on record ownership as of December 31, 2021 was as follows:
Title of class
Common Stock, par value $0.01 per share
Common Stock Non-Voting, par value $0.01 per share
Approximate number
of record holders
2,100
9,400
The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2021:
Period
September 1, 2021 to
September 30, 2021
October 1, 2021 to
October 31, 2021
November 1, 2021 to
November 30, 2021
Total
ISSUER PURCHASES OF EQUITY SECURITIES
Total number of
shares
purchased
CS-33,191(1)
CSNV-0
CS-11,640
CSNV-1,600
CS-18,007(2)
CSNV-0
CS-62,838
CSNV-1,600
Average
price
paid per
share
$85.75
—
$79.88
$80.96
$85.68
—
$84.64
$80.96
Total number of
shares purchased
as part of publicly
announced plans
or programs
33,191
—
11,640
1,600
18,007
—
62,838
1,600
Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs
$579 million
$578 million
$576 million
$576 million
(1) On September 1, 2021 and September 29, 2021, we purchased 15,870 shares and 17,321 shares, respectively, of our CS from our U.S. defined contribution
retirement plan to manage shares, based upon participant activity, in the plan’s company stock fund. The price paid per share represented the closing price of
the common shares on September 1, 2021 and September 29, 2021, respectively.
(2) On November 23, 2021, we purchased 18,007 shares of our CS from our U.S. defined contribution retirement plan to manage shares, based upon participant
activity, in the plan’s company stock fund. The price paid per share represented the closing price of the common shares on November 23, 2021.
As of November 30, 2021, approximately $576 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 2021, we
issued 617,155 shares of CSNV in exchange for shares of CS and issued 14,262 shares of CS in exchange for shares of CSNV.
ITEM 6. [RESERVED]
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 Con-
dition and Results of Operations (MD&A) is intended to help the reader
understand McCormick & Company, Incorporated, our operations and
our present business environment from the perspective of manage-
ment. MD&A is provided as a supplement to, and should be read in
conjunction with, our financial statements and the accompanying notes
thereto contained in Item 8 of this report. We use certain non-GAAP
information—more fully described below under the caption Non-GAAP
Financial Measures—that we believe is important for purposes of
comparison to prior periods and development of future projections
and earnings growth prospects. This information is also used by
management to measure the profitability of our ongoing operations
and analyze our business performance and trends. The dollar and
share information in the charts and tables in the MD&A are in millions,
except per share data. On November 30, 2020, the Company effected a
two-for-one stock split in the form of a stock dividend on all shares of
the Company’s two classes of common stock. On November 30, 2020,
one like share was issued for each share outstanding to shareholders
of record as of November 20, 2020. All common stock and per share
data have been retroactively adjusted to reflect the stock split.
McCormick is a global leader in flavor. We manufacture, market and
distribute spices, seasoning mixes, condiments and other flavorful
products to the entire food and beverage industry—retailers, food
manufacturers and foodservice businesses. We manage our business in
two operating segments, consumer and flavor solutions, as described
in Item 1 of this report.
Our long-term annual growth objectives in constant currency are to
increase sales 4% to 6%, increase adjusted operating income 7% to
9% and increase adjusted earnings per share 9% to 11%.
COVID-19 —As a result of the COVID-19 pandemic, governments
around the world either recommended or mandated actions to slow
the transmission of the virus that included shelter-in-place orders,
quarantines, limitations on crowd size, closures of dine-in restaurants
and bars, and significant restrictions on travel, as well as work restric-
tions that prohibited many employees from going to work. Uncertainty
with respect to the economic effects of the pandemic has significantly
impacted not only our operating results but also the global economy.
The extent and nature of government actions varied during the years
ended November 30, 2021 and 2020 based upon the then-current
extent and severity of the COVID-19 pandemic within their respective
countries and localities.
We continue to actively monitor the impact of COVID-19 on all aspects
of our business. The effects of COVID-19 on consumer behavior have
impacted the relative balance of at-home versus away-from-home
food demand. The impact of COVID-19 on our consumer segment
since the beginning of the pandemic has resulted in a significant
increase in at-home consumption and related demand for our prod-
ucts. In 2021, our flavor solutions segment benefited from a recovery
in away-from-home eating that more than offset the net sales
declines experienced in 2020 as a result of restrictions imposed to
reduce the spread of COVID-19. The COVID-19 mitigation measures in
2020 impacting certain of our flavor solutions customers included the
following: (i) with respect to dine-in restaurants, closures, limita-
tions on dine-in capacity, or restrictions on the operations of those
restaurants to carry-out or delivery only; and (ii) with respect to quick
service restaurants, limitations on operations to drive-through pick-up
or delivery. Although certain restrictive measures were reinstated
during certain periods of 2021, the prevalence and scale of closures
and operating limitations were less severe as compared to 2020. For
comparative purposes, the following provides a summary of growth
in net sales as reported and on a constant currency basis for the year
ended 2021 as compared to 2019:
Net sales:
Consumer segment
Flavor Solutions segment
Total net sales
For the year ended November 30, 2021 as
compared to the year ended November 30, 2019
Percentage
change
as reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
20.4%
14.6%
18.1%
2.1%
0.8%
1.6%
18.3%
13.8%
16.5%
The percentage change in reported net sales and the percentage
change on a constant currency basis were favorably impacted by the
acquisitions of Cholula and FONA, which, in aggregate, contributed
2.6%, 7.1% and 4.3% to the consumer segment, flavor solutions seg-
ment and total net sales growth rates, respectively, in the preceding
table, on both a reported and constant currency basis.
In early fiscal 2021, vaccines effective in combating COVID-19 were
approved by health agencies in certain countries/regions in which
we operate (including the U.S., U.K., European Union, Canada and
Mexico) and began to be administered. The availability of COVID-19
vaccines and their acceptance by individuals is difficult to predict, and
vaccination levels vary across jurisdictions. The pace and shape of
the COVID-19 recovery as well as the impact and extent of COVID-19
variants or potential resurgences is not presently known. These and
other uncertainties with respect to COVID-19 could result in changes
to our current expectations in addition to a number of adverse impacts
to our business, including but not limited to additional disruption to the
economy and consumers’ willingness and ability to spend, temporary
or permanent closures by businesses that consume our products,
such as restaurants, additional work restrictions, and supply chains
being interrupted, slowed, or rendered inoperable or, in the case of
significant increased demand for our product, we may be unable to
fulfill that increased demand. As a result, it may be challenging to
obtain and process raw materials to support our business needs, and
individuals could become ill, quarantined, or otherwise unable to work
and/or travel due to health reasons or governmental restrictions. Also,
governments may impose other laws, regulations or taxes related to
2021 Annual Report 35
COVID-19 which could adversely impact our business, financial con-
dition, 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 obliga-
tions, credit risks of our customers and counterparties, and potential
impairment of the carrying value of goodwill or other indefinite-lived
intangible assets.
Inflationary Cost Environment and Supply Chain Disruption—During
fiscal 2021, we experienced inflationary cost increases in our com-
modities, packaging materials and transportation costs. We expect
that these inflationary cost increases will continue but we expect they
will be partially mitigated by pricing actions implemented in the fourth
quarter of fiscal 2021, those that we plan to implement in fiscal 2022
and by our Comprehensive Continuous Improvement (CCI) program-led
cost savings. During fiscal 2021, we also experienced additional
pressure in our supply chain due to strained transportation capacity,
as well as due to labor shortages and absenteeism associated with
COVID-19, together with the impact of the continued elevated demand.
In response to these supply chain pressures, we have taken actions
build capacity as well as increase our supply chain related resources.
We expect these pressures to continue in 2022.
Sales growth: Over time, we expect to grow sales with similar contri-
butions from: 1) our base business – driven by brand marketing sup-
port, category management, and differentiated customer engagement;
2) new products; and 3) acquisitions.
Base business—We expect to drive sales growth by optimizing our
brand marketing investment through improved speed, quality and
effectiveness. We measure the return on our brand marketing invest-
ment and have identified digital marketing as one of our highest return
investments in brand marketing support. Through digital marketing,
we are connecting with consumers in a personalized way to deliver
recipes, provide cooking advice and help them 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 products aligned with
our customers’ new product launch plans, many of which include
clean-label, organic, natural, and “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 2017, we have com-
pleted four acquisitions, which are driving sales in both our consumer
and flavor solutions segments. We focus on acquisition opportunities
that meet the growing demand for flavor and health. Geographically,
our focus is on acquisitions that build scale where we currently have
36 McCormick & Company, Inc.
presence in both developed and emerging markets. Information with
respect to our three most recent acquisitions is provided below:
• On December 30, 2020, we acquired FONA International, LLC and
certain of its affiliates (FONA), a privately owned company, for
approximately $708 million, net of cash acquired. We financed this
fiscal 2021 acquisition with cash and short-term borrowings. FONA
is a leading manufacturer of clean and natural flavors providing
solutions for a diverse customer base across various applications
for the food, beverage and nutritional markets which expands the
breadth of our flavor solutions segment into attractive categories, as
well as extends our technology platform, strengthens our capabili-
ties, and accelerates 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 $801 million,
net of cash acquired. 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 oppor-
tunities 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 iconic 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 contributed approximately one-third
of our sales growth in 2021.
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 $40.7 million have been recognized through
November 30, 2021. As technology provides the backbone for this
greater process alignment, information sharing and scalability, we
are also making investments in our information systems. From late
2018 through early 2020, we progressed in implementing our global
enterprise resource planning (ERP) replacement program which will
enable us to accelerate the transformation of our ways of working and
provide a scalable platform for growth. In the second quarter of fiscal
2020, we elected to pause activity related to our ERP for the balance
of fiscal 2020 due, in part, to COVID-19 restrictions that restricted
necessary travel by internal and external ERP team members and made
it difficult for local McCormick personnel to actively participate in the
ERP development, data cleansing, and testing prior to then scheduled
pilots later in fiscal 2020. During fiscal 2021, we resumed activities
related to our ERP replacement program.
We expect that, in total over the course of the ERP replacement program
from late 2018 through 2025, we will invest approximately $400 million,
including expenses related to the go-live activities in our operations,
to enable the anticipated completion of the global roll out of our new
information technology platform in 2025. Of that projected $400 million,
we expect capitalized software to account for approximately 50% and
program expenses to account for approximately 50%. Of the approx-
imately $200 million of operating expenses included in our projected
total spending related to our ERP replacement program, approximately
$85 million has been recognized through November 30, 2021. Of the
approximately $200 million of capitalized software included in our
projected total spending related to our ERP program, approximately
$115 million has been recognized through November 30, 2021.
The GE initiative is expected to generate annual savings, ranging
from approximately $45 million to $55 million, once all actions are
implemented, including those that are dependent on the replacement
of our global ERP platform.
Cash flow: We continue to generate strong cash flow. Net cash pro-
vided by operating activities was $828.3 million, $1,041.3 million and
$946.8 million in 2021, 2020, and 2019, respectively. In 2021, we con-
tinued to have a balanced use of cash for debt repayment, 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 36 years, and to
fund capital expenditures and acquisitions. In 2021, the return of cash
to our shareholders through dividends and share repurchases was
$371.9 million.
Operating Results: On a long-term basis, we expect a combination of
acquisitions, share repurchases and debt repayments, and the result-
ing impact on interest expense, to add about 2% to earnings per
share growth.
In 2021, we achieved further growth of our business with net sales
rising 12.8% over the 2020 level due to the following factors:
• We grew volume and product mix, which added 5.5% of sales
growth, exclusive of acquisitions. This growth was driven by
increases in both our consumer and flavor solutions segments.
Increased net sales within our consumer segment was driven
by strong demand due to a sustained shift in consumer behavior
toward at-home meal preparation, which was first seen in 2020 as
a response to actions taken to mitigate the spread of COVID-19.
Increased net sales within our flavor solutions segment was
principally driven by sales of away-from-home products as compared
to 2020, when actions taken to mitigate the spread of COVID-19
significantly impacted demand.
• Pricing actions contributed 0.8% of the increase in net sales.
• Acquisitions contributed 4.1% of the increase in net sales.
• Net sales growth was positively impacted by fluctuations in currency
rates that increased sales growth by 2.4%. Excluding this impact, we
grew sales by 10.4% over the prior year on a constant currency basis.
Operating income was $1,015.1 million in 2021 and $999.5 million in
2020. We recorded $51.1 million and $6.9 million of special charges
in 2021 and 2020, respectively, related to organization and stream-
lining actions. Special charges in 2021 included $4.7 million in cost
of goods sold related the exit of a low margin business. In 2021 and
2020, we also recorded $35.3 million and $12.4 million of transaction
and integration expenses, respectively, related to our acquisitions of
Cholula and FONA that reduced operating income. In 2021, compared
to the year-ago period, the favorable impact of higher sales, $117.0
million of cost savings from our CCI program, including organization
and streamlining actions, and lower incentive-based compensation
more than offset the impact of increased commodity, packaging mate-
rials and transportation costs, higher conversion costs, which include
costs associated with COVID-19, and increased brand marketing costs.
Excluding special charges and transaction and integration expenses
related to our acquisitions of Cholula and FONA, adjusted operating
income was $1,101.5 million in 2021, an increase of 8.1%, compared
to $1,018.8 million in the year-ago period. In constant currency, adjusted
operating income rose 6.2%. For further details and a reconciliation of
non-GAAP to reported amounts, see the subsequent discussion under
the heading “Non-GAAP Financial Measures”.
Diluted earnings per share was $2.80 in 2021 and $2.78 in 2020.
The year-on-year increase in earnings per share was primarily driven
by higher operating income. Special charges and transaction and
integration expenses lowered earnings per share by $0.30 and $0.05 in
2021 and 2020, respectively. A gain on our sale of an unconsolidated
operation increased earnings per share by $0.05 in 2021. Excluding
the effects of special charges, transaction and integration expenses,
and the gain realized from the sale of an unconsolidated operation,
adjusted diluted earnings per share was $3.05 in 2021 and $2.83 in
2020, or an increase of 7.8%.
2022 Outlook
In 2022, we expect to grow net sales over the 2021 level by 3%
to 5%, which includes an estimated 1% unfavorable impact from cur-
rency rates, or 4% to 6% on a constant currency basis. That anticipat-
ed 2022 sales growth includes the impact of pricing actions, including
those taken in 2021, to partially offset cost increases. We expect the
impact of pricing to be a significant driver of our sales growth. We
expect volume and product mix to be impacted by pricing elasticities,
although at a lower level than we have experienced historically. We
anticipate that our volume and product mix will also be impacted by
the exit of a lower margin product line in late 2021.
We expect our 2022 gross profit margin to range from an increase of
20 basis points to a decline of 30 basis points from our gross profit
margin of 39.5% in 2021. The projected 2022 change in gross profit
margin is principally due to the net effect of (i) a mid-teen percentage
impact of inflation in 2022 compared to 2021, (ii) the favorable impact
of pricing actions in response to increased commodity, packaging
materials and transportation costs, (iii) anticipated unfavorable sales
mix in 2022 between our consumer and flavor solutions segments as
compared to 2021, (iv) the favorable impact of anticipated CCI cost
savings, and (v) the lack of $11.0 million of transaction and integration
expenses and special charges reflected in cost of goods sold in 2021.
We expect our 2022 gross profit margin, excluding the $11.0 million of
transaction and integration expenses and special charges in 2021, to
range from comparable to a decline of 50 basis points from our 2021
adjusted gross profit margin of 39.7%.
2021 Annual Report 37
In 2022, we expect an increase in operating income of 13% to 15%,
which includes an estimated 1% unfavorable impact from currency
rates, over the 2021 level. Our CCI-led cost savings target in 2022 is
approximately $85 million. We anticipate integration expenses related
to the FONA acquisition of approximately $3 million to favorably
impact operating income in 2022, as compared to $35.3 million of
transaction and integration expenses in 2021. We also expect approx-
imately $30 million of special charges in 2022 that relate to previously
announced organization and streamlining actions; in 2021, special
charges were $51.1 million. Excluding special charges and transaction
and integration expenses, we expect 2022’s adjusted operating income
to increase by 7% to 9%, which includes an estimated 1% unfavorable
impact from currency rates, or to increase by 8% to 10% on a constant
currency basis over the 2021 level.
Our underlying effective tax rate is projected to be higher in 2022 than
in 2021. We estimate that our 2022 effective tax rate, including the
net favorable impact of anticipated discrete tax items, will be 22% to
23% as compared to 21.5% in 2021. Excluding projected taxes asso-
ciated with special charges and transaction and integration expenses,
we estimate that our adjusted effective tax rate will be 22% to 23% in
2022, as compared to an adjusted effective tax rate of 20.1% in 2021.
Diluted earnings per share was $2.80 in 2021. Diluted earnings per
share for 2022 is projected to range from $3.07 to $3.12. Excluding
the per share impact of i) special charges of $0.16; ii) transaction and
integration expenses, including the unfavorable impact of a discrete
tax item of $0.04 related to our acquisition of FONA, of $0.14; and
iii) the gain realized upon our sale of an unconsolidated operation of
$0.05, adjusted diluted earnings per share was $3.05 in 2021. Adjust-
ed diluted earnings per share, excluding an estimated per share impact
from special charges of $0.09 and from integration expenses of $0.01,
is projected to range from $3.17 to $3.22 in 2022. We expect adjusted
diluted earnings per share to grow by 4% to 6%, which includes a 1%
unfavorable impact from currency rates, or to grow by 5% to 7% on
a constant currency basis over adjusted diluted earnings per share of
$3.05 in 2021.
RESULTS OF OPERATIONS—2021 COMPARED TO 2020
2021
2020
$6,317.9
$5,601.3
12.8%
4.7%
Net sales
Percent growth
Components of percent growth in net
sales–increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
sales to our branded food service customers, as compared to 2020.
Sales were also impacted by favorable foreign currency rates that
increased net sales 2.4% compared to 2020 and is excluded from our
measure of sales growth of 10.4% on a constant currency basis.
Gross profit
Gross profit margin
2021
2020
$2,494.6
$2,300.4
39.5%
41.1%
In 2021, our gross profit margin decreased 160 basis points to 39.5%
from 41.1% in 2020. The decline was driven by the impact of increased
commodity, packaging materials and transportation costs, higher
conversion costs, which includes costs associated with COVID-19,
and a less favorable mix in sales between our consumer and flavor
solutions segments as compared to 2020. These unfavorable impacts
were partially offset by savings from our CCI program, pricing actions,
improved product mix and the accretive impact of the Cholula and
FONA acquisitions, each as compared to the prior year period. In
addition, our 2021 gross profit margin was burdened by (i) $6.3 million
of transaction expense, representing the amortization of the fair value
adjustment to the acquired inventories of Cholula and FONA upon our
sale of those acquired inventories, and (ii) a non-cash special charge
of $4.7 million associated with the exit of a low margin business in
our Asia/Pacific region. Excluding the transaction expense and special
charges, adjusted gross profit margin decreased by 140 basis points
from 41.1% in 2020 to 39.7% for the year ended November 30, 2021.
Selling, general & administrative expense
Percent of net sales
$1,404.1
$1,281.6
22.3%
22.9%
2021
2020
Selling, general and administrative (SG&A) expense was $1,404.1
million in 2021 compared to $1,281.6 million in 2020, an increase
of $122.5 million. That increase in SG&A expense was primarily a
result of (i) SG&A associated with the Cholula and FONA acquisitions;
(ii) greater selling and distribution expenses associated with the
higher sales volume; and (iii) increased brand marketing costs, all
as compared to the corresponding period in 2020. Those increases
were partially offset by lower performance-based employee incentive
expenses, as compared to the prior year period. SG&A as a percent
of net sales for 2021 decreased by 60 basis points from the prior year
level, driven by the impact of the leverage of fixed and semi-fixed
expenses over a higher level of sales during the 2021 period.
5.5%
0.8%
4.1%
2.4%
3.7%
1.6%
—%
(0.6)%
Special charges included in cost of goods sold
Other special charges
Total special charges
2021
$ 4.7
46.4
$51.1
2020
$ —
6.9
$ 6.9
Sales for 2021 increased by 12.8% from 2020 and by 10.4% on a
constant currency basis. That 12.8% sales increase was driven by
higher sales in both our consumer and flavor solutions segments. On a
consolidated basis, higher volume and favorable product mix increased
sales by 5.5% while pricing actions, which were primarily taken in
the fourth quarter, added 0.8% to sales. That net volume increase and
favorable mix was driven by continued levels of strong demand within
our consumer segment, as the shift in consumer behavior toward
at-home meal preparation, first seen in 2020 as a response to actions
taken to mitigate the spread of COVID-19, has persisted. In addition,
our flavor solutions segment volume increased principally due to a
recovery in demand for away-from-home products, including higher
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 2021, we recorded $51.1 million of special charges, consisting
principally of (i) $19.5 million associated with our exit of our rice
product line in India, as more fully described below, (ii) $6.2 million
38 McCormick & Company, Inc.
associated with the transition of a manufacturing facility in EMEA,
(iii) streamlining actions of $10.3 million in the Americas region and
$4.8 million in the EMEA region, and (iv) a non-cash asset impairment
charge of $6.0 million associated with an administrative site that was
sold in conjunction with our decision to employ a hybrid work environ-
ment. As more fully described in note 3 of our notes of consolidated
financial statements, the $19.5 million special charge associated with
the exit of our rice product line in India consisted of an $11.2 million
non-cash impairment charge associated with the impairment of certain
intangible assets, $3.6 million of employee severance and other re-
lated exit costs, and a $4.7 million charge in cost of goods sold which
represents a provision for the excess of the carrying value of rice
inventories over the estimated net realizable value and a contractual
obligation associated with terminating a rice supply agreement.
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.
Transaction expenses included in cost of
goods sold
Other transaction and integration expenses
Total transaction and integration expenses
2021
2020
$ 6.3
29.0
$35.3
$ —
12.4
$12.4
During 2021, we recorded transaction and integration expenses of
$35.3 million related to our acquisitions of Cholula and FONA. These
costs consisted of (i) $6.3 million of amortization of the acquisi-
tion-date fair value adjustment of inventories that is included in Cost
of goods sold, (ii) $13.8 million of other transaction expenses primarily
related to outside advisory, service and consulting costs, and (iii) $15.2
million of integration expenses. 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.
Operating income
Percent of net sales
2021
2020
$1,015.1
16.1 %
$999.5
17.8 %
Operating income increased by $15.6 million, or 1.6%, from $999.5
million in 2020 to $1,015.1 million in 2021. Special charges and trans-
action and integration expenses increased by $67.1 million in 2021, as
compared to 2020, and negatively impacted operating income. Operat-
ing income as a percentage of net sales declined by 170 basis points
in 2021, to 16.1% in 2021 from 17.8% in 2020 as a result of the factors
previously described. Excluding the effect of special charges and trans-
action and integration expenses previously described, adjusted
operating income was $1,101.5 million in 2021 as compared to
$1,018.8 million in 2020, an increase of $82.7 million or 8.1% over the
2020 level. Adjusted operating income as a percentage of net sales de-
clined by 80 basis points in 2021, to 17.4% in 2021 from 18.2% in 2020.
Interest expense
Other income, net
2021
$136.6
17.3
2020
$135.6
17.6
Interest expense was $1.0 million higher for 2021 as compared to
the prior year as an increase in average total borrowings was largely
offset by a decrease in interest rates. Other income, net for 2021
decreased by $0.3 million as lower non-service cost income associated
with our pension and postretirement benefit plans was partially offset
by higher interest income, as compared to 2020. The decrease was
also impacted by non-operating foreign currency transaction gains
in 2021, as compared to non-operating foreign currency transaction
losses in the prior period.
Income from consolidated operations
before income taxes
Income tax expense
Effective tax rate
2021
2020
$895.8
192.7
21.5 %
$881.5
174.9
19.8 %
The provision for income taxes is based on the estimate of the annual
effective tax rate adjusted to reflect the tax impact of items discrete
to the fiscal period. We record tax expense or tax benefits that do not
relate to ordinary income in the current fiscal year discretely in the
period in which such items occur pursuant to the requirements of U.S.
GAAP. Examples of such types of discrete items not related to ordinary
income include, but are not limited to, excess tax benefits associated
with share-based payments to employees, changes in estimates of the
outcome of tax matters related to prior years, including reversals of
reserves upon the lapsing of statutes of limitations, provision-to-return
adjustments, the settlement of tax audits, changes in enacted tax rates,
changes in the assessment of deferred tax valuation allowances and the
tax effects of certain intra-entity asset transfers (other than inventory).
The effective tax rate was 21.5% in 2021 as compared to 19.8%
in 2020. The increase in our effective tax rate was principally
attributable to the lower level of net discrete tax benefits in 2021
as compared to 2020. Net discrete tax benefits were $26.6 million in
2021, a decrease of $16.8 million from $43.4 million in 2020. Discrete
tax benefits in both the 2021 and 2020 periods included excess
tax benefits associated with share-based payments to employees
($4.3 million and $14.2 million in 2021 and 2020, respectively), the
reversal of reserves for unrecognized tax benefits ($22.5 million and
$4.9 million in 2021 and 2020, respectively) due to, in 2021, the
partial release of certain reserves for an unrecognized tax benefit
and related interest in a non-U.S. jurisdiction based on a change in
our assessment of the technical merits of that position associated
with the availability of new information, and in both years due to
the expiration of the statues of limitations, the release of valua-
tion allowances due to a change in judgment about realizability of
deferred tax assets ($4.4 million and $11.9 million in 2021 and 2020,
respectively) and other discrete items. In 2021, discrete tax items
included $4.0 million of tax benefits related to the revaluation of
deferred taxes resulting from enacted legislation and $10.4 million
of deferred state tax expense directly related to our December 2020
acquisition of FONA. In 2020, discrete tax items included $9.9 million
of tax benefits associated with intra-entity asset transfers that
occurred. See note 13 of notes to our consolidated financial state-
ments for a more detailed reconciliation of the U.S. federal tax rate
with the effective tax rate.
Income from unconsolidated operations
2021
$52.2
2020
$40.8
Income from unconsolidated operations, which is presented net of
the elimination of earnings attributable to non-controlling interests,
increased $11.4 million in 2021 from the prior year, driven by an after-tax
gain of $13.4 million on the sale of our 26% interest in Eastern
Condiments Private Ltd. (Eastern), an unconsolidated operation, during
our second quarter of 2021, as more fully described in note 5 of the
2021 Annual Report 39
notes to the accompanying financial statements. We own 50% of
most of our unconsolidated joint ventures, including our largest joint
venture, McCormick de Mexico, that comprised 62% and 75% of the
income of our unconsolidated operations in 2021 and 2020, respectively.
The relative impact of McCormick de Mexico on income from uncon-
solidated operations in 2021 was impacted by the gain on our sale of
an unconsolidated operation.
We reported diluted earnings per share of $2.80 in 2021, compared to
$2.78 in 2020. The table below outlines the major components of the
change in diluted earnings per share from 2020 to 2021. The increase
in adjusted operating income in the table below includes the impact
from favorable currency exchange rates in 2021.
2020 Earnings per share—diluted
Increase in operating income
Increase in special charges
Increase in transaction and integration expenses, including
impact of net discrete tax item related to FONA acquisition
Impact of income taxes, excluding taxes on special charges
and transaction and integration expenses
Increase in income from unconsolidated operations,
including an after-tax gain on sale of unconsolidated
operation of $0.05 per diluted share
Impact of higher shares
2021 Earnings per share—diluted
$ 2.78
0.25
(0.15)
(0.10)
(0.01)
0.04
(0.01)
$ 2.80
Results of Operations—Segments
We measure the performance of our business segments based on
operating income, excluding special charges and transaction and
integration expenses related to our 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 operating 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 “Segment operating income”.
Consumer Segment
Net sales
Percent growth
Components of percent growth in net
sales—increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2021
2020
$3,937.5
$3,596.7
9.5 %
10.0%
4.3 %
0.6 %
2.4 %
2.2 %
8.8%
1.5%
—%
(0.3)%
Segment operating income
Segment operating income margin
$ 804.9
$ 780.9
20.4 %
21.7%
Sales of our consumer segment in 2021 grew by 9.5% as compared
to 2020 and grew by 7.3% on a constant currency basis. This increase
included higher sales of our consumer business in each of our three
regions. Higher volume and product mix increased sales 4.3% while
pricing actions added 0.6% to sales, both as compared to the prior
year period. The incremental impact of the Cholula acquisition added
2.4% to segment sales during 2021. The favorable impact of foreign
currency exchange rates increased consumer segment sales by 2.2%
compared to 2020 and is excluded from our measure of sales growth
of 7.3% on a constant currency basis.
40 McCormick & Company, Inc.
In the Americas region, consumer sales increased 7.3% in 2021 as
compared to 2020, which experienced a 13.9% increase in sales from
the 2019 level as a result of exceptionally strong demand for our
products in the early stages of the COVID-19 pandemic, and increased
by 6.7% on a constant currency basis. Favorable volume and product
mix increased sales by 3.0% as compared to the corresponding period
in 2020, as demand continues to be driven by consumers’ sustained
preference for eating more at home. In addition, pricing actions, taken
in response to higher costs, increased sales by 0.4% as compared to
the prior year period. The incremental impact of the Cholula acqui-
sition added 3.3% to sales in 2021. The favorable impact of foreign
currency exchange rates increased sales by 0.6% compared to 2020
and is excluded from our measure of sales growth of 6.7% on a
constant currency basis.
In the EMEA region, consumer sales increased 5.8% in 2021 as
compared to 2020, which experienced a 14.5% increase in sales from
the 2019 level driven by the COVID-19 impact on greater consumer at-
home meal preparation, and increased by 0.9% on a constant currency
basis. Favorable volume and product mix increased sales by 0.3% as
compared to the corresponding period of 2020. The impact of pricing
actions increased sales by 0.6% as compared to the prior year period.
The favorable impact of foreign currency exchange rates increased
sales by 4.9% compared to 2020 and is excluded from our measure of
sales growth of 0.9% on a constant currency basis.
In the Asia/Pacific region, consumer sales increased 31.6% in 2021 as
compared to 2020, which reflected a 16.6% decrease in sales from the
2019 level due mainly to COVID-19 disruption on foodservice sales in
China, and increased by 22.9% on a constant currency basis. Higher
volume and favorable product mix increased sales by 21.5% as
compared to the corresponding period in 2020. The increase was
driven by sales related to the recovery of demand in away-from-home
consumption in China. Pricing actions increased sales by 1.4% as com-
pared to 2020. The favorable impact from foreign currency exchange
rates increased sales by 8.7% compared to 2020 and is excluded from
our measure of sales growth of 22.9% on a constant currency basis.
Segment operating income for our consumer segment increased by
$24.0 million, or 3.1%, in 2021 as compared to 2020. The increase in
segment operating income was driven by higher sales, including the
impact of acquisitions, CCI-led cost savings and lower incentive-based
compensation accruals which were partially offset by increased
commodities, packaging materials and transportation costs, increased
conversion costs, which include incremental expenses related to
COVID-19, and higher brand marketing investment, all as compared to
the prior year period. The impact of COVID-19 on segment operating
income during 2021 reflected actions, including the incremental impact
of temporary arrangements to utilize co-manufacturing, that increased
our cost to produce certain products and measures to enable manufac-
turing and distribution staff to maintain social distancing and permit
enhanced cleaning that reduced productivity. Segment operating
margin for our consumer segment decreased by 130 basis points in
2021 to 20.4%, driven by a decrease in segment gross profit margin,
including the impact of the inflationary cost environment, which was
partially offset by the benefit from the leverage of fixed and semi-fixed
expenses over a higher sales base as compared to the 2020 level. On
a constant currency basis, segment operating income for our consumer
segment increased by 1.3% in 2021, as compared to 2020.
Flavor Solutions Segment
Net sales
Percent growth (decline)
Components of percent change in net
sales—increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2021
2020
$ 2,380.4
$ 2,004.6
18.7 %
(3.5)%
7.2 %
1.4 %
7.3 %
2.8 %
(4.2)%
1.8%
—%
(1.1)%
Segment operating income
Segment operating income margin
$ 296.6
12.5 %
$ 237.9
11.9%
Sales of our flavor solutions segment increased 18.7% in 2021 as
compared to 2020 and increased by 15.9% on a constant currency
basis. Sales were favorably impacted by the recovery of demand as
compared to the lower level of demand in 2020 due to the impact of
the COVID-19 disruption on our quick service restaurant and branded
food service customers, particularly in the Americas and EMEA
regions. Favorable volume and product mix increased segment sales
by 7.2% as compared to 2020, while pricing actions taken in response
to increased costs during the period increased sales by 1.4%. The
incremental impact of the Cholula and FONA acquisitions increased
sales by 7.3% in 2021. The favorable impact of foreign currency rates
increased flavor solutions segment sales by 2.8% as compared to
2020 and is excluded from our measure of sales growth of 15.9% on a
constant currency basis.
In the Americas region, flavor solutions sales increased by 16.6%
during 2021 as compared to 2020, which experienced a sales decline
of 3.5% from the 2019 level driven by lower sales to quick service
restaurant and branded food service customers as a result of COVID-19
restrictions imposed in the early stages of the pandemic, and increased
by 15.4% on a constant currency basis. Favorable volume and
improved product mix increased flavor solutions sales in the Americas
by 3.2% during 2021, driven primarily by increased sales to branded
foodservice and quick service restaurant customers. Pricing actions
increased sales by 1.7% as compared to the prior year period. The
incremental impact of the Cholula and FONA acquisitions increased
sales by 10.5% in 2021. A favorable impact from foreign currency rates
increased sales by 1.2% compared to 2020 and is excluded from our
measure of sales growth of 15.4% on a constant currency basis.
In the EMEA region, flavor solutions sales in 2021 increased by 27.3%
as compared to 2020, which experienced a sales decline of 5.5% from
the 2019 level primarily as a result of decreased sales to quick service
restaurants and lower branded food service sales that were partially
offset by higher demand from packaged food service companies in
response to COVID-19 restrictions implemented in 2020, and increased
by 21.5% on a constant currency basis. Favorable volume and product
mix increased segment sales by 19.8% in 2021 as compared to 2020.
The increase was primarily attributable to higher sales to branded
foodservice, packaged food and quick service restaurant customers.
Pricing actions increased sales by 1.7% in 2021 as compared the prior
year level. A favorable impact from foreign currency rates increased
sales by 5.8% compared to 2020 and is excluded from our measure of
sales growth of 21.5% on a constant currency basis.
In the Asia/Pacific region, flavor solutions sales increased 16.9%
in 2021 as compared to 2020, which experienced a sales increase
of 0.4% from the 2019 level driven by higher sales to quick service
restaurant customers, and increased by 9.4% on a constant currency
basis. Favorable volume and product mix increased sales by 10.6%,
driven by higher sales to quick service restaurant customers. Pricing
actions decreased sales by 1.2% as compared to the prior year period.
A favorable impact from foreign currency rates increased sales by
7.5% compared to 2020 and is excluded from our measure of sales
growth of 9.4% on a constant currency basis.
Segment operating income for our flavor solutions segment increased
by $58.7 million, or 24.7%, in 2021 as compared to 2020. The increase
in segment operating income was driven by higher sales, including the
impact of acquisitions, CCI-led cost savings, lower incentive-based
compensation accruals and favorable product mix, which was partially
offset by increased commodities, packaging materials and transporta-
tion costs. Segment operating margin for our flavor solutions segment
increased by 60 basis points in 2021 to 12.5% as the benefits from the
leverage of fixed and semi-fixed expenses over a higher sales base as
compared to the 2020 level, together with the accretive impact of the
Cholula and FONA acquisitions on gross margins, were partially offset
by the impact of the inflationary cost environment as compared to 2020.
On a constant currency basis, segment operating income for our flavor
solutions segment increased by 22.5% in 2021, as compared to 2020.
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 vol-
ume increase and favorable mix was driven by higher demand within
our consumer segment, as measures imposed to mitigate the spread
of COVID-19 and the related change in consumer behavior, resulted in
a shift in consumer behavior toward at-home meal preparation that
more than offset lower demand within our flavor solutions segment
principally associated with our restaurant and branded food service
customers. Sales were also impacted by unfavorable foreign currency
rates that decreased net sales 0.6% compared to 2019 and is excluded
from our measure of sales growth of 5.3% on a constant currency
basis.
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
2021 Annual Report 41
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
SG&A expense was $1,281.6 million in 2020 compared to $1,166.8
million in 2019, an increase of $114.8 million. That increase in SG&A
expense was primarily a result of (i) higher performance-based
employee incentive expense accruals, (ii) higher distribution
expenses associated with the higher sales volume, (iii) increased
brand marketing costs and (iv) a one-time fiscal 2019 expense
reduction from the alignment of an employee benefit plan to our global
standard that did not recur in 2020, all as compared to 2019. SG&A
expense as a percent of net sales increased by 110 basis points from
the prior year level, primarily as a result of the previously mentioned
factors, partially offset by the impact of the leverage of fixed and semi-
fixed expenses over a higher level of sales during the 2020 period.
Total special charges
2020
$6.9
2019
$20.8
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, consisting
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.
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.
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
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.
42 McCormick & Company, Inc.
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 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. Net discrete tax benefits were $43.4 million in 2020, which is a
decrease of $0.3 million from $43.7 million in 2019, including 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 valuation
allowances due to a change in judgment about realizability of deferred
tax assets. See note 13 of notes to our consolidated financial state-
ments 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
Income from unconsolidated operations 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 outstanding
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
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.
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 com-
pared to 2019 and decreased 15.1% on a constant currency basis. Lower
volume 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,
particularly in Australia. Pricing actions reduced sales by 0.1% as com-
pared 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
$2,077.6
(3.5)%
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 pri-
marily attributable to lower sales to branded foodservice and quick
service restaurant customers, partially offset by higher demand from
2021 Annual Report 43
benefits, together with ancillary costs associated with the action
that may include a non-cash component or a component which
relates to inventory adjustments that are included in cost of goods
sold; impacted employees or operations; expected timing; and
expected savings) to the Management Committee and the
Committee’s advance approval, expenses associated with the
approved action are classified as special charges upon recognition
and monitored on an ongoing basis through completion.
• Transaction and integration expenses associated with the Cholula and
FONA acquisitions—We exclude certain costs associated with our
acquisitions of Cholula and FONA in November and December 2020,
respectively, 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 integration 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 from sale of unconsolidated operations—We exclude
the gain realized upon our sale of an unconsolidated operation in
March 2021. As more fully described in note 5 of the notes to the
accompanying financial statements, the sale of our 26% interest in
Eastern resulted in a gain of $13.4 million, net of tax of $5.7 million.
The gain is included in Income from unconsolidated operations in
our consolidated income statement.
• Income taxes associated with the U.S. Tax Act—We recorded a net
income tax benefit of $1.5 million during the year ended November
30, 2019 associated with the U.S. Tax Act enacted in December
2017 related provision to return adjustment.
Details with respect to the composition of transaction and integration
expenses, special charges and income from the sale of unconsolidated
operations recorded for the years and in the amounts set forth below
are included in notes 2, 3 and 5, respectively, of notes to our consoli-
dated 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.
packaged food companies. Pricing actions increased sales by 2.8%
in 2020 as compared the prior year level. An unfavorable impact
from foreign currency rates decreased sales by 1.3% compared to
2019 and is excluded from our measure of sales decline of 4.2% on a
constant currency basis.
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 ex-
pense accruals that were partially offset by CCI-led cost savings. High-
er conversion costs during 2020 reflected certain matters associated
with COVID-19, including the impact of temporary arrangements that
increased salaries and benefits paid to our manufacturing employees
as well as measures to enable manufacturing and distribution staff
to maintain social distancing and permit enhanced cleaning between
shifts that reduced productivity, and the impact of lower production
volumes of flavor solutions inventories. Segment operating margin
for our flavor solutions segment decreased by 260 basis points from
the prior year level to 11.9% in 2020, driven by lower flavor solutions
segment gross profit margin and an increase in SG&A expense as a
percent of net sales. Segment operating margin in 2020 also declined
due to the deleveraging impact of fixed and semi-fixed expenses over
a lower sales base as compared to the 2019 period. On a constant
currency basis, segment operating income for our flavor solutions
segment declined by 19.7% in 2020, as compared to the same period
in 2019.
NON-GAAP FINANCIAL MEASURES
The following tables include financial measures of adjusted gross
profit, adjusted gross profit margin, adjusted operating income,
adjusted operating income margin, 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 complement to our financial results prepared
in accordance with United States generally accepted accounting
principles. These financial measures exclude the impact, as applicable,
of the following:
• Special charges—Special charges consist of expenses associated
with certain actions undertaken by the Company to reduce fixed
costs, simplify or improve processes, and improve our competitive-
ness and are of such significance in terms of both up-front costs and
organizational/structural impact to require advance approval by our
Management Committee. Upon presentation of any such proposed
action (including details with respect to estimated costs, which
generally consist principally of employee severance and related
44 McCormick & Company, Inc.
A reconciliation of these non-GAAP financial measures to GAAP financial results is provided below:
Gross profit
Impact of transaction and integration expenses included in cost of goods sold (1)
Impact of special charges included in cost of goods sold (2)
Adjusted gross profit
Adjusted gross profit margin (3)
Operating income
Impact of transaction and integration expenses included in cost of goods sold (1)
Impact of other transaction and integration expenses (1)
Impact of special charges included in cost of goods sold (2)
Impact of other special charges (2)
Adjusted operating income
% increase versus prior year
Adjusted operating income margin (3)
Income tax expense
Non-recurring benefit, net, of the U.S. Tax Act
Impact of transaction and integration expenses (1)
Impact of special charges (2)
Adjusted income tax expense
Adjusted income tax rate (4)
Net income
Impact of transaction and integration expenses (1)
Impact of special charges (2)
Impact of after-tax gain on sale of unconsolidated operations
Non-recurring benefit, net, of the U.S. Tax Act
Adjusted net income
% increase versus prior year
Earnings per share—diluted
Impact of transaction and integration expenses (1)
Impact of special charges (2)
Impact of after-tax gain on sale of unconsolidated operations
Adjusted earnings per share—diluted
2021
$ 2,494.6
6.3
4.7
$2,505.6
2020
$ 2,300.4
—
—
$ 2,300.4
2019
$ 2,145.3
—
—
$ 2,145.3
39.7 %
41.1 %
40.1 %
$ 1,015.1
6.3
29.0
4.7
46.4
$ 1,101.5
8.1 %
17.4 %
$ 192.7
—
(2.7)
7.1
$ 197.1
$ 999.5
—
12.4
—
6.9
$1,018.8
4.1 %
18.2 %
$ 174.9
—
1.9
2.1
$ 178.9
$ 957.7
—
—
—
20.8
$ 978.5
5.2 %
18.3 %
$ 157.4
1.5
—
4.7
$ 163.6
20.1 %
19.9 %
19.5 %
$ 755.3
38.0
44.0
(13.4)
—
$ 823.9
$ 747.4
10.5
4.8
—
—
$ 762.7
$ 702.7
—
16.1
—
(1.5)
$ 717.3
8.0%
6.3 %
8.4 %
$ 2.80
0.14
0.16
(0.05)
$ 3.05
$ 2.78
0.04
0.01
—
$ 2.83
$ 2.62
—
0.06
—
$ 2.68
(1) Transaction and integration expenses are more fully described in note 2 of notes to our consolidated financial statements and include transaction and integration expenses
associated with our acquisitions of Cholula and FONA. These expenses include transaction expenses, integration expenses, including the effect of the fair value adjustment to
acquired inventories on Cost of goods sold and the impact of a discrete deferred state income tax expense item, directly related to our December 2020 acquisition of FONA. This
discrete tax item had an unfavorable impact of $10.4 million or $0.04 per diluted share for the year ended November 30, 2021.
(2) Special charges are more fully described in note 3 of notes to our consolidated financial statements. Special charges for the year ended November 30, 2021 include $4.7 million which
is reflected in Cost of goods sold and an $11.2 million non-cash impairment charge associated with the impairment of certain intangible assets.
(3) Adjusted gross profit margin is calculated as adjusted gross profit as a percent of net sales for each period presented. Adjusted operating income margin is calculated as adjusted
operating income as a percent of net sales for each period presented.
(4) Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes, excluding transaction and
integration expenses and special charges, or $982.2 million, $900.8 million, and $840.0 million for the years ended November 30, 2021, 2020, and 2019, respectively.
Estimate for the year ending
November 30, 2022
Earnings per share—diluted
Impact of integration expenses
Impact of special charges
Adjusted earnings per share—diluted
$ 3.07 to $ 3.12
0.01
0.09
$ 3.17 to $ 3.22
of foreign currency exchange and provides additional insight into the
underlying performance of our operations located outside of the U.S.
It should be noted that our presentation herein of amounts and
percentage changes on a constant currency basis does not exclude the
impact of foreign currency transaction gains and losses (that is, the
impact of transactions denominated in other than the local currency of
any of our subsidiaries in their local currency reported results).
Because we are a multi-national company, we are subject to variability
of our reported U.S. dollar results due to changes in foreign currency
exchange rates. Those changes have been volatile over the past several
years. The exclusion of the effects of foreign currency exchange, or
what we refer to as amounts expressed “on a constant currency basis,”
is a non-GAAP measure. We believe that this non-GAAP measure
provides additional information that enables enhanced comparison
to prior periods excluding the translation effects of changes in rates
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
2021 Annual Report 45
results in local currencies multiplied by the change in the average
foreign currency exchange rate between the current year and the prior
fiscal year. The tables set forth below present our growth in net sales
and adjusted operating income on a constant currency basis as follows:
(1) to present our growth in net sales and adjusted operating income
for 2021 on a constant currency basis, net sales and adjusted operating
income for 2021 for entities reporting in currencies other than the U.S.
dollar have been translated using the average foreign exchange rates
in effect for 2020 and compared to the reported results for 2020; and
(2) to present our growth in net sales and adjusted operating income
for 2020 on a constant currency basis, net sales and operating income
for 2020 for entities reporting in currencies other than the U.S. dollar
have been translated using the average foreign exchange rates in
effect for 2019 and compared to the reported results for 2019.
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, 2021
Percentage
change
as reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
7.3 %
5.8 %
31.6 %
9.5 %
16.6 %
27.3 %
16.9 %
18.7 %
12.8 %
3.1 %
24.7 %
8.1 %
0.6 %
4.9 %
8.7 %
2.2 %
1.2 %
5.8 %
7.5 %
2.8 %
2.4 %
1.8 %
2.2 %
1.9 %
6.7 %
0.9 %
22.9 %
7.3 %
15.4 %
21.5 %
9.4 %
15.9 %
10.4 %
1.3 %
22.5 %
6.2 %
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 %
To present the percentage change in projected 2022 net sales,
adjusted operating income and adjusted earnings per share—diluted
on a constant currency basis, 2022 projected local currency net sales,
adjusted operating income, and adjusted net income for entities
reporting in currencies other than the U.S. dollar are translated into
U.S. dollars at currently prevailing exchange rates and are compared to
those 2022 local currency projected results, translated into U.S. dollars
at the average actual exchange rates in effect during the correspond-
ing months in fiscal year 2021 to determine what the 2022 consoli-
dated U.S. dollar net sales, adjusted operating income and adjusted
46 McCormick & Company, Inc.
earnings per share—diluted would have been if the relevant currency
exchange rates had not changed from those of the comparable 2021
periods.
Projections for the Year
Ending November 30, 2022
Percentage change in net sales
Impact of unfavorable foreign
currency exchange
Percentage change in net sales in
constant currency
Percentage change in adjusted
operating income
Impact of unfavorable foreign
currency exchange
Percentage change in adjusted operating
income in constant currency
Percentage change in adjusted earnings
per share—diluted
Impact of unfavorable foreign
currency exchange
Percentage change in adjusted earnings
per share—diluted in constant currency
3% to 5%
1%
4% to 6%
7% to 9%
1%
8% to 10%
4% to 6%
1%
5% to 7%
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating
activities
Net cash used in investing
activities
Net cash provided by (used in)
financing activities
2021
2020
2019
$ 828.3
$1,041.3
$946.8
(908.6)
(1,025.6)
(171.0)
22.0
220.9
(725.8)
The primary objective of our financing strategy is to maintain a prudent
capital structure that provides us flexibility to pursue our growth objec-
tives. We use a combination of equity and short- and long-term debt.
We use short-term debt, comprised primarily of commercial paper,
principally to finance ongoing operations, including our requirements
for working capital (accounts receivable, prepaid expenses and other
current assets, and inventories, less accounts payable, accrued payroll,
and other accrued liabilities). We are committed to maintaining invest-
ment grade credit ratings.
Our cash flows from operations enable us to fund operating projects
and investments that are designed to meet our growth objectives,
service our debt, fund or increase our quarterly dividends, 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 of our fiscal year. Due to the timing of the interest
payments on our debt, interest payments are higher in the first and
third quarter of our fiscal year.
We believe that our sources of liquidity, which include existing cash
balances, cash flows from operations, existing credit facilities, our
commercial paper program, and access to capital markets, will provide
sufficient liquidity to meet our debt obligations, including any repay-
ment of debt or refinancing of debt, working capital needs, planned
capital expenditures, and payment of anticipated quarterly dividends
for at least the next twelve months.
In the cash flow statement, the changes in operating assets and liabili-
ties are presented excluding the effects of changes in foreign currency
exchange rates, as these do not reflect actual cash flows. In addition,
in the cash flow statement, the changes in operating assets and liabil-
ities are presented excluding the effect of acquired operating assets
and liabilities, as the cash flows associated with acquisition of busi-
nesses 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.
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, 2021,
the exchange rates for the Canadian dollar and Chinese renminbi
were higher versus the U.S. dollar than at November 30, 2020. At
November 30, 2021, the exchange rates for the Euro, British pound
sterling, Australian dollar, and Polish zloty were lower versus the U.S.
dollar than at November 30, 2020.
Operating Cash Flow—Operating cash flow was $828.3 million
in 2021, $1,041.3 million in 2020, and $946.8 million in 2019. Net
income as well as our working capital management, as more fully
described below, impacted operating cash flow. In 2021, the reduction
in operating cash flow was the result of increased inventory levels to
protect against supply disruption, employee incentive payments, and
the payment of transaction and integration costs related to our recent
acquisitions. In 2020, the increases to operating cash flow were the
result of a significantly lower use of cash associated with other assets
and liabilities, including the timing of certain employee incentive and
customer related payments, which was partially offset by the use of
cash associated with working capital, driven by the increased level of
inventory to meet demand. In 2019, our working capital management
favorably impacted operating cash flow. In 2019, those increases were
partially offset by a use of cash associated with other assets and
liabilities, totaling $81.5 million.
Our working capital management—principally related to inventory,
trade accounts receivable, and accounts payable—impacts our
operating cash flow. The change in inventory had a significant impact
on the variability in cash flow from operations. It was a significant use
of cash in 2021 and 2020 and a moderate use of cash in 2019. The
change in trade accounts receivable was a use of cash in 2021 but a
source of cash in 2020 and 2019. The change in accounts payable was
a significant source of cash in 2020 and 2019 and a more moderate
source of cash in 2021.
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 inven-
tory divided by average daily cost of goods sold) less days payable
outstanding (average trade accounts payable divided by average
daily cost of goods sold plus the average daily change in inventory).
2021 Annual Report 47
The following table outlines our cash conversion cycle (in days) over
the last three years:
Cash Conversion Cycle
2021
46
2020
39
2019
43
The increase in CCC in 2021 from 2020 was due primarily to an increase
in our days in inventory as a result of efforts to protect against supply
chain disruption and to meet increased demand. This was partially
offset by an increase in our days payable outstanding. The decrease
in CCC in 2020 from 2019 was due to an increase in our days payable
outstanding as a result of extending our payment terms to suppliers, as
more fully described below, which was partially offset by an increase in
our days in inventory due to maintaining higher levels of inventory.
Prior to fiscal 2019, in response to evolving market practices, we
began a program to negotiate extended payment terms with our
suppliers. We also initiated a Supply Chain Finance program (SCF)
with several global financial institutions (SCF Banks). Under the SCF,
qualifying suppliers may elect to sell their receivables from us to an
SCF Bank. These participating suppliers negotiate their receivables
sales arrangements directly with the respective SCF Bank. While we
are not party to those agreements, the SCF Banks allow the 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, 2021 and
2020, the amount due to suppliers participating in the SCF and included
in “Trade accounts payable” were approximately $274.3 million and
$273.6 million, respectively.
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.
48 McCormick & Company, Inc.
Investing Cash Flow—Net cash used in investing activities was
$908.6 million in 2021, $1,025.6 million in 2020, and $171.0 million
in 2019. Our primary investing cash flows include the usage of cash
associated with acquisition of businesses and capital expenditures.
Cash usage related to our acquisition of businesses was $706.4
million in 2021 and $803.0 million in 2020. Capital expenditures,
including expenditures for capitalized software, were $278.0 million
in 2021, $225.3 million in 2020, and $173.7 million in 2019. We
expect 2022 capital expenditures to approximate $320 million to
support our planned growth, including the multi-year program to
replace our ERP system and other initiatives. Our primary investing
cash inflow in 2021 was the $65.4 million of proceeds received from
the sale of an unconsolidated operation, as more fully discussed in
note 5 of notes to our consolidated financial statements.
Financing Cash Flow—Net cash associated with financing activities
was a source of cash of $22.0 million in 2021 and $220.9 million in
2020. Net cash used in financing activities was $725.8 million in
2019. 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 (decrease) 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
2021
2020
2019
$ (346.7) $
286.5 $
41.0
999.6
(257.1)
525.9
(257.7)
—
(447.7)
$
395.8 $
554.7 $ (406.7)
In 2021, we borrowed $1,001.5 million under long-term borrowing
arrangements, including net proceeds of $495.7 million of 0.9% notes
due February 2026 and net proceeds of $492.8 million of 1.85% notes
due February 2031. The net proceeds from these issuances were used
to pay down short-term borrowings, including a portion of the $1,443.0
million of commercial paper issued to fund our acquisitions of Cholula
and FONA, and for general corporate purposes. We also repaid $257.1
million of long-term debt, including the $250 million, 3.90% notes that
matured in July 2021.
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, includ-
ing $250.0 million associated with our term loans due in August 2022.
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.
The following table outlines the activity in our share repurchase
programs:
Number of shares of common stock
Dollar amount
2021
0.1
$ 8.6
2020
2019
0.5
$ 47.3
1.3
$ 95.1
As of November 30, 2021, $576 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. Our share repurchase activity
in 2021, 2020, and 2019 has principally been executed in order to
mitigate the effect of shares issued upon the exercise of stock options.
During 2021, 2020 and 2019, we received proceeds of $13.5 million,
$56.6 million and $90.9 million, respectively, from exercised stock op-
tions. We repurchased $15.4 million, $13.0 million and $12.7 million of
common stock during 2021, 2020 and 2019, respectively, in conjunction
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
2021
2020
2019
$ 363.3
1.36
9.7 %
$ 330.1
1.24
8.8%
$ 302.2
1.14
9.6%
In November 2021, the Board of Directors approved an 8.8% increase
in the quarterly dividend from $0.34 to $0.37 per share.
Most of our cash is in our subsidiaries outside of the U.S. We manage
our worldwide cash requirements by considering available funds
among the many subsidiaries through which we conduct our business
and the cost effectiveness with which those funds can be accessed.
Prior to the enactment of the U.S. Tax Act on December 22, 2017, the
permanent repatriation of cash balances from certain of our non-U.S.
subsidiaries could have had adverse tax consequences; however, those
balances are generally available without legal restrictions to fund
ordinary business operations, capital projects and future acquisitions.
As of November 30, 2021, we have $1.3 billion of earnings from our
non-U.S. subsidiaries and joint ventures that are considered indefinitely
reinvested. While federal income tax expense has been recognized
as a result of the U.S. Tax Act, we have not provided any additional
deferred taxes with respect to items such as foreign withholding
taxes, state income taxes, or foreign exchange gains or losses. It is
not practicable for us to determine the amount of unrecognized tax
expense on these indefinitely reinvested foreign earnings.
At November 30, 2021, we temporarily used $334.8 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 outstand-
ing for the years ended November 30, 2021 and 2020 were $1,029.9
million and $518.1 million, respectively. Those average short-term
borrowings outstanding for the year ended November 30, 2021
included average commercial paper borrowings of $975.0 million. The
total average debt outstanding for the years ended November 30, 2021
and 2020 was $5,574.5 million and $4,327.4 million, respectively.
Credit and Capital Markets—The following summarizes the more
significant 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
facility, or borrowings backed by this facility, to fund working capital
needs and other general corporate requirements. In June 2021, we
entered into a five-year $1.5 billion revolving credit facility, which will
expire in June 2026. The current pricing for the credit facility, on a
fully drawn basis, is LIBOR plus 1.25%. The pricing of the credit
facility is based on a credit rating grid that contains a fully drawn
maximum pricing of the credit facility equal to LIBOR plus 1.75%. The
provisions of this revolving credit facility restrict subsidiary indebted-
ness and require us to maintain a minimum interest coverage ratio.
We do not expect that this covenant would limit our access to this
revolving credit facility for the foreseeable future. This facility
replaced the following prior revolving credit facilities: (i) a five-year
$1.0 billion revolving credit facility that was due to expire in August
2022, and (ii) a 364-day $1.0 billion revolving facility, which we
entered into in the first quarter of 2021 that was due to expire in
December 2021. The terms of those revolving credit facilities are more
fully described in note 6 of the notes to the consolidated financial
statements.
We generally use our revolving credit facility to support our issuance
of commercial paper. If the commercial paper market is not available
or viable, we could borrow directly under our revolving credit facility.
This facility is made available by a syndicate of banks, with various
commitments per bank. If any of the banks in this syndicate are unable
to perform on their commitments, our liquidity could be impacted,
which could reduce our ability to grow through funding of seasonal
working capital. We engage in regular communication with all banks
participating in our credit facility. During these communications, none
of the banks have indicated that they may be unable to perform on
their commitments. In addition, we periodically review our banking and
financing relationships, considering the stability of the institutions and
other aspects of the relationships. Based on these communications and
our monitoring activities, we believe our banks will perform on their
commitments. In addition to our committed revolving credit facility, we
have uncommitted facilities of $308.4 million as of November 30, 2021
that can be withdrawn based upon the lenders’ discretion. See note 6
of notes to our consolidated financial statements for more details on
our financing arrangements.
We will continue to have cash requirements to support seasonal
working capital needs and capital expenditures, to pay interest, to
service debt, and to fund acquisitions. As part of our ongoing opera-
tions, we enter into contractual arrangements that obligate us to make
future cash payments. Our primary obligations include principal and
interest payments on our outstanding short-term borrowings and long-
term debt. In the next year, our most significant debt service obligation
is the maturity of our $750.0 million, 2.70% notes due in August 2022.
Detail on these contractual obligations follows:
MATERIAL CASH REQUIREMENTS
The following table reflects a summary of our future material cash
requirements as of November 30, 2021:
Short-term borrowings $
Long-term debt,
including finance
leases
Interest payments (a)
Less than
1 year
1–3
years
3–5
years
More than
5 years
Total
539.1 $ 539.1 $ — $ — $ —
4,754.2
838.8
770.3
126.3
1,061.7
204.3
787.2
192.6
2,135.0
315.6
Total contractual cash
obligations
$ 6,132.1 $1,435.7 $1,266.0 $ 979.8 $2,450.6
(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.
2021 Annual Report 49
Our other cash requirements at year end include raw material purchas-
es, lease payments, income taxes, and pension and postretirement
benefits. We acquire various raw materials to satisfy our obligations to
our customers, and these outstanding purchase obligations can fluctu-
ate throughout the year based on our response to varying raw material
cycles; however, these commitments generally do not extend past one
year. In addition, we also have a series of commercial commitments,
largely consisting of standby letters of credit. Our standby letters of
credit, leases, and pension and other post retirement obligations are
more fully described in notes 6, 7 and 11, respectively, of notes to our
consolidated financial statements.
These obligations impact our liquidity and capital resource needs. To
meet those cash requirements, we intend to use our existing cash,
cash equivalents and internally generated funds, to borrow under our
existing credit facility or under other short-term borrowing facilities,
and depending on market conditions and upon the significance of the
cost of a particular debt maturity or 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 future cash requirements.
PENSION ASSETS AND OTHER INVESTMENTS—We hold
investments in equity and debt securities in both our qualified defined
benefit pension plans and through a rabbi trust for our nonqualified
defined benefit pension plan. Cash contributions to pension plans,
including unfunded plans, were $15.0 million in 2021, $11.9 million in
2020, and $11.4 million in 2019. It is expected that the 2022 total pen-
sion plan contributions will be approximately $15 million. Future
increases or decreases in pension liabilities and required cash contri-
butions are highly dependent upon changes in interest rates and the
actual return on plan assets. We base our investment of plan assets,
in part, on the duration of each plan’s liabilities. Across all of our qual-
ified defined benefit pension plans, approximately 55% of assets are
invested in equities, 34% in fixed income investments and 11% in
other investments. Assets associated with our nonqualified defined
benefit pension plan are primarily invested in corporate-owned life
insurance, the value of which approximates an investment mix of 55%
in equities and 45% in fixed income investments. See note 11 of notes
to our consolidated financial statements, which provides details on
our pension funding.
CUSTOMERS AND COUNTERPARTIES—See the subsequent
section of this discussion under the heading “Market Risk Sensitivity–
Credit Risk”.
ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
In early fiscal 2021, we purchased FONA. The purchase price was
approximately $708 million, net of cash acquired. FONA is a leading
manufacturer of clean and natural flavors providing solutions for a
diverse customer base across various applications for the food, beverage
and nutritional markets. Our acquisition of FONA on December 30, 2020
expands the breadth of our flavor solutions segment into attractive
categories, as well as extends our technology platform and strengthens
our capabilities. The acquisition was funded with cash and short-term
borrowings. The results of FONA’s operations have been included in our
financial statements as a component of our flavor solutions segment
from the date of acquisition.
50 McCormick & Company, Inc.
On November 30, 2020, we purchased Cholula for approximately
$801 million, net of cash acquired. The acquisition was funded with
cash and short-term borrowings. Cholula, a premium Mexican hot
sauce brand, is a strong addition to McCormick’s global branded flavor
portfolio, which broadens the Company’s offering in the high growth
hot sauce category to consumers and foodservice operators and
accelerates our condiment growth opportunities with a complementary
authentic Mexican flavor hot sauce. The results of Cholula’s operations
have been included in our financial statements as a component of our
consumer and flavor solutions segments from the date of acquisition.
We did not have any acquisitions in fiscal 2019.
See note 2 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
reinvestment of dividends) on McCormick’s Non-Voting Common Stock
with (1) the cumulative total return of the Standard & Poor’s 500 Stock
Price Index, assuming reinvestment of dividends, and (2) the cumu-
lative 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
11/16
11/17
11/18
11/19
11/20
11/21
McCormick & Co., Inc.
S&P 500
S&P Packaged Foods & Meats
*$100 invested on 11/30/16 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.
Copyright© 2021 Standard & Poor’s, a division of S&P Global. All rights reserved.
MARKET RISK SENSITIVITY
We utilize derivative financial instruments to enhance our ability to
manage risk, including foreign exchange and interest rate exposures,
which exist as part of our ongoing business operations. We do not
enter into contracts for trading purposes, nor are we a party to any
leveraged derivative instrument. The use of derivative financial
instruments is monitored through regular communication with senior
management and the utilization of written guidelines. The 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 material
purchases; the translation of foreign currency earnings to U.S. dollars;
the effects of foreign currency on loans between subsidiaries and uncon-
solidated affiliates and on cash flows related to repatriation of earnings
of unconsolidated affiliates. Primary exposures include the U.S. dollar
versus the Euro, British pound sterling, Chinese renminbi, Canadian
dollar, Australian dollar, Polish zloty, Singapore dollar, Mexican peso,
Swiss franc, and Thai baht, as well as the Euro versus the British pound
sterling and Australian dollar, and finally the Canadian dollar versus
British pound sterling. We routinely enter into foreign currency exchange
contracts to manage certain of these foreign currency risks.
During 2021, the foreign currency translation component in other com-
prehensive income was principally related to the impact of exchange
rate fluctuations on our net investments in our subsidiaries with a
functional currency of the British pound sterling, Euro, Polish zloty,
Chinese reminbi, 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 transla-
tion adjustments in accumulated other comprehensive income (loss).
The following table summarizes the foreign currency exchange
contracts held at November 30, 2021. All contracts are valued in U.S.
dollars using year-end 2021 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, 2021
Currency sold
Currency received
Average
contractual
exchange
rate
Notional
value
British pound sterling
Swiss franc
Canadian dollar
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
Australian dollar
Canadian dollar
U.S. dollar
British pound sterling
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
Australian dollar
Singapore dollar
British pound sterling
Euro
Euro
British pound sterling
Mexican peso
Euro
Thai baht
$54.4
72.0
79.5
71.7
51.2
52.4
49.2
43.6
30.4
24.7
29.7
8.8
1.41
1.13
1.25
0.72
1.37
1.33
1.13
1.58
1.74
21.37
0.86
32.77
Fair
value
$3.3
2.1
2.0
(0.6)
0.1
(0.2)
0.1
0.6
(0.7)
(0.8)
0.1
(0.3)
We had a number of smaller contracts at November 30, 2021 with
an aggregate notional value of $16.0 million to purchase or sell other
YEARS OF MATURITY AT NOVEMBER 30, 2021
currencies, such as the Romanian leu and Russian ruble. The aggregate
fair value of these contracts was a loss of $0.2 million at November 30,
2021.
At November 30, 2020, 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
$383.8 million. The aggregate fair value of these contracts was a loss
of $6.8 million at November 30, 2020.
We also utilized cross currency interest rate swap contracts that are
considered net investment hedges. As of November 30, 2021, we had
cross currency interest rate swap contracts of (i) $250 million notional
value to receive $250 million at three-month U.S. LIBOR plus 0.685%
and pay £194.1 million at three-month GBP LIBOR plus 0.740% and
(ii) £194.1 million notional value to receive £194.1 million at three-
month GBP LIBOR plus 0.740% and pay €221.8 million at three-month
Euro EURIBOR plus 0.808%. These cross-currency interest rate swap
contracts expire in August 2027. For more information, refer to note 8
of notes to our consolidated financial statements.
Interest Rate Risk—Our policy is to manage interest rate risk by
entering into both fixed and variable rate debt arrangements. We are
exposed to interest rate volatility, with primary exposures related to
movements in U.S. Treasury rates, London Interbank Offered Rates
(LIBOR), and commercial paper rates. LIBOR will be subject to a tran-
sition, or phase out, that will commence on January 1, 2022 with the
phase out expected to be completed by June 30, 2023. While LIBOR
is the current interest rate benchmark used as a reference rate on
our variable rate debt, including our revolving credit facility, synthetic
lease, interest rate swaps, and cross currency interest rate swaps,
we do not anticipate a significant impact to our financial position from
the planned phase out of LIBOR, given our current mix of variable and
fixed-rate debt.
We also use interest rate swaps to minimize 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,
2021. For foreign currency-denominated debt, the information is
presented in U.S. dollar equivalents. Variable interest rates are based
on the weighted-average rates of the portfolio at the end of the year
presented.
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2022
2023
2024
2025
Thereafter
Total
Fair value
$ 756.8
2.71%
$552.6
0.24 %
$257.8
3.50 %
$ 6.7
1.39 %
$ 763.2
3.50%
$ 34.0
1.69 %
$258.6
3.26 %
$ 19.4
1.74%
$2,644.2
2.38 %
$ 4,680.6
—
$ — $ 612.7
—
—%
$4,848.0
$ 612.7
The table above displays the debt, including finance 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 3.50% 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%.
• We issued $750 million of 3.40% notes due August 15, 2027 and $300 million due in August 2027 in August 2017. Forward treasury lock agreements settled upon issuance of these
notes 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%.
2021 Annual Report 51
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 2021, our most significant raw materials were
dairy products, pepper, capsicums (red peppers and paprika), onion,
vanilla, garlic, and salt. While future movements of raw material
costs are uncertain, we respond to this volatility in a number of ways,
including strategic raw material purchases, purchases of raw material
for future delivery and customer price adjustments. We generally have
not used derivatives to manage the volatility related to this risk.
Credit Risk—The customers of our consumer segment are 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.
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.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
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
supplemental information disclosed by us, including information about
contingencies, risk and financial condition. We believe, given current
facts and circumstances, our estimates and assumptions are 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,
which are those that have or are reasonably likely to have a material
impact on our financial condition or results of operations, are in the
following areas:
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 regard-
ing these programs. Key sales terms, such as pricing and quantities
ordered, are established on a frequent basis such that most customer
arrangements and related incentives have a one-year or shorter dura-
tion. Estimates that affect revenue, such as trade incentives and prod-
uct returns, are monitored and adjusted each period until the incentives
or product returns are realized. Certain of our customer arrangements
52 McCormick & Company, Inc.
are annual arrangements such that the degree of estimates that affects
revenue reduces as a year progresses. We do not believe that there
will be significant changes to our estimates of customer consideration
when any uncertainties are resolved with customers.
Business Combinations, Goodwill and Intangible Asset
Valuation
We use the acquisition method in accounting for acquired businesses.
Under the acquisition method, our financial statements reflect the
operations of an acquired business starting from the closing of the
acquisition. The assets acquired and liabilities assumed are recorded
at their respective estimated fair values at the date of the acquisition.
Any excess of the purchase price over the estimated fair values of
the identifiable net assets acquired is recorded as goodwill. Signifi-
cant judgment is often required in estimating the fair value of assets
acquired, particularly intangible assets. We generally obtain the
assistance of a third-party valuation specialist in estimating fair values
of tangible and intangible assets. The fair value estimates are based on
available historical information and on expectations and assumptions
about the future, considering the perspective of marketplace partici-
pants. While management believes those expectations and assump-
tions are reasonable, they are inherently uncertain. Unanticipated
market or macroeconomic events and circumstances may occur, which
could affect the accuracy or validity of the estimates and assumptions.
Determining the useful lives of intangible assets also requires
judgment. Certain brand intangibles are expected to have indefinite
lives based on their history and our plans to continue to support and
build the acquired brands, while other acquired intangible assets
(e.g., customer relationships) are expected to have determinable useful
lives. Our estimates of the useful lives of definite-lived intangible
assets are primarily based upon historical experience, the competitive
and macroeconomic environment, and our operating plans. The costs
of definite-lived intangibles are amortized to expense over their
estimated life. We review the carrying value of goodwill and non-
amortizable intangible assets and conduct tests of impairment on
an annual basis as described below. We also test for impairment if
events or circumstances indicate it is more likely than not that the
fair value of a reporting unit is below its carrying amount. We test
indefinite-lived intangible assets for impairment if events or changes
in circumstances indicate that the asset might be impaired.
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, as more fully described
in note 1 of notes to our consolidated financial statements. While we
believe those estimates and assumptions are reasonable, they are
inherently uncertain. Unanticipated market or macroeconomic events
and circumstances may occur, which could affect the accuracy or
validity of the estimates and assumptions.
Goodwill Impairment
Our reporting units are the same as our operating segments. Deter-
mining the fair value of a reporting unit is judgmental in nature and
involves the use of significant estimates and assumptions, as more
fully described in note 1 to our consolidated financial statements. We
estimate the fair value of a reporting unit by using a discounted cash
flow model. Our discounted cash flow model calculates fair value by
present valuing future expected cash flows of our reporting units using
a market-based discount rate. We then compare this fair value to the
carrying amount of the reporting unit, including intangible assets and
goodwill. An impairment charge would be recognized to the extent that
the carrying amount of the reporting unit exceeds the estimated fair
value of the reporting unit. The quantitative goodwill impairment test
requires an entity to compare the fair value of each reporting unit with
its carrying amount. As of November 30, 2021, we had $5,335.8 million
of goodwill recorded in our balance sheet ($3,674.7 million in the con-
sumer segment and $1,661.1 million in the flavor solutions segment).
Our fiscal year 2021 impairment testing indicated that the estimated
fair values of our reporting units were significantly in excess of their
carrying values. Accordingly, we believe that only significant changes in
the cash flow assumptions would result in an impairment of goodwill.
However, variances between the actual performance of the businesses
and the assumptions that were used in developing the estimates of fair
value could result in impairment charges in future periods.
Indefinite-lived Intangible Asset Impairment
Our indefinite-lived intangible assets consist of brand names and
trademarks. We estimate fair values through the use of the re-
lief-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, income tax 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 an-
ticipated future performance of the related brand names and trademarks.
The assumptions used to assess impairment consider historical trends,
macroeconomic conditions, and projections consistent with our operating
strategy. Changes in these estimates can have a significant impact on the
assessment of fair value which could result in material impairment losses.
As of November 30, 2021, we had $3,067.4 million of brand name
assets and trademarks recorded in our balance sheet, and none of
the balances exceeded their estimated fair values at that date. Of the
$3,067.4 million of brand names assets and trademarks as of November
30, 2021: (i) $2,320.0 million relates to the French’s, Frank’s RedHot and
Cattlemen’s brand names and trademarks, recognized as part of our
acquisition of RB Foods in August 2017, that we group for purposes of
our impairment analysis; (ii) $380.0 million relates to the Cholula brand
names and trademarks associated with the acquisition of Cholula in
November 2020, (iii) $49.0 million relates to the FONA brand names and
trademarks associated with the acquisition of FONA in December 2020
and (iv) the remaining $318.4 million represents a number of other brand
name assets and trademarks with individual carrying values ranging
from $0.2 million to $106.4 million. Except for our recent acquisitions of
Cholula and FONA, the percentage excess of estimated fair value over
respective book values for each of our brand names and trademarks,
including the $2,320.0 million related to our French’s, Frank’s RedHot
and Cattlemen’s brands, was 20% or more as of November 30, 2021.
The brand names and trademarks related to recent acquisitions,
including our recent acquisitions of Cholula and FONA, may be more
susceptible to future impairment as their carrying values represent
recently determined fair values. A change in assumptions with
respect to recently acquired businesses, including those affected by
rising interest rates or a deterioration in expectations of future sales,
profitability or royalty rates as well as future economic and market
conditions, or higher income tax rates, could result in non-cash
impairment losses in the future.
Income Taxes
We estimate income taxes and file tax returns in each of the taxing
jurisdictions in which we operate and are required to file a tax return.
At the end of each year, an estimate for income taxes is recorded in
the financial statements. Tax returns are generally filed in the third or
fourth quarter of the subsequent year. A reconciliation of the estimate
to the final tax return is done at that time, which will result in changes
to the original estimate. We believe that our tax return positions are
appropriately supported, but tax authorities can challenge certain
of our tax positions. We evaluate our uncertain tax positions in
accordance with the GAAP guidance for uncertainty in income taxes.
We recognize a tax benefit when it is more likely than not the position
will be sustained upon examination, based on its technical merits.
The tax position is then measured at the largest amount of benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. A change in judgment related to the expected ultimate
resolution of uncertain tax positions will be recognized in earnings in
the quarter of such change. We believe that our reserve for uncertain
tax positions, including related interest and penalties, is adequate. As
of November 30, 2021, the Company had $31.0 million of unrecognized
tax benefits, including interest and penalties, recorded in Other long-
term liabilities. The amounts ultimately paid upon resolution of audits
could be materially different from the amounts previously included in
our income tax expense and, therefore, could have a material impact
on our tax provision, net income and cash flows. We have recorded
valuation allowances to reduce our deferred tax assets to the amount
that is more likely than not to be realized. In doing so, we have consid-
ered future taxable income and tax planning strategies in assessing
the need for a valuation allowance. Both future taxable income and
tax planning strategies include a number of estimates, as more fully
described in note 1 of notes to our consolidated financial statements.
Pension Benefits
Pension plans’ costs require the use of assumptions for discount rates,
investment returns, projected salary increases, and mortality rates.
The actuarial assumptions used in our pension benefit reporting are
reviewed annually and compared with external benchmarks to ensure
that they appropriately account for our future pension benefit obliga-
tions. While we believe that the assumptions used are appropriate,
changes in various assumptions and differences between the actual
returns on plan assets and the expected returns on plan assets and
changes to projected future rates of return on plan assets will affect
the amount of pension expense or income ultimately recognized. A 1%
increase or decrease in the actuarial assumption for the discount rate
would impact 2022 pension benefit expense by approximately $1 mil-
lion. A 1% increase or decrease in the expected return on plan assets
would impact 2022 pension expense by approximately $10 million.
We will continue to evaluate the appropriateness of the assumptions
used in the measurement of our pension benefit obligations. In addition,
see note 11 of notes to our consolidated financial statements for a dis-
cussion 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.
2021 Annual Report 53
Our internal control over financial reporting as of November 30, 2021
has been audited by Ernst & Young LLP.
Lawrence E. Kurzius
Chairman, President &
Chief Executive Officer
Michael R. Smith
Executive Vice President &
Chief Financial Officer
Gregory P. Repas
Vice President & Controller
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the
consolidated financial statements appearing in our Annual Report.
The consolidated financial statements were prepared in conformity
with United States generally accepted accounting principles and
include amounts based on our estimates and judgments. All other
financial information in this report has been presented on a basis
consistent with the information included in the financial statements.
We are also responsible for establishing and maintaining adequate
internal control over financial reporting. We maintain a system of
internal control that is designed to provide reasonable assurance as to
the fair and reliable preparation and presentation of the consolidated
financial statements, as well as to safeguard assets from unauthorized
use or disposition.
Our control environment is the foundation for our system of internal
control over financial reporting and is embodied in our Business Ethics
Policy. It sets the tone of our organization and includes factors such
as integrity and ethical values. Our internal control over financial
reporting is supported by formal policies and procedures which are
reviewed, modified and improved as changes occur in business condi-
tions and operations.
The Audit Committee of the Board of Directors, which is composed
solely of independent directors, meets periodically with members of
management, the internal auditors and the independent registered
public accounting firm to review and discuss internal control over
financial reporting and accounting and financial reporting matters. The
independent registered public accounting firm and internal auditors
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 Sponsor-
ing Organizations of the Treadway Commission (2013 framework). This
assessment included review of the documentation of controls, evalua-
tion of the design effectiveness of controls, testing of the operating
effectiveness of controls and a conclusion on this assessment.
Although there are inherent limitations in the effectiveness of any
system of internal control over financial reporting, based on our
assessment, we have concluded with reasonable assurance that
our internal control over financial reporting was effective as of
November 30, 2021.
5 4 McCormick & Company, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of McCormick &
Company, Incorporated
Opinion on Internal Control Over Financial Reporting
We have audited McCormick & Company, Incorporated’s internal
control over financial reporting as of November 30, 2021, 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, 2021, 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, 2021
and 2020, the related consolidated income statements, statements
of comprehensive income, cash flow statements and statements of
shareholders’ equity for each of the three years in the period ended
November 30, 2021, and the related notes and the financial statement
schedule listed in the Index at item 15(2) and our report dated January 27,
2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Report of Management. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted account-
ing principles. A company’s internal control over financial report-
ing includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Baltimore, Maryland
January 27, 2022
2021 Annual Report 55
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,
2021 and 2020, 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, 2021, and the related notes and financial statement
schedule listed in the Index at item 15(2) (collectively referred to as
the “consolidated financial statements”). In our opinion, the consoli-
dated financial statements present fairly, in all material respects, the
financial position of the Company at November 30, 2021 and 2020, and
the results of its operations and its cash flows for each of the three
years in the period ended November 30, 2021, in conformity with U.S.
generally accepted accounting principles.
We 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,
2021, 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 27, 2022 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.
56 McCormick & Company, Inc.
Valuation of Indefinite-lived Intangible Assets
Description of
the Matter
At November 30, 2021, the Company’s indefinite-lived intangible assets consist of brand names and trademarks with an aggregate
carrying value of approximately $3.1 billion. As explained in Note 1 to the consolidated financial statements, these assets are
assessed for impairment at least annually using the relief-from-royalty methodology to determine their fair values. If the fair value
of any brand name or trademark is less than its carrying amount, an impairment loss is recognized in an amount equal to the
difference.
Auditing the Company’s impairment assessments is complex due to the significant estimation required in determining the fair
value of the brand names and trademarks. Significant management judgment is also involved in determining whether individual
brand names and trademarks should be grouped for purposes of the fair value determination or must be evaluated individually. The
Company’s methodologies for estimating the fair value of these assets involve significant assumptions and inputs, including pro-
jected 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 Com-
pany’s indefinite-lived intangible asset impairment assessment, including controls over management’s review of its asset groupings
and the significant assumptions described above. We tested controls over the review of methodologies used, significant assumptions
and inputs, and completeness and accuracy of the data used in the measurements.
To test the estimated fair value of the Company’s indefinite-lived intangible assets, we performed audit procedures that included,
among others, evaluating the asset groupings used by the Company to perform its impairment assessment, assessing the 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 net sales by comparing the current year actual net sales for certain brand names or trademarks to the estimates made in
the Company’s prior year impairment assessment. We also performed sensitivity analyses of certain significant assumptions to
evaluate the potential change in the fair values of the brand names and trademarks resulting from hypothetical changes in under-
lying assumptions. We used an internal valuation specialist to assist in our evaluation of the methodologies used and significant
assumptions and inputs used by the Company to determine the estimated fair value of certain brand names and trademarks.
Valuation of Acquired Intangible Assets
Description of
the Matter
During fiscal 2021, the Company completed its acquisition of FONA International, LLC for net consideration of $708 million, and
recognized identifiable intangible assets of $401 million, as disclosed in Note 2 to the consolidated financial statements. The
transaction was accounted for as a business combination.
Auditing the Company’s purchase accounting for its acquisition of FONA International, LLC was complex due to the significant
estimation required by management to determine the fair value of the acquired intangible assets, which consisted of customer
relationships, trade names, and intellectual property. The estimation complexity was primarily due to the valuation models used to
measure the fair value of the intangible assets and the sensitivity of the respective fair values to the significant underlying
assumptions. The significant assumptions used to estimate the fair value of the intangible assets included discount rates, royalty
rates, customer attrition, and certain assumptions that form the basis of the forecasted results (e.g. net sales and operating profit
metrics). These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its
accounting for acquisitions. For example, we tested controls over the recognition and measurement of intangible assets, including
the valuation models and underlying assumptions used to develop such estimates. We also tested management’s controls over the
completeness and accuracy of the data used in the models.
To test the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating
the Company’s valuation models and testing the significant assumptions used in the models, as well as testing the completeness
and accuracy of the underlying data. We compared the significant assumptions to current industry, market and economic trends,
to the assumptions used to value similar assets in other acquisitions, and to the historical results of the acquired business. We
also involved an internal valuation specialist to assist in our evaluation of the significant assumptions and those procedures
included the completion of independent calculations of the fair value of the acquired intangible assets.
We have served as the Company’s auditor since 1982.
Baltimore, Maryland
January 27, 2022
2021 Annual Report 57
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
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
Currency translation adjustments
Change in derivative financial instruments
Deferred taxes
Total other comprehensive income (loss)
Comprehensive income
See Notes to Consolidated Financial Statements.
2021
$ 6,317.9
3,823.3
2,494.6
1,404.1
29.0
46.4
1,015.1
136.6
17.3
895.8
192.7
703.1
52.2
$ 755.3
$ 2.83
$ 2.80
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
2021
$ 755.3
8.0
2020
$ 747.4
4.3
134.8
(68.8)
1.1
(30.2)
36.9
(80.4)
89.7
(0.9)
18.1
26.5
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
2019
$ 702.7
1.9
(149.8)
(25.5)
1.1
33.2
(141.0)
$ 800.2
$ 778.2
$ 563.6
58 McCormick & Company, Inc.
CONSOLIDATED BALANCE SHEETS
at November 30 (millions)
Assets
Cash and cash equivalents
Trade accounts receivable, net of allowances
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; authorized 640.0 shares; issued and outstanding:
2021–17.8 shares, 2020–18.0 shares
Common stock non-voting; authorized 640.0 shares; issued and outstanding:
2021–249.5 shares, 2020–248.9 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.
2021
2020
$ 351.7
549.5
1,182.3
112.3
2,195.8
1,140.3
5,335.8
3,452.5
781.4
$ 423.6
528.5
1,032.6
98.9
2,083.6
1,028.4
4,986.3
3,239.4
752.0
$12,905.8
$12,089.7
$ 539.1
770.3
1,064.2
850.2
3,223.8
3,973.3
792.3
490.9
8,480.3
$ 886.7
263.9
1,032.3
863.6
3,046.5
3,753.8
727.2
622.2
8,149.7
530.0
484.0
1,525.1
2,782.4
(426.5)
4,411.0
14.5
4,425.5
1,497.3
2,415.6
(470.8)
3,926.1
13.9
3,940.0
$12,905.8
$12,089.7
2021 Annual Report 59
CONSOLIDATED CASH FLOW STATEMENTS
for the year ended November 30 (millions)
2021
2020
2019
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Asset impairment included in special charges
Amortization of inventory fair value adjustments associated with acquisitions
Loss (gain) on sale of assets
Deferred income tax expense (benefit)
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)
Proceeds from sale of unconsolidated operation
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
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
(Decrease) increase 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.
$ 755.3
$ 747.4
$ 702.7
186.3
66.6
17.2
6.3
0.2
36.0
(52.2)
(22.6)
(153.7)
34.9
(81.4)
35.4
828.3
(706.4)
(278.0)
65.4
10.4
(908.6)
(346.7)
1,001.5
(1.9)
(257.1)
13.5
(15.4)
(8.6)
(363.3)
22.0
(13.6)
(71.9)
423.6
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
$ 351.7
$ 423.6
$ 155.4
60 McCormick & Company, Inc.
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interests
Total
Shareholders’
Equity
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(millions)
Balance, November 30, 2018
Net income
Net income attributable to non-controlling interest
Other comprehensive loss, net of tax
Dividends
Stock-based compensation
Shares purchased and retired
Shares issued
Equal exchange
Balance, November 30, 2019
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
Common
Stock
Shares
Common
Stock
Non-Voting
Shares
19.1
245.1
(0.4)
3.0
(3.1)
(1.2)
0.2
3.1
18.6
247.2
(0.3)
1.6
(1.9)
(0.2)
—
1.9
Common
Stock
Amount
$1,770.6
—
—
—
—
37.2
(15.4)
96.2
—
$1,888.6
—
—
—
—
46.0
(13.6)
60.3
—
Retained
Earnings
$1,760.2
702.7
—
—
(309.3)
—
(97.8)
—
—
$2,055.8
747.4
—
—
(338.5)
—
(49.1)
—
—
$ (359.9)
—
—
(140.3)
—
—
—
—
—
$ (500.2)
—
—
29.4
—
—
—
—
—
Balance, November 30, 2020
18.0
248.9
$1,981.3
$2,415.6
$ (470.8)
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)
0.7
(0.6)
—
—
0.6
—
—
—
—
66.6
(7.8)
15.0
—
755.3
—
—
(371.5)
—
(17.0)
—
—
—
—
44.3
—
—
—
—
—
$ 11.3
—
1.9
(0.7)
—
—
—
—
—
$ 12.5
—
4.3
(2.9)
—
—
—
—
—
$ 13.9
—
8.0
(7.4)
—
—
—
—
—
$ 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
—
$ 3,940.0
755.3
8.0
36.9
(371.5)
66.6
(24.8)
15.0
—
Balance, November 30, 2021
17.8
249.5
$ 2,055.1
$2,782.4
$ (426.5)
$ 14.5
$ 4,425.5
See Notes to Consolidated Financial Statements.
2021 Annual Report 61
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
from 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 lia-
bility accounts of those unconsolidated affiliates are translated at the
rates of exchange at the balance sheet date, with the resultant transla-
tion adjustments included in accumulated other comprehensive income
(loss) of those affiliates. Income and expense items of those affiliates
are translated at average monthly rates of exchange. We record our
ownership share of the net assets and accumulated other comprehen-
sive 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, or
a gain or loss associated with the sale of our ownership interest in 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 state-
ments 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 finance leases are depreciated over the shorter of
62 McCormick & Company, Inc.
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 $141.1 million and
$116.0 million at November 30, 2021 and 2020, respectively. Such amounts
are recorded within “Other long-term assets” in the consolidated balance
sheet. Software is amortized using the straight-line method over estimated
useful lives ranging from 3 to 13 years, but not exceeding the expected life
of the product. The net book value of capitalized software includes $12.2
million and $86.7 million at November 30, 2021 and 2020, 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. An impairment charge would be
recognized to the extent that the carrying amount of the reporting unit
exceeds the calculated fair value of the reporting unit.
Indefinite-lived Intangible Asset Impairment
Our indefinite-lived intangible assets consist of acquired brand names
and trademarks. We determine fair value by using a relief-from-royalty
method and then compare that to the carrying amount of the indefi-
nite-lived intangible asset. If the carrying amount of the indefinite-lived
intangible asset exceeds its fair value, an impairment charge would
be recorded to the extent the recorded indefinite-lived intangible asset
exceeds the fair value.
Long-lived Asset Impairment
Fixed assets and amortizable intangible assets are reviewed for
impairment as events or changes in circumstances occur indicating
that the carrying value of the asset may not be recoverable.
Undiscounted cash flow analyses are used to determine if an impair-
ment 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.
Leases
We determine whether a contract is or contains a lease at contract
inception based on the presence of identified assets and our right
to obtain substantially all the economic benefit from or to direct the
use of such assets. When we determine a lease exists, we record a
right-of-use (“ROU”) asset and corresponding lease liability on our
consolidated balance sheet. ROU assets represent our right to use
an underlying asset for the lease term. Lease liabilities represent our
obligation to make lease payments arising from the lease. ROU assets
are recognized at the lease commencement date at the value of the
lease liability and are adjusted for any prepayments, lease incentives
received, and initial direct costs incurred. Lease liabilities are recog-
nized at the lease commencement date based on the present value of
remaining lease payments over the lease term. As the discount rate
implicit in the lease is not readily determinable in most of our leases,
we use our incremental borrowing rate based on the information
available at the lease commencement date in determining the present
value of lease payments. Our lease terms include options to extend or
terminate the lease when it is reasonably certain that we will exercise
that option. We do not record lease contracts with a term of 12 months
or less on our consolidated balance sheets.
When our real estate lease arrangements include lease and non-lease
components (for example, common area maintenance), 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 commitment.
We recognize fixed lease expense for operating leases on a straight-
line basis over the lease term. For finance leases, we recognize
amortization expense over the shorter of the estimated useful life of
the underlying assets or the lease term. In instances of title transfer,
expense is recognized over the useful life. Interest expense on a
finance lease is recognized using the effective interest method over
the lease term.
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. Our revenue
arrangements generally include a single performance obligation
relating to the fulfillment of a customer order, which in some cases
are governed by a master sales agreement, for the purchase of our
products. We recognize revenue at a point in time when control of
the ordered products passes to the customer, which principally occurs
either upon shipment or delivery to the customer or upon pick-up by
the customer, depending upon terms included in the particular
customer arrangement. 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. All taxes assessed by a governmental
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 are excluded from net
sales. We account for product 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 with costs
for these activities recorded within Cost of goods sold. We expense
any incremental costs of obtaining a contract when the contract is for a
period of one year or less.
Amounts billed and due from our customers are classified as accounts
receivable on the balance sheet and require payment on a short-term
basis. Our allowance for doubtful accounts represents our estimate of
probable non-payments and credit losses in our existing receivables,
as determined based on a review of past due balances and other
specific account data.
The following table sets forth our net sales by the Americas, Europe,
Middle East and Africa (EMEA) and Asia/Pacific (APAC) geographic
regions:
(millions)
2021
Net sales
2020
Net sales
2019
Net sales
Americas
EMEA
APAC
Total
$4,396.1
$1,191.3 $730.5
$6,317.9
$3,974.9
$1,046.7 $579.7
$5,601.3
$3,711.3
$ 986.1 $650.0
$5,347.4
Performance Obligations
Our revenues primarily result from contracts or purchase orders with
customers, which generally are both short-term in nature and have a
single performance obligation—the delivery of our products to cus-
tomers. We assess the goods and services promised in our customers’
contracts or purchase orders and identify a performance obligation
for each promise to transfer a good or service (or bundle of goods or
services) that is distinct. To identify the performance obligations, we
consider all the goods or services promised, whether explicitly stated
or implied based on customary business practices.
Significant Judgments
Sales are recorded net of trade and sales incentives and estimated
product returns. Known or expected pricing or revenue adjustments,
such as trade discounts, rebates or returns, are estimated at the time
of sale. Where applicable, future reimbursements are estimated based
on a combination of historical patterns and future expectations regard-
ing these programs. Key sales terms, such as pricing and quantities
ordered, are established on a frequent basis such that most customer
arrangements and related incentives have a one-year or shorter
duration. Estimates that affect revenue, such as trade incentives and
product returns, are monitored and adjusted each period until the
incentives or product returns are realized. The adjustments recognized
during the year ended November 30, 2021, 2020 and 2019 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 $189.3 million and $183.3 million at November 30,
2021 and 2020, respectively.
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.
2021 Annual Report 63
Brand Marketing Support
Total brand marketing support costs, which are included in our
consolidated income statement in the line entitled “Selling, general
and administrative expense”, were $237.8 million, $230.3 million and
$214.6 million for 2021, 2020 and 2019, 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. Advertising 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 advertisement is first run. All other costs of advertising are
expensed as incurred. Advertising expense was $182.6 million, $174.8
million and $150.8 million for 2021, 2020 and 2019, 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 $87.3 million, $68.6 million and $67.3 million for
2021, 2020 and 2019, 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.
Inherent in determining our annual tax rate are judgments regarding
business plans, planning opportunities, and expectations about future
outcomes. Realization of certain deferred tax assets, primarily net
operating loss and other carryforwards, is dependent upon generating
sufficient taxable income in the appropriate jurisdiction prior to the
expiration of the carryforward periods. Changes in enacted tax rates
are reflected in the tax provision as they occur.
We record valuation allowances to reduce deferred tax assets to the
amount that is more likely than not to be realized. When assessing the
need for valuation allowances, we consider future taxable income and
ongoing prudent and feasible tax planning strategies. Should a change
in circumstances lead to a change in judgment about the realizabil-
ity of deferred tax assets in future years, we would adjust related
valuation allowances in the period that the change in circumstances
occurs, along with a corresponding adjustment to our provision for
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 per-
cent likely of being realized upon ultimate settlement. The resolution
of tax reserves and changes in valuation allowances could be material
to our results of operations for any period but is not expected to be
material to our financial position.
Effective December 1, 2018, we are subject to a U.S. tax 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. Accounting princi-
ples generally accepted in the U.S. provide for an accounting policy
election of either recognizing deferred taxes for temporary differences
64 McCormick & Company, Inc.
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.
Stock-Based 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 associ-
ated 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 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 becoming retirement eligible.
We estimate forfeitures associated with all stock-based compensation
at the time of grant based on historical experience and revise this
estimate in subsequent periods if actual forfeitures differ.
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
Company’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”
depending on their fair value and maturity. Gains and losses repre-
senting 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 “Interest 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 consistent with the
nature of the instruments.
Cash flow hedges. Qualifying derivatives are accounted for as cash
flow hedges when the hedged item is a forecasted transaction. Gains
and losses on these instruments are recorded in 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 finan-
cial 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 obli-
gation 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 2021
In January 2017, the FASB issued ASU No. 2017-04 Intangibles—
Goodwill and Other Topics (Topic 350): Simplifying the Test for
Goodwill Impairment. This guidance eliminates the requirement to
calculate the implied fair value of goodwill of a reporting unit to mea-
sure a goodwill 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. This new standard was adopted effective
December 1, 2020 and will be applied upon recognition of any future
goodwill impairment charge. This ASU has not had a material impact
on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instru-
ments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which instituted a new model for recognizing
credit losses on financial instruments that are not measured at fair
value. This standard was adopted by the Company on December 1,
2020. As this ASU did not have a material impact on our consolidated
financial statements upon adoption, a cumulative-effect adjustment to
retained earnings was not necessary.
Recently Issued Accounting Pronouncements—Pending
Adoption
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 do not expect the new guidance will
have a material impact on our consolidated financial statements.
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 rates 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 FONA International, LLC
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 $708.2 million, net of cash acquired. That pur-
chase price includes the payment of $2.6 million during 2021 associated
with the final working capital adjustment. FONA is a leading manu-
facturer 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 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. At the time of the acquisi-
tion, annual sales of FONA were approximately $114 million. The results
of FONA’s operations have been included in our financial statements as a
component of our flavor solutions segment from the date of acquisition.
The purchase price of FONA was allocated to the underlying assets
acquired and liabilities assumed based upon their estimated fair val-
ues at the date of acquisition. We estimated the fair values based on
independent valuations, discounted cash flow analyses, quoted market
prices, and estimates made by management.
The final purchase price allocation for FONA resulted in the following
fair value allocations, net of cash acquired (in millions):
Trade accounts receivable
Inventories
Goodwill
Intangible assets
Property, plant and equipment
Other assets
Trade accounts payable
Other accrued liabilities
Deferred taxes
Other long-term liabilities
Total
$ 12.4
10.3
389.7
266.0
36.3
5.5
(3.7)
(6.9)
(0.3)
(1.1)
$ 708.2
2021 Annual Report 65
We determined the fair value of intangible assets using the following
methodologies. We valued the acquired brand names and trademarks
and intellectual property using the relief from royalty method, an income
approach. We valued the acquired customer relationships using the
excess earnings method, an income approach. Some of the more
significant assumptions inherent in developing the valuations included
the estimated annual net cash flows for each indefinite-lived or
definite-lived intangible 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 assump-
tions 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 valued finished goods and work-in-process inventory using a net
realizable value approach, which resulted in a step-up of $1.4 million
that was recognized in Cost of goods sold during 2021, as the related
inventory was sold. Raw materials and packaging inventory were
valued using the replacement cost approach.
The valuation of the acquired net assets of FONA includes $49.0 million
allocated to indefinite-lived brand assets, $173.0 million allocated to
customer relationships with an estimated useful life of 15 years and
$44.0 million allocated to intellectual property with an estimated useful
life of 12 years. As a result of the acquisition, we recognized a total of
$389.7 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 customers for value-added flavor solutions, and our
supply chain capabilities, as well as expected synergies from the
combined operations and assembled workforce. Our aggregate income
tax basis in the acquired intangible assets and goodwill approximates
their aggregate book value at the acquisition date.
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 $801.2 million, net of cash acquired.
That purchase price is also net of $1.5 million received during 2021
associated with the final working capital adjustment. 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 we believe broadens our 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.
The purchase price of Cholula was allocated to the underlying assets
acquired and liabilities assumed based upon their estimated fair val-
ues at the date of acquisition. We estimated the fair values based on
independent valuations, discounted cash flow analyses, quoted market
prices, and estimates made by management.
66 McCormick & Company, Inc.
During 2021, we completed the Cholula purchase price allocation. The
final purchase price allocation for Cholula resulted in the following fair
value allocations, net of cash acquired (in millions):
Trade accounts receivable
Inventories
Goodwill
Intangible assets
Other assets
Trade accounts payable
Other accrued liabilities
Deferred taxes
Other long-term liabilities
Total
$ 15.0
16.5
411.3
401.0
10.5
(7.0)
(8.1)
(35.1)
(2.9)
$ 801.2
The fair value of intangible assets was determined using income
methodologies. We valued the acquired brand names and trade-
marks 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 valuations included the esti-
mated annual net cash flows for each indefinite-lived or definite-lived
intangible 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 competi-
tive 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
valued finished goods and work-in-process inventory using a net real-
izable value approach, which resulted in a step-up of $4.9 million that
was recognized in cost of goods sold in 2021 as the related inventory
was sold. Raw materials and packaging inventory was valued using
the replacement 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 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 an estimated useful
life of 15 years. As a result of the acquisition, we recognized a total
of $411.3 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.
Transaction and Integration Expenses Associated with the Cholula and
FONA Acquisitions
The following are the Transaction and integration expenses recognized
related to the Cholula and FONA acquisitions for the years ended
November 30 (in millions):
Transaction-related expenses included in cost of
goods sold
Other transaction expenses
Integration expenses
Total transaction and integration expenses
2021
2020
$ 6.3
13.8
15.2
$35.3
$ —
12.4
—
$12.4
We expect additional transaction and integration expenses related
to our acquisition of Cholula and FONA to total approximately
$3 million in 2022.
3. SPECIAL CHARGES
In our consolidated income statement, we include a separate line item
captioned “Special charges” in arriving at our consolidated operat-
ing income. Special charges consist of expenses, including related
impairment charges, associated with certain actions undertaken to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness and are of such significance in terms of both up-front
costs and organizational/structural impact to require advance approval
by our Management Committee, comprised of our senior management,
including our Chairman, President and Chief Executive Officer. Upon
presentation of any such proposed action (generally including details
with respect to estimated costs, which typically consist principally of
employee severance and related benefits, together with ancillary costs
associated with the action that may include a non-cash component,
such as an asset impairment, or a component which relates to inven-
tory adjustments that are included in cost of goods sold; impacted
employees or operations; expected timing; and expected savings) to
the Management Committee and the Committee’s advance approval,
expenses associated with the approved action are classified as special
charges upon recognition and monitored on an on-going basis through
completion. Certain ancillary expenses related to these actions
approved by our Management Committee do not qualify for accrual
upon approval but are included as special charges as incurred during
the course of the actions.
The following is a summary of special charges recognized for the years
ended November 30 (in millions):
Employee severance and related benefits in the
income statement
Other costs in the income statement (1)
Special charges
2021
2020
2019
$10.5
35.9
$4.1
2.8
$ 6.2
14.6
$46.4
$6.9
$20.8
Special charges included in Cost of goods sold
4.7
—
—
Total special charges
$51.1
$6.9
$20.8
(1) Included in other costs for 2021 are non-cash intangible asset impairment charges
of $11.2 million and a non-cash fixed asset impairment charge of $6.0 million.
The following is a summary of special charges by business segments
for the years ended November 30 (in millions):
Consumer segment
Flavor solutions segment
Total special charges
2021
2020
2019
$36.3
14.8
$5.5
1.4
$13.1
7.7
$51.1
$6.9
$20.8
We continue to evaluate changes to our organization structure to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness.
During 2021, we recorded $51.1 million of special charges, of which
$46.4 million was recognized in Special charges and $4.7 million
was recognized in Cost of goods sold on our consolidated income
statement. Special charges in 2021 consist principally of $19.5 million
associated with our exit of our rice product line in India, as more fully
described below, $6.2 million associated with the transition of a man-
ufacturing facility in EMEA, streamlining actions of $10.3 million in the
Americas region, $4.8 million in the EMEA region and $0.8 million in
the APAC region, and $0.8 million related to our GE initiative, together
with a non-cash asset impairment charge of $6.0 million associated
with an administrative site that was sold in conjunction with our
decision to employ a hybrid work environment. As of November 30,
2021, reserves associated with special charges are included in the line
entitled “Trade accounts payable” and “Other accrued liabilities” in
our consolidated balance sheet.
In 2021, we recorded a total of $19.5 million of special charges related
to the exit of our Kohinoor rice product line in India. This action prin-
cipally relates to the discontinuance of Kohinoor’s rice business consis-
tent with our focus on higher margin products to enable the business
to focus on both its flavor solutions and non-rice consumer business.
As a result of the Kohinoor rice product line exit, we determined that
an impairment of the Kohinoor brand name had occurred in 2021 and
recorded a non-cash impairment charge of $7.4 million reducing its
carrying value to zero. Also, as a result of this action, we determined
that the value of our customer relationship asset in India was also im-
paired as a result of the lower level of anticipated sales and recorded
a non-cash impairment charge of $3.8 million. We also recorded $3.6
million of employee severance and other related exit costs associated
directly associated with the exit plan. We anticipate that these costs
will be paid within the next twelve months. In addition, as a result
of the Kohinoor product line discontinuance in 2021, we recognized
a $4.7 million charge in cost of goods sold, which represents a
provision for the excess of the carrying value of rice inventories over
the estimated net realizable value of such discontinued inventories
and a contractual obligation associated with terminating a rice supply
agreement.
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 paid in 2021.
2021 Annual Report 67
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 streamlin-
ing actions in the Americas and (iii) $3.9 million related to streamlining
actions in our EMEA region. Of the $20.8 million in special charges
recorded during 2019, approximately $16.8 million were paid in cash,
with the remaining accrual paid in 2020.
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.
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, 2021, we have recognized a total of $40.7 million of
special charges associated with our GE initiative.
4. GOODWILL AND INTANGIBLE ASSETS
The following table displays intangible assets as of November 30:
(millions)
2021
2020
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
Definite-lived
intangible assets
$ 549.6
$164.5
$ 336.8
$127.4
Indefinite-lived
intangible assets:
Goodwill
Brand names and
trademarks
Total goodwill and
intangible assets
5,335.8
3,067.4
8,403.2
—
—
—
4,986.3
3,030.0
8,016.3
—
—
—
$8,952.8
$164.5
$8,353.1
$127.4
We acquired FONA in December 2020 (see note 2). The valuation of
the acquired net assets of FONA resulted in the allocation of $389.7
million to goodwill, $49.0 million to indefinite-lived intangible assets
associated with the acquired brand names and trademarks, and $217.0
million to definite-lived intangible assets.
68 McCormick & Company, Inc.
We acquired Cholula in November 2020 (see note 2). The valuation of
the acquired net assets of Cholula resulted in the allocation of $411.3
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.
Intangible asset amortization expense was $35.6 million, $20.2 million
and $20.3 million for 2021, 2020 and 2019, respectively. At November
30, 2021, definite-lived intangible assets had a weighted-average
remaining life of approximately 12 years.
The changes in the carrying amount of goodwill by segment for the
years ended November 30 were as follows:
(millions)
2021
2020
Beginning of year
Changes in
preliminary
purchase price
allocation
Increases from
acquisitions
Foreign currency
fluctuations
Consumer
Flavor
Solutions
Consumer
Flavor
Solutions
$3,711.2
$1,275.1
$3,377.6
$ 1,127.6
0.5
—
0.3
—
—
389.7
273.7
136.8
(37.0)
(4.0)
59.9
10.7
End of year
$3,674.7
$1,661.1
$3,711.2
$1,275.1
In 2020, 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. In 2021, we finalized the allocation of the purchase price
of Cholula, which resulted in an increase in goodwill of $0.5 million
to the consumer segment and $0.3 million to the flavor solutions seg-
ment. The December 2020 FONA acquisition resulted in the allocation
of $389.7 million of goodwill to the flavor solutions segment.
As more fully described in note 3, in 2021, we recorded non-cash impair-
ment charges of $7.4 million and $3.8 million associated with the Kohinoor
brand name and customer relationship asset in India, respectively.
5. INVESTMENTS IN AFFILIATES
Income from unconsolidated operations was $52.2 million, $40.8
million, and $40.9 million in 2021, 2020 and 2019, respectively. Income
from unconsolidated operations in 2021 includes a gain on a sale of
unconsolidated operations of $13.4 million as described below. Our
principal earnings from unconsolidated affiliates is from our 50% inter-
est in McCormick de Mexico, S.A. de C.V. Profit from this joint venture
represented 62% of income from unconsolidated operations in 2021,
75% in 2020 and 72% in 2019. The relative impact of McCormick de
Mexico, S.A. de C.V. on income from unconsolidated operations in 2021
was impacted by the gain on our sale of an unconsolidated operation.
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
2021
2020
2019
$925.1
328.8
95.8
$870.3
318.0
93.7
$863.0
316.2
90.5
(millions)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
2021
2020
2019
$464.2
105.8
218.5
9.0
$421.7
126.2
192.3
12.2
$426.3
134.0
223.8
9.2
(4) Includes unamortized discounts, premiums and debt issuance costs of $(31.8) million
and $(24.4) million as of November 30, 2021 and 2020, respectively. Includes fair value
adjustment associated with interest rate swaps designated as fair value hedges of
$21.2 million and $41.3 million as of November 30, 2021 and 2020, respectively.
Maturities of long-term debt, including finance leases, during the fiscal
years subsequent to November 30, 2021 are as follows (in millions):
Royalty income from unconsolidated affiliates was $22.8 million, $19.5
million and $19.0 million for 2021, 2020 and 2019, respectively.
Sale of Unconsolidated Operation
On March 1, 2021, we sold our 26% interest in Eastern Condiments
Private Ltd (Eastern) for $65.4 million in cash, net of transaction
expenses of $1.4 million. Eastern was accounted for as an equity
method investment with our proportionate share of earnings, prior to
the sale, reflected in Income from unconsolidated operations before
income taxes in our consolidated income statement. The sale of
Eastern resulted in a gain of $13.4 million, net of tax of $5.7 million.
That gain is included in Income from unconsolidated operations before
income taxes in our consolidated income statement. That gain also
reflects a write-off of $1.4 million of foreign currency translation
adjustment, a component of Accumulated other comprehensive loss.
6. FINANCING ARRANGEMENTS
Our outstanding debt, including finance 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
2.70% notes due 8/15/2022
3.50% notes due 8/19/2023(1)
3.15% notes due 8/15/2024
3.25% notes due 11/15/2025(2)
0.90% notes due 2/15/2026
3.40% notes due 8/15/2027(3)
2.50% notes due 4/15/2030
1.85% notes due 2/15/2031
4.20% notes due 8/15/2047
7.63%–8.12% notes due 2024
Other, including finance leases
Unamortized discounts, premiums, debt issuance
costs and fair value adjustments(4)
Less current portion
2021
2020
$ 530.8
8.3
$ 845.8
40.9
$ 539.1
$ 886.7
0.2 %
0.3 %
$ —
750.0
250.0
700.0
250.0
500.0
750.0
500.0
500.0
300.0
55.0
199.2
(10.6)
4,743.6
770.3
$ 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
$3,973.3
$3,753.8
(1) 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%.
(2) Interest rate swaps, settled upon the issuance of these notes in 2015, effectively set the
interest rate on the $250 million notes at a weighted-average fixed rate of 3.45%. The
fixed interest rate on $100 million of the 3.25% notes due in 2025 is effectively converted
to a variable rate by interest rate swaps through 2025. Net interest payments are based
on 3-month LIBOR plus 1.22%. Our effective rate as of November 30, 2021 was 1.38%.
(3) 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%. Our effective rate as of November 30, 2021 was 0.84%.
2022
2023
2024
2025
2026
Thereafter
$ 770.3
264.5
797.2
278.0
509.2
2,135.0
In February 2021, we issued $500.0 million of 0.90% notes due February
15, 2026, with cash proceeds received of $495.7 million, net of
discounts and underwriters’ fees. Also in February 2021, we issued
$500.0 million of 1.85% notes due February 15, 2031, with cash
proceeds received of $492.8 million, net of discounts and underwriters’
fees. Interest is payable semiannually on both these notes in arrears
in February and August of each year. The net proceeds from these
issuances were used to pay down short-term borrowings, including a
portion of the $1,443.0 million of commercial paper issued to finance our
acquisitions of Cholula and FONA, and for general corporate purposes.
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.
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. In
June 2021, we entered into a five-year $1.5 billion revolving credit
facility, which will expire in June 2026. The current pricing for the
credit facility, on a fully drawn basis, is LIBOR plus 1.25%. The pricing
of the credit facility is based on a credit rating grid that contains a
fully drawn maximum pricing of the credit facility equal to LIBOR plus
1.75%. This credit facility supports our commercial paper program and,
after $530.8 million was used to support issued commercial paper, we
have $969.2 million of capacity at November 30, 2021. The provisions
of this revolving credit facility restrict subsidiary indebtedness and
require us to maintain a minimum interest coverage ratio. As of
November 30, 2021, our capacity under the five-year $1.5 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 facility for the foreseeable future. This facility replaced our prior
revolving credit facilities which included: (i) a five-year $1.0 billion
revolving credit facility that was due to expire in August 2022, and
(ii) a 364-day $1.0 billion revolving facility, which we entered into in
December 2020 and that was due to expire in December 2021.
The pricing for our prior five-year $1.0 billion revolving credit facility,
on a fully drawn basis, was LIBOR plus 1.25%. The pricing for our prior
364-day $1.0 billion revolving credit facility, on a fully drawn basis, was
LIBOR plus 1.25%. The pricing of those credit facilities was 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 previous
revolving credit facilities restricted subsidiary indebtedness and
required us to maintain certain minimum and maximum financial ratios
for interest expense coverage and our leverage ratio.
2021 Annual Report 69
In addition, we have several uncommitted lines totaling $308.4 million,
which have a total unused capacity at November 30, 2021 of $226.6
million. These lines, by their nature, can be withdrawn based on the
lenders’ discretion. Committed credit facilities require a fee, and commit-
ment fees were $2.0 million, $1.3 million and $1.3 million for 2021, 2020
and 2019, respectively.
We entered into a Term Loan Agreement (Term Loan) in August 2017.
The Term Loan provided for three-year and five-year senior unsecured
term loans, each for $750 million. The three-year loan was payable at
maturity. The five-year loan was payable in equal quarterly install-
ments 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 prepayable in whole or in part. In 2020, we repaid the
five-year loan. Prior to payoff, the five-year loan bore interest at LIBOR
plus 1.25%. In 2019, we repaid the three-year loan. Prior to payoff, the
three-year loan bore interest at LIBOR plus 1.125%. The interest rates
were based on our credit rating.
At November 30, 2021, we had guarantees outstanding of $0.6 million
with terms of one year or less. As of November 30, 2021 and 2020,
we had outstanding letters of credit of $63.7 million and $32.2 million,
respectively. These letters of credit typically act as a guarantee of
payment to certain third parties in accordance with specified terms
and conditions. The unused portion of our letter of credit facility was
$13.6 million at November 30, 2021.
7. LEASES
Our lease portfolio primarily consists of (i) certain real estate, including
those related to a number of administrative, distribution and manu-
facturing locations; (ii) certain machinery and equipment, including
forklifts; and (iii) automobiles, delivery trucks and other vehicles,
including an airplane. 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 material restrictive covenants, with the
exception of the non-cancellable synthetic lease discussed below.
The following presents the components of our lease expense for the
years ended November 30 (in millions):
Operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Net lease cost
2021
$ 45.0
9.0
4.3
2020
$ 41.2
9.0
4.5
$ 58.3
$54.7
Rental expense under operating leases (primarily buildings and equip-
ment) was $48.1 million in 2019.
Supplemental balance sheet information related to leases as of
November 30 were as follows (in millions):
Leases
Assets:
Classification
2021
2020
Operating lease ROU
assets
Finance lease ROU
assets
Other long-term assets
Property, plant and
equipment, net
$ 136.8
$136.8
112.1
120.7
$248.9
$257.5
Total leased assets
Liabilities:
Current
Operating
Finance
Non-current
Operating
Finance
Other accrued liabilities
Current portion of
long-term debt
$ 34.3
$ 37.3
7.5
7.3
Other long-term liabilities
Long-term debt
106.1
118.2
103.5
125.5
Total lease liabilities
$ 266.1
$273.6
Our Corporate functions, Americas’ leadership, and U.S. staff reside
in our Hunt Valley, Maryland headquarters office building. The 15-year
lease for that building requires monthly lease payments of approxi-
mately $0.9 million which began in April 2019. The $0.9 million month-
ly lease payment is subject to adjustment after an initial 60-month
period and thereafter on an annual basis as specified in the lease
agreement. We recognized this lease as a finance lease, with the
leased asset of $107.4 million and $116.1 million included in property,
plant and equipment, net, as of November 30, 2021 and 2020, respec-
tively. During each of the years ended November 30, 2021, 2020 and
2019, we recognized amortization expense of $8.7 million related to
the leased asset. As of November 30, 2021, the total lease obligation
associated with this building was $123.8 million, of which $7.3 million
was included in the current portion of long-term debt and $116.5
million was included in long-term debt. 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.
(1) Net lease cost does not include short-term leases, variable lease costs or sublease
income, all of which are immaterial.
Information regarding our lease terms and discount rates as of November 30 were as follows:
2021
2020
Weighted-average
remaining lease term
(years)
Weighted-average
discount rate
Weighted-average
remaining lease term
(years)
Weighted-average
discount rate
6.8
12.9
1.9%
3.3%
5.6
13.9
1.9%
3.3%
Operating leases
Finance leases
70 McCormick & Company, Inc.
The future maturity of our lease liabilities as of November 30, 2021
were as follows (in millions):
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Operating
leases
$ 38.3
28.6
20.8
15.7
12.0
38.8
154.2
13.8
Finance
leases
$ 11.4
11.4
11.5
11.7
12.0
102.0
160.0
34.3
Total
$ 49.7
40.0
32.3
27.4
24.0
140.8
314.2
48.1
Total lease liabilities
$ 140.4
$ 125.7
$ 266.1
Supplemental cash flow and other information related to leases for the
years ended November 30 were as follows (in millions):
2021
2020
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
$ 45.4
4.3
7.1
$ 41.5
4.5
6.9
$ 47.8
$ 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 construction 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 $1.5 billion, five-year revolving credit agreement
as disclosed in note 6.
8. FINANCIAL INSTRUMENTS
We use derivative financial instruments to enhance our ability to man-
age risk, including foreign currency and interest rate exposures, which
exist as part of our ongoing business operations. We do not enter into
contracts for trading purposes, nor are we a party to any leveraged
derivative instrument and all derivatives are designated as hedges.
We are not a party to master netting arrangements, and we do not
offset the fair value of derivative contracts with the same counterparty
in our financial statement disclosures. The use of derivative financial
instruments is monitored through regular communication with senior
management and the use of written guidelines.
Foreign Currency
We are potentially exposed to foreign currency fluctuations affecting
net investments in subsidiaries, transactions (both third-party and
intercompany) and earnings denominated in foreign currencies. Man-
agement assesses foreign currency risk based on transactional cash
flows and translational volatility and may enter into forward contract
and currency swaps with highly-rated financial institutions to reduce
fluctuations in the long or short currency positions. Forward contracts
are generally less than 18 months duration. Currency swap agree-
ments are established in conjunction with the terms of the underlying
debt issues.
At November 30, 2021, we had foreign currency exchange contracts
to purchase or sell $583.6 million of foreign currencies as compared
to $383.8 million at November 30, 2020. 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, 2021 have durations
of less than 18 months, including $209.7 million of notional contracts
that have durations of less than one month and are used to hedge
short-term cash flow funding.
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 $449.3 million and $212.3 million at November
30, 2021 and 2020, 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.
We also utilize cross currency interest rate swap contracts that are
designated as net investment hedges. As of November 30, 2021 and
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 financ-
ing costs and to achieve a desired mix of variable and fixed rate debt.
As of November 30, 2021 and 2020, we have outstanding interest
rate swap contracts for a notional amount of $350.0 million. Those
interest rate swap contracts include a $100 million notional value
of interest rate swap contracts where we receive interest at 3.25%
and pay a variable rate of interest based on three-month LIBOR plus
1.22%. These swaps, which expire in November 2025, are designated
as fair value hedges of the changes in fair value of $100 million of the
$250 million 3.25% medium-term notes due 2025. We also have $250
million notional interest rate swap contracts where we receive interest
2021 Annual Report 7 1
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
corresponding increase or decrease in the value of the hedged debt.
Hedge ineffectiveness was not material.
The following tables disclose the notional amount and fair values of derivative instruments on our consolidated balance sheet:
As of November 30, 2021:
(millions)
Asset Derivatives
Liability Derivatives
Derivatives
Balance sheet location
Notional amount
Fair value Balance sheet location Notional amount
Fair value
$350.0
380.8
251.0
$23.1 Other accrued liabilities
8.3 Other accrued liabilities
$ —
202.8
4.4 Other long-term liabilities
257.5
$35.8
$ —
2.8
8.0
$ 10.8
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, 2020:
(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
Asset Derivatives
Liability Derivatives
Balance sheet location
Notional amount
Fair value
Balance sheet location
Notional amount
Fair value
$350.0
27.5
$ 43.1 Other accrued liabilities
1.4 Other accrued liabilities
$ —
356.3
—
— Other long-term liabilities
524.4
$ —
8.2
18.8
$27.0
Total
$ 44.5
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, 2021, 2020 and 2019:
Fair value hedges (millions)
Derivative
Interest rate contracts
Income statement
location
Interest expense
Income (expense)
2021
$8.2
2020
2019
$5.2
$ —
Derivative
Income statement
location
Gain (loss) recognized in income
2021
2020
2019
Hedged Item
Income statement
location
Foreign exchange contracts
Other income, net
$ (1.9)
$ (4.0)
$ 0.2
Intercompany loans
Other income, net
Gain (loss) recognized in income
2021
$2.9
2020
$ 3.0
2019
$ (0.9)
Cash flow hedges (millions)
Derivative
Interest rate contracts
Foreign exchange contracts
Total
Gain (loss)
recognized in OCI
2021
2020
$ 0.3
(2.0)
$ —
1.9
2019
$ —
(0.2)
$ (1.7)
$ 1.9
$(0.2)
Income statement location
Interest expense
Cost of goods sold
Gain (loss)
reclassified from AOCI
2021
$ 0.5
(0.7)
$ (0.2)
2020
$ 0.5
1.6
$ 2.1
2019
$ 0.5
1.6
$ 2.1
The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The net amount of accumulated
other comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $0.2 million decrease to
earnings.
72 McCormick & Company, Inc.
Net investment hedges (millions)
Derivative
Cross currency contracts
Gain (loss)
recognized in OCI
2021
2020
$ 15.5
$ (20.8)
2019
$ 1.1
Income statement location
Interest expense
Gain (loss)
excluded from the assessment of
hedge effectiveness
2021
$ 1.5
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.
Concentrations of Credit Risk
We are potentially exposed to concentrations of credit risk with
trade accounts receivable and financial instruments. The customers
of our consumer segment are predominantly food retailers and food
wholesalers. Consolidations in these industries have created larger
customers. In addition, competition has increased with the growth
in alternative channels including mass merchandisers, dollar stores,
warehouse clubs, discount chains and e-commerce. This has caused
some customers to be less profitable and increased our exposure
to credit risk. We generally have a large and diverse customer base
which limits our concentration of credit risk. At November 30, 2021,
we did not have amounts due from any single customer that exceed
10% of consolidated trade accounts receivable. Current credit markets
are highly volatile and some of our customers and counterparties are
highly leveraged. We continue to closely monitor the credit worthiness
of our customers and counterparties and generally do not require col-
lateral. We believe that the allowance for doubtful accounts properly
recognized trade receivables at realizable value. We consider nonper-
formance credit risk for other financial instruments to be insignificant.
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.
Our population of assets and liabilities subject to fair value measurements on a recurring basis are as follows:
(millions)
Assets:
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Interest rate derivatives
Foreign currency derivatives
Cross currency contracts
Total
Liabilities:
Foreign currency derivatives
Cross currency contracts
Total
Fair value measurements
using fair value hierarchy as
of November 30, 2021
Fair value
Level 1
Level 2
$351.7
132.2
5.1
23.1
8.3
4.4
$524.8
2.8
8.0
$ 10.8
$351.7
—
5.1
—
—
—
$356.8
—
—
$ —
132.2
—
23.1
8.3
4.4
$168.0
2.8
8.0
$ —
$ 10.8
2021 Annual Report 73
(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
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
At November 30, 2021 and 2020, we had no financial assets or liabili-
ties that were subject to a level 3 fair value measurement.
At November 30, 2021 and 2020, the carrying amount of interest rate
derivatives, foreign currency derivatives, cross currency contracts,
insurance contracts, and bond and other long-term investments are
equal to their respective fair values. Because of their short-term
nature, the amounts reported in the balance sheet for cash and cash
equivalents, receivables, short-term borrowings and trade accounts
payable approximate fair value. Investments in affiliates are not readi-
ly marketable, and it is not practicable to estimate their fair value.
Insurance contracts, bonds, and other long-term investments are com-
prised of fixed income and equity securities held for certain non-qual-
ified U.S. employee benefit plans and are stated at fair value on the
balance sheet. 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 derivatives, foreign
currency derivatives, and cross currency contracts are based on values
for similar instruments using models with market-based inputs.
The carrying amount and fair value of long-term debt, including the current portion, as of November 30 were as follows:
(millions)
Long-term debt (including current portion)
Level 1 valuation techniques
Level 2 valuation techniques
2021
2020
Carrying amount
Fair value
Carrying amount
Fair value
$ 4,743.6
$ 4,921.5
4,722.3
199.2
$ 4,017.7
$ 4,357.1
4,161.3
195.8
The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments.
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 gain (loss) on foreign currency exchange contracts
Unamortized value of settled interest rate swaps
Pension and other postretirement costs
2021
2020
$ (233.3)
0.6
(0.2)
(193.6)
$ (174.0)
(0.4)
(0.1)
(296.3)
$ (426.5)
$ (470.8)
(1) During the year ended November 30, 2021, the foreign currency translation adjustment of accumulated other comprehensive loss increased by $(59.3) million, including the impact of
a $15.5 million decrease associated with net investment hedges. 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. 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
2021
2020
2019
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)
0.7
0.2
—
$ (0.5)
(1.6)
(2.1)
0.5
$ (0.5)
(1.6)
(2.1)
0.4
$ 0.2
$ (1.6)
$ (1.7)
$ 0.3
13.9
14.2
(3.3)
$ (4.0)
11.0
7.0
(1.6)
$ (8.0)
2.6
(5.4)
1.2
$10.9
$ 5.4
$ (4.2 )
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
with effective dates of the plan being frozen occurring between
December 31, 2016 and November 30, 2018. Also, on December 1, 2017,
the freezing of benefits under our pension plans in Canada was approved
Defined Benefit Pension Plans
The significant assumptions used to determine benefit obligations are as follows as of November 30:
with an effective date of November 30, 2019. Although those plans have
been frozen, employees who are participants in the plans retained ben-
efits accumulated up to the date of the freeze, based on credited service
and eligible earnings, in accordance with the terms of the plans.
Included in our consolidated balance sheet as of November 30, 2021 on
the line entitled “Accumulated other comprehensive loss” was $248.7
million ($193.6 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 $10.0 million ($7.3
million net of tax) in net periodic pension and postretirement benefit
costs during 2022 related to the amortization of actuarial losses of $9.7
million and the amortization of prior service cost of $0.3 million.
Discount rate—funded plans
Discount rate—unfunded plan
Salary scale
United States
International
2021
2.9%
2.8%
—
2020
2.8%
2.7%
—
2021
2.1%
—
2.9%
2020
1.9%
—
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
2021
2.8%
2.7%
—%
6.8%
2020
3.4%
3.3%
—%
6.8%
2019
4.7%
4.6%
—%
7.0%
2021
2020
2019
1.9%
—
2.9%
4.1%
2.2%
—
2.9%
4.9%
3.3%
—
3.4%
5.5%
Annually, we undertake a process, with the assistance of our external investment consultants, to evaluate the appropriate projected rates of return to
use for our pension plans’ assumptions. We engage our investment consultants’ research teams to develop capital market assumptions for each asset
category in our plans to project investment returns into the future. The specific methods used to develop expected return assumptions vary by asset
category. We adjust the outcomes for the fact that plan assets are invested with actively managed funds and subject to tactical asset reallocation.
2021 Annual Report 75
Our pension expense (income) 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 loss
Total pension expense (income)
United States
International
2021
2020
2019
2021
2020
2019
$ 3.7
25.9
(41.1)
0.5
11.0
—
$ 3.2
29.3
(40.6)
0.5
7.8
—
$ 2.1
34.4
(42.5)
0.5
2.3
—
$ 1.1
7.1
(14.0)
0.1
2.2
0.7
$ 1.3
7.5
(15.3)
0.1
2.0
1.3
$ 3.6
9.5
(16.4)
0.2
1.2
—
$ —
$ 0.2
$ (3.2)
$ (2.8)
$ (3.1)
$ (1.9)
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 mea-
surement date, follows:
(millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Plan amendments
Actuarial (gain) 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
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
2021
2020
2021
2020
$ 958.0
3.7
25.9
—
(21.9)
(44.2)
—
—
$ 884.8
3.2
29.3
—
82.1
(41.4)
—
—
$ 371.7
1.1
7.1
0.5
(7.4)
(16.6)
—
(1.7)
$ 345.6
1.3
7.5
—
19.1
(14.1)
(0.2)
12.5
$ 921.5
$ 958.0
$ 354.7
$ 371.7
$ 688.2
96.6
13.4
(44.2)
—
$ 671.9
47.3
10.4
(41.4)
—
$ 368.7
47.1
1.6
(16.6)
(2.4)
$ 340.9
28.6
1.5
(14.1)
11.8
$ 754.0
$ 688.2
$ 398.4
$ 368.7
$ (167.5)
$ (269.8)
$ 43.7
$ (3.0)
$ 921.5
912.3
754.0
$ 958.0
945.1
688.2
$ 19.7
16.3
1.8
$ 110.4
106.5
87.7
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 $912.3 million
and $945.1 million as of November 30, 2021 and 2020, respectively.
The accumulated benefit obligation for the international pension plans
was $351.3 million and $367.9 million as of November 30, 2021 and
2020, respectively.
Included in the U.S. in the preceding table is a benefit obligation of
$104.2 million and $110.5 million for 2021 and 2020, respectively, related
to our Supplemental Executive Retirement Plan (SERP). The assets
related to this plan, which totaled $90.3 million and $86.4 million as of
November 30, 2021 and 2020, 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, net of tax
76 McCormick & Company, Inc.
United States
International
2021
$ —
167.5
52.9
167.8
2020
$ —
269.8
74.0
235.5
2021
$ 61.6
18.0
3.9
32.2
2020
$ 19.6
22.6
14.3
63.7
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 investment styles. These
more volatile assets are balanced with less volatile assets, primarily
mutual, co-mingled and other funds comprised of fixed income securities.
Professional investment firms are engaged to provide advice on the
selection and monitoring of investment funds, and to provide advice on the
allocation of plan assets across the various fund managers. This advice is
based in part on the duration of each plan’s liability. The investment return
performances are evaluated quarterly against specific benchmark indices
and against a peer group of funds of the same asset classification.
The allocations of U.S. pension plan assets as of November 30, by
asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2021
2020
62.2%
20.9%
16.9%
63.2%
22.0%
14.8%
2021
Target
59.0%
23.2%
17.8%
100.0%
100.0%
100.0%
The allocations of the international pension plans’ assets as of
November 30, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2021
2020
40.5%
59.1%
0.4%
50.9%
48.3%
0.8%
2021
Target
41.0%
59.0%
—%
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, 2021
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)
Insurance contracts(f)
Other types of investments:
Real estate(g)
Natural resources(h)
Total
fair value
Level 1
Level 2
$ 34.4
$ 34.4
$ —
290.7
170.2
147.5
161.7
143.2
8.5
86.9
41.0
1.1
31.4
13.3
84.4
—
—
27.1
—
2.5
41.0
1.1
4.3
13.3
Total
$ 669.0
$ 455.1
$ 213.9
Investments measured at net asset
value(i)
Hedge funds(j)
Private equity funds(k)
Private debt funds(l)
Total investments
48.0
8.3
28.7
$ 754.0
As of November 30, 2021
International
(millions)
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
$ 1.6
$ 1.6
$ —
161.3
—
161.3
214.1
21.4
—
—
214.1
21.4
$ 398.4
$ 1.6
$ 396.8
As of November 30, 2020
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
$ 28.1
$ 28.1
$ —
271.1
159.2
138.2
147.6
57.1
37.3
29.1
1.1
24.5
9.7
54.9
—
29.1
—
20.6
—
132.9
11.6
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
39.5
4.8
26.7
$ 688.2
As of November 30, 2020
International
(millions)
Cash and cash equivalents
International equity securities(b)
Fixed income securities:
International/government/
corporate bonds(e)
Insurance contracts(f)
Total
fair value
$ 3.1
187.6
Level 1
Level 2
$ 3.1
—
$ —
187.6
155.4
22.6
—
—
155.4
22.6
Total investments
$ 368.7
$ 3.1
$ 365.6
(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 appro-
priate 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.
2021 Annual Report 7 7
(e) This category comprises funds consisting of international govern-
ment/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 equivalent) as a practical expedient have not been
classified in the fair value hierarchy. These are included to permit
reconciliation of the fair value hierarchy to the aggregate pension
plan assets.
(j) This category comprises hedge funds investing in strategies repre-
sented in various HFRI Fund Indices. The net asset value is gener-
ally 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 gen-
eral partner’s designee. These valuation models include unobserv-
able 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 deter-
mined by the general partner or general partner’s designee. These
valuation models include unobservable inputs that cannot be cor-
roborated using verifiable observable market data. These funds
typically have redemption periods of approximately 10 years.
U.S. Defined Contribution Retirement Plans
For our U.S. qualified and non-qualified defined contribution retirement
plans, 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. Some of our smaller subsidiaries sponsor separate 401(k)
retirement plans. Our contributions charged to expense under all U.S.
defined contribution retirement plans were $29.8 million, $30.8 million
and $28.2 million in 2021, 2020 and 2019, respectively.
At the participants’ election, 401(k) retirement plans held 2.8 million
shares of McCormick stock, with a fair value of $238.9 million, at
November 30, 2021. Dividends paid on the shares held in the 401(k)
retirement plans in 2021 and 2020 were $3.9 million and $3.8 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
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.
Our other postretirement benefit expense (income) for the years ended
November 30 follows:
(millions)
Service cost
Interest costs
Amortization of prior service credits
Amortization of actuarial gains
2021
2020
2019
$ 2.0 $ 1.9
2.0
(4.6)
(0.1)
1.6
(0.3)
—
$ 1.8
2.7
(8.7)
(0.9)
Postretirement benefit expense (income)
$ 3.3 $ (0.8) $ (5.1)
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.
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)
2021
2020
Equity securities in the U.S. pension plans included McCormick stock
with a fair value of $47.7 million (0.6 million shares and 6.3% of total
U.S. pension plan assets) and $50.6 million (0.6 million shares and
7.4% of total U.S. pension plan assets) at November 30, 2021 and
2020, respectively. Dividends paid on these shares were $0.7 million
and $0.9 million in 2021 and 2020, respectively.
Pension benefit payments in our most significant plans are made
from assets of the pension plans. It is anticipated that future benefit
payments for the U.S. and international plans for the next 10 fiscal
years will be as follows:
(millions)
2022
2023
2024
2025
2026
2027–2031
United States
International
$ 43.9
44.1
46.2
48.6
48.9
253.8
$ 12.0
12.6
12.8
13.0
13.3
68.4
78 McCormick & Company, Inc.
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Participant contributions
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
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
$ 70.7
2.0
1.6
2.0
(4.3)
(6.1)
$ 65.9
$ —
4.1
2.0
(6.1)
$ —
$ 65.9
$ 67.2
1.9
2.0
2.1
3.9
(6.4)
$ 70.7
$ —
4.3
2.1
(6.4)
$ —
$ 70.7
Estimated future benefit payments (net of employee contributions) for
the next 10 fiscal years are as follows:
(millions)
2022
2023
2024
2025
2026
2027-2031
Retiree
medical
Retiree life
insurance
$ 3.5
3.5
3.5
3.5
3.5
16.7
$1.7
1.6
1.5
1.5
1.4
6.3
Total
$ 5.2
5.1
5.0
5.0
4.9
23.0
The assumed discount rate in determining the benefit obligation was
2.7% and 2.3% for 2021 and 2020, respectively.
For 2021, the assumed annual rate of increase in the cost of covered
health care benefits is 6.3% (6.8% last year). It is assumed to decrease
gradually to 4.5% in the year 2032 (4.5% in 2032 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 2021.
12. STOCK-BASED COMPENSATION
We have four types of stock-based compensation awards: restricted
stock units (RSUs), stock options, company stock awarded as part
A summary of our RSU activity for the years ended November 30 follows:
of our long-term performance plan (LTPP), and beginning in 2020,
price-vested stock options. Total stock-based compensation expense
for 2021, 2020 and 2019 was $66.6 million, $46.0 million and $37.2
million, respectively. Total unrecognized stock-based compensation
expense related to our RSUs and stock options at November 30, 2021
was $19.7 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, 2021 was $13.5 million and the weighted-average period
over which this will be recognized is 2.0 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
plan. As of November 30, 2021, we have 5.5 million shares remaining
available for future issuance under our RSUs, stock option and LTPP
award programs.
The following summarizes the key terms, a summary of activity,
and the methods of valuation for each of our stock-based compen-
sation awards.
RSUs
RSUs are valued at the market price of the underlying stock, discounted
by foregone dividends, on the date of grant. Substantially all of the
RSUs granted vest over a three-year term or, if earlier, upon the retire-
ment eligibility date of the holder.
(shares in thousands)
2021
2020
2019
Beginning of year
Granted
Vested
Forfeited
Outstanding—end of year
Shares
Weighted-average
price
Shares
Weighted-average
price
Shares
Weighted-average
price
714
219
(336)
(34)
563
$ 61.74
86.86
63.69
75.49
$ 69.52
762
296
(325)
(19)
714
$57.95
67.03
57.56
62.96
$61.74
846
258
(318)
(24)
762
$51.53
71.62
52.08
56.78
$57.95
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
$18.36, $13.27 and $13.76 in 2021, 2020 and 2019, 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
2021
2020
2019
0.0–1.8%
1.5%
21.3%
7.9 years
0.0–0.6%
1.8%
22.8%
7.9 years
2.2–2.5%
1.5%
17.4%
7.5 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.
2021 Annual Report 79
A summary of our stock option activity for the years ended November 30 follows:
(shares in millions)
2021
2020
2019
Beginning of year
Granted
Exercised
Outstanding—end of year
Exercisable—end of year
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
4.5
0.8
(0.3)
5.0
3.6
$53.56
89.16
45.93
59.71
$51.51
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
As of November 30, 2021, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding was
$133.3 million and for options currently exercisable was $124.9 million. At November 30, 2021, the differences between options outstanding and
options expected to vest and their related weighted-average exercise prices, aggregate intrinsic values and weighted-average remaining lives were not
material. The total intrinsic value of all options exercised during the years ended November 30, 2021, 2020 and 2019 was $10.7 million, $68.4 million
and $111.0 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2021 follows:
(shares in millions)
Options outstanding
Options exercisable
Range of
exercise price
$27.00–$50.00
$50.01–$73.00
$73.01–$90.00
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
2.4
1.2
1.4
5.0
4.1
7.4
8.5
5.8
$45.33
61.71
83.00
$59.71
2.4
0.8
0.4
3.6
4.1
7.0
7.4
4.7
$45.33
58.23
74.36
$51.51
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
options 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
The following is a summary of our Price-Vested Stock Options activity for the year ended November 30, 2021:
(shares in thousands)
Beginning of year
Granted
Forfeited
Outstanding—end of year
2021
2020
Number of
Shares
Weighted-Average
Grant-Date Fair
Value
Number of
Shares
Weighted-Average
Grant-Date Fair
Value
2,482
15
(304)
2,193
$ 9.40
9.66
9.41
$ 9.40
—
2,482
—
2,482
$ —
9.40
—
$ 9.40
As of November 30, 2021 and 2020, the outstanding options are divided equally between the three appreciation thresholds.
LTPP
LTPP awards granted in 2021, 2020 and 2019 will be delivered in company stock, with the award attainment calculated as a percentage of target based
on a combination of a performance-based component and a market-based total shareholder return. These awards are valued based on the fair value of
the underlying stock on the date of grant.
80 McCormick & Company, Inc.
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
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)
2021
2020
2019
$ 71.7
14.0
71.0
156.7
23.5
16.8
(4.3)
36.0
$192.7
$ 98.3
14.8
73.0
186.1
4.6
0.5
(16.3)
(11.2)
$ 52.3
10.7
73.5
136.5
26.4
3.6
(9.1)
20.9
$174.9
$157.4
The components of income from consolidated operations before
income taxes for the years ended November 30 follow:
(millions)
Pretax income
United States
International
2021
2020
2019
$588.1
307.7
$624.3
257.2
$569.0
250.2
$895.8
$881.5
$819.2
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
Changes in prior year tax contingencies
Acquisition-related state tax rate change,
net of federal benefits
Valuation allowance release
Intra-entity asset transfer
Non-recurring benefit of U.S. Tax Act
Other, net
2021
21.0 %
1.6
0.8
0.1
(0.4)
(2.5)
1.2
(0.5)
—
—
0.2
2020
2019
21.0 % 21.0 %
1.5
1.3
0.8
(1.5)
(0.3)
1.6
1.6
0.5
(2.8)
(0.3)
—
(1.4)
(1.1)
—
(0.5)
—
—
(1.8)
(0.2)
(0.4)
Total
21.5 %
19.8 % 19.2 %
2021
2020
2019
Shares
Weighted-
average price
Shares
Weighted-
average price
Shares
Weighted-
average price
382
141
(124)
126
(28)
497
$71.20
98.30
51.73
75.26
90.32
$83.74
392
130
(88)
(44)
(8)
382
$57.98
86.14
44.98
50.95
65.68
$71.20
436
136
(114)
(66)
—
392
$41.78
75.26
43.20
44.98
—
$57.98
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
2021
2020
$ 91.2
39.8
12.9
56.6
4.0
51.0
(32.7)
222.8
97.5
841.3
3.3
5.9
948.0
$ 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
Net deferred tax liability
$(725.2)
$(659.0)
At November 30, 2021, we have tax loss carryforwards of $186.2 million.
Of these carryforwards, $1.1 million expire in 2022, $18.7 million
from 2023 through 2024, $88.0 million from 2025 through 2038 and
$78.4 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, 2021, we
also have U.S. foreign tax credit carryforwards of $7.0 million and
$5.3 million which expire in 2030 and 2031, respectively.
A valuation allowance has been provided to cover deferred tax assets
that are not more likely than not realizable. The net increase of
$1.2 million in the valuation allowance from November 30, 2020 to
November 30, 2021 resulted primarily from the net increase of valua-
tion allowances for net operating losses and other tax attributes in the
U.S. and certain non-U.S. jurisdictions.
In December 2017, “An Act to provide for reconciliation pursuant to
titles II and V of the concurrent resolution on the budget for fiscal
year 2018” was enacted into law as Pub. L. 115-9 (hereafter referred
to as the “U.S. Tax Act”). 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 interna-
tional subsidiaries and joint ventures indefinitely. As of November 30,
2021, we have $1.3 billion of earnings that are considered indefinitely
2021 Annual Report 81
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 reinvested international earnings.
The following table summarizes the activity related to our gross
unrecognized tax benefits for the years ended November 30:
(millions)
2021
2020
2019
Balance at beginning of year
Additions for current year tax positions
Additions for prior year tax positions
Reductions of prior year tax positions
Statute expirations
Settlements
Foreign currency translation
$ 39.3
4.8
0.1
(11.6)
(6.0)
(0.2)
0.4
$32.0
7.8
2.5
—
(4.2)
—
1.2
$ 27.9
6.6
0.6
(0.3)
(2.5)
—
(0.3)
Balance at November 30
$26.8
$39.3
$32.0
As of November 30, 2021, 2020, and 2019, if recognized, $26.8 million,
$39.3 million and $32.0 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 (benefit) of
$(3.7) million, $0.8 million and $2.1 million in 2021, 2020 and 2019,
respectively. As of November 30, 2021 and 2020, we had accrued $4.7
million and $8.3 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,
2021 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 2018. In other major jurisdictions, we are no longer sub-
ject 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
On April 5, 2021, following approval by the Company’s shareholders
on March 31, 2021, amendments to the Company’s Charter became
effective that increased the number of authorized shares of each class
of common stock from 320,000,000 to 640,000,000 and established the
par value of each class of common stock at $0.01 per share. The par
value and additional paid in capital associated with each class of com-
mon stock is recorded in Common stock and Common stock non-voting
in our consolidated balance sheet.
82 McCormick & Company, Inc.
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 secu-
rities or property, dissolution of the company and the sale of substan-
tially all of our assets, as well as forward mergers and consolidation
of the company 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
2021
2020
2019
267.3
266.5
265.1
2.6
2.6
3.0
Average shares outstanding—diluted
269.9
269.1
268.1
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
2021
0.6
2020
0.1
2019
0.2
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, 2021 and 2020, 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
pending 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,
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,” “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, including the recent acquisitions
of Cholula and FONA, 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
Business Segment Results
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 11%, 12% and 11% of consolidated sales in 2021,
2020, and 2019, respectively. Sales to one of our flavor solutions
segment customers, PepsiCo, Inc., accounted for approximately
11%, 11%, and 10% of consolidated sales in 2021, 2020, and 2019,
respectively.
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 material. Corporate
assets include cash, deferred taxes, investments and certain fixed
assets.
(millions)
2021
Net sales
Operating income excluding special charges and transaction and
integration expenses
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
2020
Net sales
Operating income excluding special charges and transaction and integration expenses
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
2019
Net sales
Operating income excluding special charges
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
Consumer
Flavor
Solutions
Total
segments
Corporate
& other
Total
$3,937.5
$2,380.4
$ 6,317.9
$ —
$ 6,317.9
804.9
47.8
—
—
—
$3,596.7
780.9
34.1
—
—
—
$3,269.8
676.3
31.8
—
—
—
296.6
4.4
—
—
—
$2,004.6
237.9
6.7
—
—
—
$2,077.6
302.2
9.1
—
—
—
1,101.5
52.2
12,185.1
227.6
147.0
$ 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
—
—
720.7
50.4
39.3
$ —
—
—
750.5
75.2
41.1
$ —
—
—
411.8
51.9
40.8
1,101.5
52.2
12,905.8
278.0
186.3
$ 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
2021 Annual Report 83
A reconciliation of operating income excluding special charges and, for 2021 and 2020, transaction and integration expenses, to operating income for
2021, 2020 and 2019 is as follows:
(millions)
2021
Operating income excluding special charges and transaction and integration expenses
Less: Special charges and transaction-related expenses included in cost of goods sold
Less: Other special charges
Less: Other transaction and integration expenses
Operating income
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
Geographic Areas
We have net sales and long-lived assets in the following geographic areas:
(millions)
2021
Net sales
Long-lived assets
2020
Net sales
Long-lived assets
2019
Net sales
Long-lived assets
Consumer
Flavor
Solutions
$804.9
8.7
31.5
7.8
$756.9
$780.9
5.5
7.5
$767.9
$676.3
13.1
$663.2
$296.6
2.3
14.9
21.2
$258.2
$237.9
1.4
4.9
$231.6
$302.2
7.7
$294.5
Total
$1,101.5
11.0
46.4
29.0
$1,015.1
$1,018.8
6.9
12.4
$ 999.5
$ 978.5
20.8
$ 957.7
United States
EMEA
Other countries
Total
$3,817.5
7,872.2
$3,445.9
7,202.0
$3,226.3
6,397.0
$1,191.3
1,146.6
$1,046.7
1,135.6
$ 986.1
1,032.4
$1,309.1
909.8
$1,108.7
916.5
$1,135.0
875.4
$6,317.9
9,928.6
$5,601.3
9,254.1
$5,347.4
8,304.8
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)
2021
2020
Supplemental consolidated information with respect to our income
statement, balance sheet and cash flow follow:
For the year ended November 30 (millions)
2021
2020
2019
Other income, net
Pension and other postretirement
benefit income
Interest income
Other
$ 6.4
9.3
1.6
$17.3
10.0
7.8
(0.2)
$17.6
17.7
10.1
(1.1)
$26.7
At November 30 (millions)
2021
2020
Trade accounts receivable allowance for doubtful
accounts
Inventories
Finished products
Raw materials and work-in-process
Prepaid expenses
Other current assets
$ 5.2
$ 5.2
$ 556.2
626.1
$ 499.3
533.3
$1,182.3
$1,032.6
$ 41.7
70.6
$ 38.0
60.9
$ 112.3
$ 98.9
84 McCormick & Company, Inc.
Property, plant and equipment
Land and improvements
Buildings (including finance leases)
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 of
$248.5 for 2021 and $281.8 for 2020
Other
Other accrued liabilities
Payroll and employee benefits
Sales allowances
Dividends payable
Other
$ 95.1
694.7
1,200.5
211.9
(1,061.9)
$ 87.2
698.2
1,102.9
125.5
(985.4)
$ 1,140.3
$1,028.4
$ 164.0
137.3
136.8
$ 193.0
129.9
136.8
141.1
202.2
116.0
176.3
$ 781.4
$ 752.0
$ 229.4
189.3
99.0
332.5
$ 260.7
183.3
90.7
328.9
$ 850.2
$ 863.6
At November 30 (millions)
Other long-term liabilities
Pension
Postretirement benefits
Operating lease liability
Unrecognized tax benefits
Other
2021
2020
For the year ended November 30 (millions)
2021
2020
2019
$ 179.4
60.8
106.1
31.0
113.6
$ 286.1
66.2
103.5
46.0
120.4
$ 490.9
$ 622.2
Depreciation
Software amortization
Interest paid
Income taxes paid
$124.6
12.6
135.7
179.3
$121.1
12.4
134.1
183.3
$113.6
13.7
169.8
137.2
Dividends paid per share were $1.36 in 2021, $1.24 in 2020 and $1.14
in 2019. Dividends declared per share were $1.39 in 2021, $1.27 in
2020, and $1.17 in 2019.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN
JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures, as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934, as of the end of the period covered
by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were effective.
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 2021
financial statements in Item 8 of this Report under the captions enti-
tled “Report of Management” and “Report of Independent Registered
Public Accounting Firm.”
During our fourth quarter of 2021, we migrated certain financial
processing systems as part of our enterprise resource planning
(ERP) replacement program which will enable us to accelerate the
transformation of our ways of working and provide a scalable platform
for growth. We expect future migration of financial processing
systems throughout all parts of our business over the course of the
ERP replacement program through 2025. In connection with these
implementations and resulting business process changes, we continue
to enhance the design and documentation of our internal control over
financial reporting processes to maintain effective controls over our
financial reporting.
2021 Annual Report 85
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 2022 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 account-
ing officer, and our Board of Directors. A copy of the code of ethics is
available on our internet website at www.mccormickcorporation.com.
We will satisfy the disclosure requirement under Item 5.05 of Form 8-K
regarding any material amendment to our code of ethics, and
any waiver from a provision of our code of ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer, or persons performing similar functions, by posting such informa-
tion 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 and Human Capital Commit-
tee Report,” “Summary Compensation Table,” “Grants of Plan-Based
Awards,” “Narrative to the Summary Compensation Table,” “Outstand-
ing Equity Awards at Fiscal Year-End,” “Option Exercises and Stock
PART IV.
Vested in Last Fiscal Year,” “Retirement Benefits,” “Non-Qualified
Deferred Compensation,” “Potential Payments Upon Termination or
Change in Control,” “Compensation Committee Interlocks and Insider
Participation” and “Equity Compensation Plan Information” in the 2022
Proxy Statement.
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 Directors”
and “Equity Compensation Plan Information” in the 2022 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 2022 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 2022 Proxy Statement.
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 27, 2022,
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.
86 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
Articles of Amendment to Charter of McCormick & Company,
Incorporated dated April 2, 2021
Incorporated by reference from Exhibit 4 of Registration
Form S-8, Registration No. 33-39582 as filed with the
Securities and Exchange Commission on March 25, 1991.
Incorporated by reference from Exhibit 4 of Registration
Form S-8, Registration Statement No. 33-59842 as filed with
the Securities and Exchange Commission on March 19, 1993.
Incorporated by reference from Exhibit 4 of Registration
Form S-8, Registration Statement No. 333-104084 as filed with
the Securities and Exchange Commission on March 28, 2003.
Incorporated by reference from Exhibit 3(i) of McCormick’s
Form 10-Q for the quarter ended May 31, 2021,
File No. 1-14920, as filed with the Securities and
Exchange Commission on July 1, 2021.
(ii)
By-Laws
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. 1-14920, 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 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.
Form of 0.90% Notes due 2026, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated February 11, 2021, File
No. 1-14920, as filed with the Securities and Exchange Commission on February 11, 2021.
Form of 1.85% Notes due 2031, incorporated by reference from Exhibit 4.3 of McCormick’s Form 8-K dated February 11, 2021, File
No. 1-14920, as filed with the Securities and Exchange Commission on February 11, 2021.
(xiii)
Description of Securities of McCormick & Company, Incorporated.
Filed herewith
(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.*
2004 Long-Term Incentive Plan, in which officers and certain other management employees participate, is set forth in Exhibit A
of McCormick’s definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed with the Securities and Exchange
Commission on February 17, 2004, and incorporated by reference herein.*
2021 Annual Report 87
Exhibit Number
Description
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(i)
(ii)
(i)
(ii)
Non-Qualified Retirement Savings Plan, with an effective date of February 1, 2017, in which directors, officers and certain other
management employees participate, a copy of which Plan document was attached as Exhibit 10(v) of McCormick’s Form 10-Q for the
quarter ended February 28, 2017, File No. 1-14920, as filed with the Securities and Exchange Commission on March 28, 2017, and
incorporated by reference herein.*
The 2007 Omnibus Incentive Plan, in which directors, officers and certain other management employees participate, is set forth
in Exhibit A of McCormick’s definitive Proxy Statement dated February 20, 2008, File No. 1-14920, as filed with the Securities and
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.*
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, 2021, filed
electronically herewith, and formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets;
(ii) Consolidated Income Statements; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of
Shareholders’ Equity; (v) Consolidated Cash Flow Statements; and (vi) Notes to Consolidated Financial Statements.
Inline XBRL for the cover page of this Annual Report on Form 10-K of McCormick for the year ended November 30, 2021, filed
electronically herewith, included in the Exhibit 101 Inline XBRL Document Set.
*
Management contract or compensatory plan or arrangement.
McCormick hereby undertakes to furnish to the Securities and Exchange Commission, upon its request, copies of additional
instruments of McCormick with respect to long-term debt that involve an amount of securities that do not exceed 10% of the total
assets of McCormick and its subsidiaries on a consolidated basis, pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
(21)
(23)
(31)
(32)
(101)
(104)
88 McCormick & Company, Inc.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, McCormick has duly caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
McCORMICK & COMPANY, INCORPORATED
By:
/s/ Lawrence e. Kurzius
Lawrence E. Kurzius
Chairman, President & Chief Executive Officer
January 27, 2022
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:
By:
/s/ GreGory P. rePas
Gregory P. Repas
Chairman, President & Chief Executive Officer
January 27, 2022
Executive Vice President & Chief Financial Officer
January 27, 2022
Vice President & Controller
Principal Accounting Officer
January 27, 2022
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 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
January 27, 2022
2021 Annual Report 89
Supplemental Financial Schedule II Consolidated
McCORMICK & COMPANY, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
Column A
Description
Deducted from asset accounts:
Year ended November 30, 2021:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
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
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
$ 5.2
31.5
$36.7
$ 5.6
32.4
$ 38.0
$ 6.4
32.9
$ 39.3
$ 1.2
6.6
$ 7.8
$ 0.8
11.8
$ 12.6
$ 1.1
2.6
$ 3.7
$ (1.1)
(0.4)
$ (1.5)
$ (1.4)
(0.1)
$ (1.5)
$ (1.8)
(0.5)
$ (2.3)
$ (0.1)
(5.0)
$ (5.1)
$ 0.2
(12.6)
$ (12.4)
$ (0.1)
(2.6)
$ (2.7)
$ 5.2
32.7
$ 37.9
$ 5.2
31.5
$ 36.7
$ 5.6
32.4
$ 38.0
90 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—2022
Record Date
4/11/22
7/11/22
10/11/22
12/30/22
Payment Date
4/25/22
7/25/22
10/25/22
1/9/23
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
shareholders 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 share-
holders may purchase their initial shares directly
through the Plan. All transactions 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 30, 2022, 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. All marks
are the property of their respective owners.
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.
Please visit www.printreleaf.com
to learn more.
McCormick & Company, Incorporated
24 Schilling Road, Hunt Valley, MD 21031 USA
mccormickcorporation.com