10-Q 1 mkc-20220228.htm 10-Q mkc-20220228
MCCORMICK & CO 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2022
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)
Maryland52-0408290
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
24 Schilling Road, Suite 1,
Hunt Valley, MD21031
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code    (410) 771-7301

Securities registered pursuant to Section 12(b) of the Act:
 Trading
Title of each classSymbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.01 per shareMKC.VNew York Stock Exchange
Common Stock Non-Voting, Par Value $0.01 per shareMKCNew York Stock Exchange
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       No  
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  



Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 Shares Outstanding
February 28, 2022
Common Stock17,850,968 
Common Stock Non-Voting250,225,522 




TABLE OF CONTENTS

3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
(in millions except per share amounts)
 
Three months ended February 28,
 20222021
Net sales$1,522.4 $1,481.5 
Cost of goods sold962.0 904.0 
Gross profit560.4 577.5 
Selling, general and administrative expense333.3 321.3 
Transaction and integration expenses0.7 18.8 
Special charges 19.5 1.1 
Operating income206.9 236.3 
Interest expense33.1 33.8 
Other income, net6.2 4.6 
Income from consolidated operations before income taxes180.0 207.1 
Income tax expense34.4 58.6 
Net income from consolidated operations145.6 148.5 
Income from unconsolidated operations
9.3 13.3 
Net income$154.9 $161.8 
Earnings per share – basic$0.58 $0.61 
Earnings per share – diluted$0.57 $0.60 
Average shares outstanding – basic267.8 267.1 
Average shares outstanding – diluted270.5 269.9 
Cash dividends paid per share – voting and non-voting$0.37 $0.34 
See notes to condensed consolidated financial statements (unaudited).

4

McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions)
 
Three months ended February 28,
 20222021
Net income$154.9 $161.8 
Net income attributable to non-controlling interest2.5 0.8 
Other comprehensive income (loss):
Unrealized components of pension and other postretirement plans2.2 1.1 
Currency translation adjustments3.7 45.7 
Change in derivative financial instruments5.1 (1.0)
Deferred taxes(1.0)3.0 
Total other comprehensive income10.0 48.8 
Comprehensive income$167.4 $211.4 
See notes to condensed consolidated financial statements (unaudited).

5


McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
 
February 28,
2022
November 30,
2021
 (unaudited) 
ASSETS
Cash and cash equivalents$338.4 $351.7 
Trade accounts receivable, net of allowances516.7 549.5 
Inventories, net
Finished products571.5 556.2 
Raw materials and work-in-process672.7 626.1 
1,244.2 1,182.3 
Prepaid expenses and other current assets139.7 112.3 
Total current assets2,239.0 2,195.8 
Property, plant and equipment, net1,135.9 1,140.3 
Goodwill5,333.4 5,335.8 
Intangible assets, net3,443.7 3,452.5 
Other long-term assets788.8 781.4 
Total assets$12,940.8 $12,905.8 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term borrowings$636.7 $539.1 
Current portion of long-term debt770.8 770.3 
Trade accounts payable1,072.6 1,064.2 
Other accrued liabilities596.6 850.2 
Total current liabilities3,076.7 3,223.8 
Long-term debt3,964.5 3,973.3 
Deferred taxes796.5 792.3 
Other long-term liabilities488.9 490.9 
Total liabilities8,326.6 8,480.3 
Shareholders’ Equity
Common stock542.1 530.0 
Common stock non-voting1,549.2 1,525.1 
Retained earnings2,922.4 2,782.4 
Accumulated other comprehensive loss(416.0)(426.5)
Total McCormick shareholders' equity4,597.7 4,411.0 
Non-controlling interests16.5 14.5 
Total shareholders’ equity4,614.2 4,425.5 
Total liabilities and shareholders’ equity$12,940.8 $12,905.8 
See notes to condensed consolidated financial statements (unaudited).

6


McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
(in millions)
 
Three months ended February 28,
 20222021
Operating activities
Net income$154.9 $161.8 
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization49.0 48.1 
Stock-based compensation11.1 14.2 
Amortization of inventory fair value adjustments associated with acquisitions 6.3 
Income from unconsolidated operations(9.3)(13.3)
Changes in operating assets and liabilities (net of businesses acquired)
Trade accounts receivable33.2 31.0 
Inventories (49.9)(21.5)
Trade accounts payable5.2 (73.6)
Other assets and liabilities(185.5)(192.2)
Dividends from unconsolidated affiliates9.2 7.0 
Net cash flow provided by (used in) operating activities17.9 (32.2)
Investing activities
Acquisition of businesses (net of cash acquired) (706.6)
Capital expenditures (including software)(43.7)(48.6)
Net cash flow used in investing activities(43.7)(755.2)
Financing activities
Short-term borrowings, net97.3 (292.4)
Long-term debt borrowings  1,000.4 
Payment of debt issuance costs (1.1)
Long-term debt repayments(3.5)(1.8)
Proceeds from exercised stock options30.3 3.6 
Taxes withheld and paid on employee stock awards(12.0)(5.1)
Common stock acquired by purchase(8.7)(0.1)
Dividends paid(99.0)(90.8)
Net cash flow provided by financing activities4.4 612.7 
Effect of exchange rate changes on cash and cash equivalents8.1 7.2 
Decrease in cash and cash equivalents(13.3)(167.5)
Cash and cash equivalents at beginning of period351.7 423.6 
Cash and cash equivalents at end of period$338.4 $256.1 
See notes to condensed consolidated financial statements (unaudited).
7



McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
(in millions)
(millions)Common Stock SharesCommon Stock
Non-Voting Shares
Common Stock AmountRetained EarningsAccumulated Other Comprehensive (Loss) IncomeNon-controlling InterestsTotal Shareholders’ Equity
Three months ended February 28, 2022
Balance, November 30, 202117.8 249.5 $2,055.1 $2,782.4 $(426.5)$14.5 $4,425.5 
Net income— 154.9 — — 154.9 
Net income attributable to non-controlling interest— — — 2.5 2.5 
Other comprehensive income (loss), net of tax— — 10.5 (0.5)10.0 
Stock-based compensation11.1 — — — 11.1 
Shares purchased and retired(0.2) (6.5)(14.9)— — (21.4)
Shares issued0.9  31.6 — — — 31.6 
Equal exchange(0.7)0.7 — — — — — 
Balance, February 28, 202217.8 250.2 $2,091.3 $2,922.4 $(416.0)$16.5 $4,614.2 
Three months ended February 28, 2021
Balance, November 30, 202018.0 248.9 $1,981.3 $2,415.6 $(470.8)$13.9 $3,940.0 
Net income— 161.8 — — 161.8 
Net income attributable to non-controlling interest— — — 0.8 0.8 
Other comprehensive income, net of tax— — 48.3 0.5 48.8 
Stock-based compensation14.2 — — — 14.2 
Shares purchased and retired(0.1) (1.6)(3.8)— — (5.4)
Shares issued0.2  4.5 — — — 4.5 
Equal exchange(0.1)0.1 — — — — — 
Balance, February 28, 202118.0 249.0 $1,998.4 $2,573.6 $(422.5)$15.2 $4,164.7 
See notes to condensed consolidated financial statements (unaudited).

8


McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position and the results of operations for the interim periods presented.
The results of consolidated operations for the three-month period ended February 28, 2022 are not necessarily indicative of the results to be expected for the full year. Historically, our net sales, net income and cash flow from operations have been lower in the first half of the fiscal year and higher in the second half. The historical increase in net sales, net income and cash flow from operations in the second half of the year has largely been due to the consumer business cycle in the U.S., where customers typically purchase more products in the fourth quarter due to the Thanksgiving and Christmas holiday seasons.
For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended November 30, 2021.
Accounting Pronouncements Adopted in 2022
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying 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 was adopted effective December 1, 2021. There was no material impact to 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 relationships, 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. LIBOR is 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. The phase out of LIBOR reference rates will occur at different dates and began on January 1, 2022. Our adoption of this new standard occurred during the three months ended February 28, 2022, in conjunction with the first phase-out of a LIBOR reference rate. There was no material impact to our consolidated financial statements during the three months ended February 28, 2022, nor do we expect the adoption of this standard to have a material impact on our consolidated financial statements during the LIBOR transition period.
2.      SPECIAL CHARGES AND TRANSACTION AND INTEGRATION EXPENSES

Special Charges
In our consolidated income statement, we include a separate line item captioned "Special charges" in arriving at our consolidated operating income. Special charges consist of expenses, including related impairment charges, associated with certain actions undertaken to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee, comprised of our senior management, including our Chairman, President and Chief Executive Officer. Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component, such as an asset impairment, or a component which relates to inventory adjustments that are included in cost of goods sold; impacted employees or operations; expected timing; and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an on-going basis through completion. Certain ancillary expenses related to these actions approved by our Management Committee do not qualify for accrual upon approval but are included as special charges as incurred during the course of the actions.

We continue to evaluate changes to our organization structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness.
9


The following is a summary of special charges recognized in the three months ended February 28, 2022 and 2021
(in millions):
Three months ended February 28,
 20222021
Employee severance and related benefits$14.2 $0.3 
Other costs (1)
5.3 0.8 
Total$19.5 $1.1 
(1) Included in other costs for 2022 is non-cash accelerated depreciation of $1.4 million.

During the three months ended February 28, 2022, we recorded $19.5 million of special charges, consisting principally of $14.9 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), as more fully described below, streamlining actions of $2.1 million in the Americas region, and $1.5 million in the EMEA region.

In 2022, our Management Committee approved an initiative to consolidate our manufacturing operations into a net-zero carbon condiments manufacturing and distribution center facility with state-of-the-art technology in the United Kingdom. We expect to execute these changes to our supply chain operations and improve profitability, from a combination of lower headcount and non-headcount costs, by consolidating our operations into a scalable platform while expanding our capacity. We expect the cost of the initiative to approximate $30 million—to be recognized as special charges in our consolidated income statement through 2023. Of that $30 million, we expect the costs to include employee severance and related benefits, non-cash accelerated depreciation, decommissioning and other property related lease exit costs, all directly related to the initiative. During the three months ended February 28, 2022, we recorded $12.5 million in severance and related benefits costs, $1.4 million in accelerated depreciation and $1.0 million in third party expenses and other costs.

During the three months ended February 28, 2021, we recorded $1.1 million of special charges, consisting principally of streamlining actions of $0.6 million in the EMEA region and $0.5 million in the Americas region.

In 2017, our Management Committee approved a multi-year initiative during which we expect to execute significant changes to our global processes, capabilities and operating model to provide a scalable platform for future growth. We expect this initiative to enable us to accelerate our ability to work globally and cross-functionally by aligning and simplifying processes throughout McCormick, in part building upon our current shared services foundation and expanding the end-to-end processes presently under that foundation. We expect this initiative, which we refer to as Global Enablement ("GE"), to enable this scalable platform for future growth while reducing costs, enabling faster decision making, increasing agility and creating capacity within our organization.

While we are continuing to fully develop the details of our GE operating model, we expect the cost of the GE initiativeto be recognized as special charges in our consolidated income statement over its expected multi-year courseto range from approximately $60 million to $65 million. Of that $60 million to $65 million, we estimate that approximately sixty percent will be attributable to cash payments associated with the related costs of the GE implementation and transition, including outside consulting and other costs, and approximately forty percent will be attributable to severance and related benefit payments, all directly related to this initiative. We have spent a cumulative total of $40.7 million on this initiative through February 28, 2022.

As of February 28, 2022, reserves associated with special charges, which are expected to be paid during the next twelve months, are included in trade accounts payable and other accrued liabilities in our consolidated balance sheet.

The following is a breakdown by business segment of special charges for the three months ended February 28, 2022 and 2021 (in millions):
Three months ended February 28,
 20222021
Consumer segment$3.6 $0.8 
Flavor solutions segment15.9 0.3 
Total special charges$19.5 $1.1 

Transaction and Integration Expenses
The following are the transaction and integration expenses recognized during the three months ended February 28, 2022 and 2021 relating to the acquisitions of Cholula Hot Sauce ("Cholula") and FONA International, LLC ("FONA") (in millions):
10

20222021
Transaction-related expenses included in cost of goods sold$ $6.3 
Other transaction expenses 13.8 
Integration expenses0.7 5.0 
Total transaction and integration expenses$0.7 $25.1 
We expect transaction and integration expenses related to our acquisition of FONA to total approximately $3 million in 2022.

3.    FINANCIAL INSTRUMENTS
We use derivative financial instruments to enhance our ability to manage risk, including foreign currency, net investment 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. For the three months ended February 28, 2022 and 2021, hedge ineffectiveness was not material. 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 exchange risk. 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. We assess foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps with highly-rated financial institutions to reduce fluctuations in the long or short currency positions. Forward contracts are generally less than 18 months duration. Currency swap agreements are established in conjunction with the terms of the underlying debt issues.

At February 28, 2022, we had foreign currency exchange contracts to purchase or sell $636.5 million of foreign currencies as compared to $583.6 million at November 30, 2021. 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. All foreign currency exchange contracts outstanding at February 28, 2022 have durations of less than 18 months, including $242.1 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 loss until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive loss 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 both exposure to currency fluctuations in certain intercompany loans between subsidiaries as well as currency exposure to third-party non-functional currency assets or liabilities. At February 28, 2022, the notional value of these contracts was $413.4 million. 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. Any gains or losses on net investment hedges are included in foreign currency translation adjustments in accumulated other comprehensive loss.

Interest rate risk. We finance a portion of our operations with both fixed and variable rate debt instruments, principally commercial paper, notes and bank loans. We utilize interest rate swap agreements to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

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The following table discloses the notional amount and fair values of derivative instruments on our balance sheet (in millions):
As of February 28, 2022Asset DerivativesLiability Derivatives
 Balance sheet
location
Notional
amount
Fair
value
Balance sheet
location
Notional
amount
Fair
value
Interest rate contractsOther current
assets / Other long-term assets
$600.0 $14.6 Other accrued liabilities$ $ 
Foreign exchange contractsOther current
assets
444.5 7.7 Other accrued
liabilities
192.0 2.8 
Cross currency contractsOther current assets / Other long-term assets495.3 10.9 Other long-term liabilities505.7 14.1 
Total$33.2 $16.9 
As of November 30, 2021Asset DerivativesLiability Derivatives
 Balance sheet
location
Notional
amount
Fair
value
Balance sheet
location
Notional
amount
Fair
value
Interest rate contractsOther current
assets / Other long-term assets
$350.0 $23.1 Other accrued liabilities$ $ 
Foreign exchange contractsOther current
assets
380.8 8.3 Other accrued
liabilities
202.8 2.8 
Cross currency contractsOther current
assets / Other long-term assets
251.0 4.4 Other long-term liabilities257.5 8.0 
Total$35.8 $10.8 

During the first quarter of 2022, we entered into $250 million notional value interest rate swap contracts where we receive interest at 2.50% and pay a variable rate of interest based on USD SOFR plus 0.745%, which expire in April 2030, and are designated as fair value hedges of the changes in fair value of $250 million of the $500 million 2.50% term notes due in 2030.The fair value of these interest rate swap contracts is offset by a corresponding increase or decrease in the value of the hedged debt. Also during the first quarter of 2022, we entered into cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at USD SOFR plus 0.745% and pay £184.1 million at GBP SONIA plus 0.5740% and (ii) £184.1 million notional value to receive £184.1 million at GBP SONIA plus 0.574% and pay €219.2 million at Euro ESTR plus 0.667%, both of which expire in April 2030. In conjunction with the phase-out of LIBOR, during the first quarter of 2022 we amended our previously existing cross currency swaps which expire in August 2027 such that, effective February 15, 2022, we now pay and receive at GBP SONIA plus 0.859% (previously GBP LIBOR plus 0.740%).
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The following tables disclose the impact of derivative instruments on our other comprehensive income (OCI), accumulated other comprehensive loss (AOCI) and our consolidated income statement for the three-months ended February 28, 2022 and 2021 (in millions):
 
Fair Value Hedges
Three months ended February 28,
DerivativeIncome statement
location
Income (expense)
  20222021
Interest rate contractsInterest expense$2.2 $2.0 
Income statement locationGain (loss) recognized in incomeIncome statement locationGain (loss) recognized in income
Derivative20222021Hedged item20222021
Foreign exchange contractsOther income, net$(0.4)$(2.1)Intercompany loansOther income, net$0.4 $2.4 
The gains (losses) recognized on fair value hedges relating to currency exposure on third-party non-functional currency assets or liabilities were not material during the three-months ended February 28, 2022 and 2021.
Cash Flow Hedges
Three months ended February 28,
DerivativeGain (loss)
recognized in OCI
Income
statement
location
Gain (loss)
reclassified from
AOCI
 20222021 20222021
Interest rate contracts$ $0.3 Interest
expense
$0.1 $0.1 
Foreign exchange contracts2.9 (1.6)Cost of goods sold(0.2)0.3 
Total$2.9 $(1.3)$(0.1)$0.4 
For all cash flow and settled interest rate fair value hedge derivatives, the net amount of accumulated other comprehensive loss expected to be reclassified in the next 12 months is $2.8 million as an increase to earnings.
Net Investment Hedges
Three months ended February 28,
DerivativeGain (loss)
recognized in OCI
Income
statement
location
Gain (loss)
excluded from the assessment of hedge effectiveness
 20222021 20222021
Cross currency contracts$0.7 $(2.0)Interest
expense
$0.5 $0.4 
For all net investment hedges, no amounts have been reclassified out of accumulated other comprehensive loss. The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes.

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4.    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 the reporting entity’s own assumptions.
At February 28, 2022 and November 30, 2021, we had no financial assets or liabilities that were subject to a level 3 fair value measurement. Our population of financial assets and liabilities subject to fair value measurements on a recurring basis are as follows (in millions):
February 28, 2022
  
Fair ValueLevel 1Level 2
Assets
Cash and cash equivalents$338.4 $338.4 $ 
Insurance contracts126.8  126.8 
Bonds and other long-term investments4.1 4.1  
Interest rate derivatives14.6  14.6 
Foreign currency derivatives7.7  7.7 
Cross currency contracts10.9  10.9 
Total$502.5 $342.5 $160.0 
Liabilities
Foreign currency derivatives$2.8 $ $2.8 
Cross currency contracts14.1  14.1 
Total$16.9 $ $16.9 
 
November 30, 2021
  
Fair ValueLevel 1Level 2
Assets
Cash and cash equivalents$351.7 $351.7 $ 
Insurance contracts132.2  132.2 
Bonds and other long-term investments5.1 5.1  
Interest rate derivatives23.1  23.1 
Foreign currency derivatives8.3  8.3 
Cross currency contracts4.4  4.4 
Total$524.8 $356.8 $168.0 
Liabilities
Foreign currency derivatives$2.8 $ $2.8 
Cross currency contracts8.0  8.0 
Total$10.8 $ $10.8 

At February 28, 2022 and November 30, 2021, the carrying amounts 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-
14

term borrowings and trade accounts payable approximate fair value. Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value.

Insurance contracts, bonds, and other long-term investments are comprised of fixed income and equity securities held for certain non-qualified 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 following table sets forth the carrying amounts and fair values of our long-term debt including the current portion thereof (in millions):
February 28, 2022November 30, 2021
Carrying amount$4,735.3 $4,743.6 
Level 1 valuation techniques$4,571.8 $4,722.3 
Level 2 valuation techniques196.3 199.2 
Total fair value$4,768.1 $4,921.5 
The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments.

5.     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 also 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 previously froze the accrual of future benefits under certain defined benefit pension plans in the U.S. and certain foreign locations. Although our defined benefit plans in the U.S., United Kingdom and Canada have generally been frozen, employees who are participants in the plans retained benefits accumulated up to the date of the freeze, based on credited service and eligible earnings, in accordance with the terms of the plans.

The following table presents the components of our pension (income) and other postretirement benefits expense for the three months ended February 28, 2022 and 2021 (in millions):
 United States pensionInternational pensionOther postretirement benefits
 202220212022202120222021
Service cost$0.9 $0.9 $0.2 $0.3 $0.4 $0.5 
Interest costs6.6 6.5 1.8 1.7 0.4 0.4 
Expected return on plan assets(10.7)(10.3)(3.2)(3.5)  
Amortization of prior service costs0.1 0.1   (0.1)(0.1)
Amortization of net actuarial losses2.2 2.8 0.4 0.6   
Total (income) expense $(0.9)$ $(0.8)$(0.9)$0.7 $0.8 

 
During the three months ended February 28, 2022 and 2021, we contributed $2.0 million and $2.3 million, respectively, to our pension plans. Total contributions to our pension plans in fiscal year 2021 were $15.0 million.
All of the amounts in the tables above for pension (income) and other postretirement benefits expense, other than service cost, were included in other income, net within our consolidated income statements. The net aggregate amount of pension and other postretirement benefits (income), excluding service cost components, was $(2.5) million and $(1.8) million for the three months ended February 28, 2022 and 2021, respectively.


6.    STOCK-BASED COMPENSATION
We have four types of stock-based compensation awards: restricted stock units ("RSUs"), stock options, company stock
15

awarded as part of our long-term performance plan ("LTPP") and price-vested stock options. The following table sets forth the stock-based compensation expense recorded in selling, general and administrative ("SG&A") expense (in millions):
 Three months ended February 28,
 20222021
Stock-based compensation expense$11.1 $14.2 

Our 2022 annual grant of stock options and RSUs is expected to occur in the second quarter, similar to the 2021 annual grant.
The following is a summary of our stock option activity for the three months ended February 28, 2022 and 2021:
 20222021
(shares in millions)Number
of
Shares
Weighted-
Average
Exercise
Price
Number
of
Shares
Weighted-
Average
Exercise
Price
Outstanding at beginning of period5.0 $59.71 4.5 $53.56 
Exercised(0.6)45.25 (0.1)39.30 
Outstanding at end of the period4.4 $61.72 4.4 $53.62 
Exercisable at end of the period3.0 $53.17 3.2 $47.95 
As of February 28, 2022, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was $145.5 million and for options currently exercisable was $128.0 million. The total intrinsic value of all options exercised during the three months ended February 28, 2022 and 2021 was $32.6 million and $2.2 million, respectively.
The following is a summary of our RSU activity for the three months ended February 28, 2022 and 2021:
 20222021
(shares in thousands)Number
of
Shares
Weighted-
Average
Grant-Date
Fair Value
Number
of
Shares
Weighted-
Average
Grant-Date
Fair Value
Outstanding at beginning of period563 $69.52 714 $61.74 
Granted6 92.47 10 91.85 
Vested(24)54.02 (10)47.70 
Forfeited(8)78.51 (6)65.74 
Outstanding at end of period537 $70.31 708 $62.34 
16

The following is a summary of our price-vested stock options activity for the three months ended February 28, 2022 and 2021:
 20222021
(shares in thousands)Number
of
Shares
Weighted-
Average
Grant-Date Fair Value
Number
of
Shares
Weighted-
Average
Grant-Date
Fair Value
Outstanding at beginning of period2,193 $9.40 2,482 $9.40 
Granted  15 9.66 
Forfeited(27)9.40 (13)9.40 
Outstanding at end of period2,166 $9.40 2,484 $9.40 
The following is a summary of our LTPP activity for the three months ended February 28, 2022 and 2021:
 20222021
(shares in thousands)Number
of
Shares
Weighted-
Average
Grant-Date
Fair Value
Number
of
Shares
Weighted-
Average
Grant-Date
Fair Value
Outstanding at beginning of period497 $83.74 382 $71.20 
Granted151 95.00 141 98.30 
Vested(251)75.26 (121)50.95 
Forfeited(2)96.03 (5)82.59 
Outstanding at end of period395 $93.42 397 $86.89 

7.    INCOME TAXES

Income tax expense for the three months ended February 28, 2022 included $10.3 million of net discrete tax benefits consisting principally of the following: (i) $7.6 million of excess tax benefits associated with stock-based compensation, and (ii) $2.5 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation.
Income tax expense for the three months ended February 28, 2021 included $5.3 million of net discrete tax expense consisting principally of the following: (i) $11.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA, (ii) $4.5 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets, and (iii) $1.2 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits associated with the resolution of tax uncertainties.
Other than additions for current year tax positions, there were no significant changes to unrecognized tax benefits during the three months ended February 28, 2022.

As of February 28, 2022, we believe the reasonably possible total amount of unrecognized tax benefits that could increase or decrease in the next 12 months as a result of various statute expirations, audit closures, and/or tax settlements would not be material to our consolidated financial statements.

8.    CAPITAL STOCK AND EARNINGS PER SHARE
The following table sets forth the reconciliation of average shares outstanding (in millions):
Three months ended February 28,
 20222021
Average shares outstanding – basic267.8 267.1 
Effect of dilutive securities:
Stock options/RSUs/LTPP2.7 2.8 
Average shares outstanding – diluted270.5 269.9 


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The following table sets forth the stock options and RSUs that were not considered in our earnings per share calculation since they were anti-dilutive (in millions):
Three months ended February 28,
 20222021
Anti-dilutive securities0.2  
The following table sets forth common stock activity (in millions):
Three months ended February 28,
 20222021
Shares issued under stock options, RSUs, LTPP and employee stock purchase plans 0.9 0.2 
Shares repurchased under the stock repurchase program and shares withheld for taxes under stock options, RSUs, and LTPP0.2 0.1 
As of February 28, 2022, $567.4 million remained of the $600 million share repurchase program authorization approved by our Board of Directors in November 2019.
 
9.    ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the components of accumulated other comprehensive loss, net of tax, where applicable (in millions):
February 28, 2022November 30, 2021
Foreign currency translation adjustment (1)
$(228.7)$(233.3)
Unrealized gain (loss) on foreign currency exchange contracts5.1 0.6 
Unamortized value of settled interest rate swaps(0.4)(0.2)
Pension and other postretirement costs(192.0)(193.6)
Accumulated other comprehensive loss$(416.0)$(426.5)
(1)During the three months ended February 28, 2022, the foreign currency translation adjustment of accumulated other comprehensive loss decreased on a net basis by $4.6 million, including the impact of a $0.7 million increase associated with net investment hedges. These net investment hedges are more fully described in note 3.

The following table sets forth the amounts reclassified from accumulated other comprehensive income (loss) and into consolidated net income (in millions):
Three months endedAffected Line Items in the Condensed Consolidated Income Statement
February 28, 2022February 28, 2021
(Gains)/losses on cash flow hedges:
Interest rate derivatives$(0.1)$(0.1)Interest expense
Foreign exchange contracts0.2 (0.3)Cost of goods sold
Total before tax0.1 (0.4)
Tax effect 0.1 Income tax expense
Net, after tax$0.1 $(0.3)
Amortization of pension and postretirement benefit adjustments:
Amortization of net actuarial losses (1)
$2.6 $3.4 Other income, net
Total before tax2.6 3.4 
Tax effect(0.6)(0.8)Income tax expense
Net, after tax$2.0 $2.6 
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(1)This accumulated other comprehensive income (loss) component is included in the computation of total pension (income) and other postretirement benefits expense (refer to note 5 for additional details). Amortization of net actuarial losses includes settlement losses.

10.    BUSINESS SEGMENTS

We operate in two business segments: consumer and flavor solutions. The consumer and flavor solutions segments manufacture, market and distribute spices, herbs, 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”, “OLD BAY”, “Lawry’s”, “Zatarain’s”, “Simply Asia”, “Thai Kitchen”, “Ducros”, “Vahine”, “Cholula”, “Schwartz”, “Club House”, “Kamis”, “DaQiao”, “La Drogheria”, “Stubb's”, 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, we regard the products within each of our segments to be 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 exclude 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 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 internal reporting, evaluating performance or allocating capital. Because of manufacturing integration for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred at cost. Intersegment sales are not material.