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 August 31, 2023

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	52-0408290
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

24 Schilling Road, Suite 1,
Hunt Valley,	MD	21031
(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 class	Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.01 per share	MKC.V	New York Stock Exchange
Common Stock Non-Voting, Par Value $0.01 per share	MKC	New York Stock Exchange

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 Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Shares Outstanding
	August 31, 2023
Common Stock	17,040,340
Common Stock Non-Voting	251,291,462

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION			4
	ITEM 1	FINANCIAL STATEMENTS	4
	ITEM 2	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
	ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
	ITEM 4	CONTROLS AND PROCEDURES	42
PART II - OTHER INFORMATION			43
	ITEM 1	LEGAL PROCEEDINGS	43
	ITEM 1a	RISK FACTORS	43
	ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43
	ITEM 3	DEFAULTS UPON SENIOR SECURITIES	43
	ITEM 4	MINE SAFETY DISCLOSURES	44
	ITEM 5	OTHER INFORMATION	44
	ITEM 6	EXHIBITS	45

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 August 31,				Nine months ended August 31,
	2023		2022		2023		2022
Net sales	$	1,684.7	$	1,595.6	$	4,909.4	$	4,654.8
Cost of goods sold	1,061.9		1,028.9		3,108.2		3,004.7
Gross profit	622.8		566.7		1,801.2		1,650.1
Selling, general and administrative expense	371.7		328.1		1,088.3		1,010.6
Transaction and integration expenses	—		—		—		2.2
Special charges	6.1		3.4		47.1		38.0
Operating income	245.0		235.2		665.8		599.3
Interest expense	52.7		37.9		155.5		104.7
Other income, net	7.1		77.4		30.7		89.9
Income from consolidated operations before income taxes	199.4		274.7		541.0		584.5
Income tax expense	42.7		59.3		117.4		115.4
Net income from consolidated operations	156.7		215.4		423.6		469.1
Income from unconsolidated operations	13.4		7.5		37.7		27.2
Net income	$	170.1	$	222.9	$	461.3	$	496.3
Earnings per share – basic	$	0.63	$	0.83	$	1.72	$	1.85
Earnings per share – diluted	$	0.63	$	0.82	$	1.71	$	1.83
Average shares outstanding – basic	268.4		268.3		268.4		268.1
Average shares outstanding – diluted	270.1		270.2		269.8		270.4
Cash dividends paid per share – voting and non-voting	$	0.39	$	0.37	$	1.17	$	1.11
Cash dividends declared per share – voting and non-voting	$	0.39	$	0.37	$	0.78	$	0.74

See notes to condensed consolidated financial statements (unaudited).

4

McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(in millions)

 

	Three months ended August 31,				Nine months ended August 31,
	2023		2022		2023		2022
Net income	$	170.1	$	222.9	$	461.3	$	496.3
Net income attributable to non-controlling interest	0.7		1.5		3.5		5.2
Other comprehensive income (loss):
Unrealized components of pension and other postretirement plans	(0.6)		4.5		(2.5)		10.5
Currency translation adjustments	28.8		(114.9)		85.8		(162.2)
Change in derivative financial instruments	8.4		(22.1)		(5.4)		4.7
Tax benefit (expense)	1.2		(3.9)		7.4		(18.8)
Total other comprehensive income (loss)	37.8		(136.4)		85.3		(165.8)
Comprehensive income	$	208.6	$	88.0	$	550.1	$	335.7

See notes to condensed consolidated financial statements (unaudited).

5

McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions)

 

	August 31, 2023		November 30, 2022
	(unaudited)
ASSETS
Cash and cash equivalents	$	154.7	$	334.0
Trade accounts receivable, net of allowances	624.5		573.7
Inventories, net
Finished products	614.6		649.0
Raw materials and work-in-process	610.9		691.1
	1,225.5		1,340.1
Prepaid expenses and other current assets	122.8		138.9
Total current assets	2,127.5		2,386.7
Property, plant and equipment, net	1,285.7		1,198.0
Goodwill	5,252.4		5,212.9
Intangible assets, net	3,364.4		3,387.9
Other long-term assets	960.1		939.4
Total assets	$	12,990.1	$	13,124.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term borrowings	$	387.0	$	1,236.7
Current portion of long-term debt	1,004.8		270.6
Trade accounts payable	1,099.9		1,171.0
Other accrued liabilities	679.3		754.1
Total current liabilities	3,171.0		3,432.4
Long-term debt	3,385.3		3,642.3
Deferred taxes	864.5		866.3
Other long-term liabilities	499.2		484.7
Total liabilities	7,920.0		8,425.7
Shareholders’ equity
Common stock	592.8		568.6
Common stock non-voting	1,598.7		1,570.0
Retained earnings	3,251.7		3,022.5
Accumulated other comprehensive loss	(393.9)		(480.6)
Total McCormick shareholders' equity	5,049.3		4,680.5
Non-controlling interests	20.8		18.7
Total shareholders’ equity	5,070.1		4,699.2
Total liabilities and shareholders’ equity	$	12,990.1	$	13,124.9

See notes to condensed consolidated financial statements (unaudited).

6

McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

(in millions)

 

	Nine months ended August 31,
	2023		2022
Operating activities
Net income	$	461.3	$	496.3
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	150.4		148.2
Stock-based compensation	51.1		49.1
Gain on the sale of intangible asset	—		(13.6)
Gain on the sale of a business	—		(49.6)
Asset impairment charge	—		10.0
Income from unconsolidated operations	(37.7)		(27.2)
Changes in operating assets and liabilities (net of effect of business disposed)
Trade accounts receivable	(22.9)		(43.6)
Inventories	139.7		(238.5)
Trade accounts payable	(90.4)		100.8
Other assets and liabilities	(41.9)		(209.6)
Dividends from unconsolidated affiliates	50.5		27.8
Net cash flow provided by operating activities	660.1		250.1
Investing activities
Proceeds from sale of business	—		95.2
Proceeds from sale of intangible asset	—		13.6
Capital expenditures (including software)	(187.2)		(166.8)
Other investing activities	2.4		2.5
Net cash flow used in investing activities	(184.8)		(55.5)
Financing activities
Short-term borrowings, net	(850.0)		898.1
Long-term debt borrowings	496.4		—
Payment of debt issuance costs	(1.1)		—
Long-term debt repayments	(12.7)		(768.7)
Proceeds from exercised stock options	15.9		39.9
Taxes withheld and paid on employee stock awards	(10.8)		(19.4)
Common stock acquired by purchase	(26.7)		(26.1)
Dividends paid	(313.8)		(297.5)
Other financing activities	1.6		—
Net cash flow used in financing activities	(701.2)		(173.7)
Effect of exchange rate changes on cash and cash equivalents	46.6		(28.7)
Decrease in cash and cash equivalents	(179.3)		(7.8)
Cash and cash equivalents at beginning of period	334.0		351.7
Cash and cash equivalents at end of period	$	154.7	$	343.9

See notes to condensed consolidated financial statements (unaudited).

7

McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

(in millions)

(millions)	Common Stock Shares	Common Stock Non-Voting Shares	Common Stock Amount		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Non-controlling Interests		Total Shareholders’ Equity
Three months ended August 31, 2023
Balance, May 31, 2023	17.2	251.0	$	2,177.1	$	3,191.4	$	(431.5)	$	19.9	$	4,956.9
Net income			—		170.1		—		—		170.1
Net income attributable to non-controlling interest			—		—		—		0.7		0.7
Other comprehensive income, net of tax			—		—		37.6		0.2		37.8
Dividends			—		(104.7)		—		—		(104.7)
Stock-based compensation			12.6		—		—		—		12.6
Shares purchased and retired	(0.1)	—	(3.0)		(5.1)		—		—		(8.1)
Shares issued	0.1	—	4.8		—		—		—		4.8
Equal exchange	(0.2)	0.2	—		—		—		—		—
Balance, August 31, 2023	17.0	251.2	$	2,191.5	$	3,251.7	$	(393.9)	$	20.8	$	5,070.1
Nine months ended August 31, 2023
Balance, November 30, 2022	17.4	250.6	$	2,138.6	$	3,022.5	$	(480.6)	$	18.7	$	4,699.2
Net income			—		461.3		—		—		461.3
Net income attributable to non-controlling interest			—		—		—		3.5		3.5
Other comprehensive income, net of tax			—		—		86.7		(1.4)		85.3
Dividends			—		(209.3)		—		—		(209.3)
Stock-based compensation			51.1		—		—		—		51.1
Shares purchased and retired	(0.5)	—	(15.7)		(22.8)		—		—		(38.5)
Shares issued	0.7	—	17.5		—		—		—		17.5
Equal exchange	(0.6)	0.6	—		—		—		—		—
Balance, August 31, 2023	17.0	251.2	$	2,191.5	$	3,251.7	$	(393.9)	$	20.8	$	5,070.1
Three months ended August 31, 2022
Balance, May 31, 2022	17.8	250.5	$	2,119.2	$	2,933.6	$	(454.6)	$	16.9	$	4,615.1
Net income			—		222.9		—		—		222.9
Net income attributable to non-controlling interest			—		—		—		1.5		1.5
Other comprehensive income, net of tax			—		—		(135.4)		(1.0)		(136.4)
Dividends			—		(99.2)		—		—		(99.2)
Stock-based compensation			12.2		—		—		—		12.2
Shares purchased and retired	(0.2)	—	(4.8)		(8.9)		—		—		(13.7)
Shares issued	0.1	—	4.3		—		—		—		4.3
Equal exchange	(0.1)	0.1	—		—		—		—		—
Balance, August 31, 2022	17.6	250.6	$	2,130.9	$	3,048.4	$	(590.0)	$	17.4	$	4,606.7

8

Nine months ended August 31, 2022
Balance, November 30, 2021	17.8	249.5	$	2,055.1	$	2,782.4	$	(426.5)	$	14.5	$	4,425.5
Net income			—		496.3		—		—		496.3
Net income attributable to non-controlling interest			—		—		—		5.2		5.2
Other comprehensive income, net of tax			—		—		(163.5)		(2.3)		(165.8)
Dividends			—		(198.4)		—		—		(198.4)
Stock-based compensation			49.1		—		—		—		49.1
Shares purchased and retired	(0.5)	—	(14.9)		(31.9)		—		—		(46.8)
Shares issued	1.3	0.1	41.6		—		—		—		41.6
Equal exchange	(1.0)	1.0	—		—		—		—		—
Balance, August 31, 2022	17.6	250.6	$	2,130.9	$	3,048.4	$	(590.0)	$	17.4	$	4,606.7

See notes to condensed consolidated financial statements (unaudited).

9

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 (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 nine-month period ended August 31, 2023 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 of the fiscal year. 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, 2022.

Accounting Pronouncements Recently Adopted

In 2022, we adopted the FASB issued ASU No. 2022-06: Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 which deferred the sunset date of Topic 848 which provides optional expedients for a limited time for accounting for transactions affected by the London Interbank Offered Rate (LIBOR) being discontinued. Arrangements that were entered into in 2022, including our fixed to variable interest rate swaps expiring in April 2030, and cross-currency interest rate swaps expiring in April 2030, do not use LIBOR as a reference rate. During the first quarter of 2023 we amended our interest rate swaps expiring in November 2025 and August 2027, and the cross currency and interest rate swaps expiring in August 2027 to no longer use LIBOR. Also, in March 2023 we amended our five-year revolving credit facility expiring in July 2026 to no longer use LIBOR. Our adoption of this standard was completed in the second quarter of 2023. There was no material impact to our consolidated financial statements.

Recently Issued Accounting Pronouncements — Pending Adoption

In September 2022, the FASB issued ASU No. 2022-04: Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to enhance the transparency of these programs by disclosing the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a roll forward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding are effective for all interim and annual periods of our fiscal year ending November 30, 2024. The new standard’s requirement to disclose a roll-forward of obligations outstanding will be effective for our fiscal year ending November 30, 2025. Early adoption is permitted. We do not believe the adoption of this new standard will have a material impact on our consolidated financial statements.

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 President and Chief Executive Officer. Expenses associated with any 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.

10

We continue to evaluate changes to our organizational structure to reduce fixed costs, simplify or improve processes, and improve our competitiveness.

The following is a summary of special charges recognized in the three and nine months ended August 31, 2023 and 2022

(in millions):

	Three months ended August 31,				Nine months ended August 31,
	2023		2022		2023		2022
Employee severance and related benefits	$	1.1	$	1.9	$	32.9	$	23.6
Other costs
Cash	4.4		0.9		12.4		6.9
Non-Cash	0.6		0.6		1.8		21.1
Total special charges	6.1		3.4		47.1		51.6
Gain on sale of exited brand	—		—		—		(13.6)
Total	$	6.1	$	3.4	$	47.1	$	38.0

During the three months ended August 31, 2023, we recorded $6.1 million of special charges, consisting principally of $3.6 million associated with our Global Operating Effectiveness (GOE) program, as more fully described below, $1.7 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), as more fully described below, and streamlining actions of $0.8 million in the Americas region.

During the nine months ended August 31, 2023, we recorded $47.1 million of special charges, consisting principally of $37.0 million associated with our GOE program, as more fully described below, $3.9 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, and streamlining actions of $5.3 million in the Americas region, and $0.9 million in the EMEA region.

During the three months ended August 31, 2022, we recorded $3.4 million of special charges. Those special charges principally consisted of $1.0 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, $0.8 million associated with the exit of our consumer business in Russia, as more fully described below, and streamlining actions of $0.4 million in the Americas region, and $1.2 million in the EMEA region.

During the nine months ended August 31, 2022, we recorded $38.0 million of net special charges. Those special charges consisted principally of $23.0 million associated with the exit of our consumer business in Russia, as more fully described below, $18.4 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, and streamlining actions of $5.7 million in the Americas region, and $5.5 million in the EMEA region. These charges were offset by a $13.6 million gain, on the sale of our Kohinoor brand discussed below as well as a reversal of $2.2 million of estimated costs associated with the exit of our rice product line in India upon settlement of a supply agreement related to that product line.

In 2022, our Management Committee approved the GOE program. The GOE program included a voluntary retirement plan, which included enhanced separation benefits to certain U.S. employees aged 55 years or older with at least ten years of service to the company. This voluntary retirement plan commenced in November 2022 and participants were required to submit their notifications by December 30, 2022. As of November 30, 2022, we had accrued special charges of $5.6 million, consisting of employee severance and related benefits. Upon all eligible employees submitting their notifications by the end of December 2022, we accrued an additional $19.7 million during the first quarter of 2023. All related payments will be made in fiscal year 2023 as all of the affected employees will leave the company in 2023. Other special charges recognized during the three months ended August 31, 2023, under our GOE program included $0.9 million in severance and related benefits costs and $2.7 million of third-party expenses and other costs. Other special charges recognized during the nine months ended August 31, 2023, under our GOE program included $12.4 million in severance and related benefits costs and $4.9 million of third-party expenses and other costs.

In 2022, our Management Committee approved an initiative to consolidate our manufacturing operations in the United Kingdom into a net-zero carbon condiments manufacturing and distribution center facility with state-of-the-art technology. 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 $40 million which will be recognized as special charges in our consolidated income statement during 2022, 2023 and the first half of 2024. Of that $40 million, we expect the costs to include employee severance and related benefits, non-cash accelerated depreciation, equipment relocation costs, decommissioning and other property related lease exit costs, all directly related to the initiative. During the three months ended August 31, 2023, we

11

recognized $0.4 million in accelerated depreciation and $1.3 million in third party expenses and other costs. During the nine months ended August 31, 2023, we recognized $1.2 million in accelerated depreciation and $2.7 million in third party expenses and other costs. During the three months ended August 31, 2022, we recorded $0.6 million in accelerated depreciation and $0.4 million in third party expenses and other costs. During the nine months ended August 31, 2022, we recorded $12.5 million in severance and related benefits costs, $3.3 million in accelerated depreciation and $2.6 million in third party expenses and other costs.

As of August 31, 2023, accruals associated with special charges of $20.7 million, are included in other accrued liabilities in our consolidated balance sheet.

The following is a breakdown by business segment of special charges for the three and nine months ended August 31, 2023 and 2022 (in millions):

	Three months ended August 31,				Nine months ended August 31,
	2023		2022		2023		2022
Consumer segment	$	2.2	$	1.8	$	29.6	$	16.1
Flavor solutions segment	3.9		1.6		17.5		21.9
Total special charges	$	6.1	$	3.4	$	47.1	$	38.0

Integration Expenses

Integration expenses recognized during the nine months ended August 31, 2022 were $2.2 million, relating to the acquisition of FONA International, LLC (FONA).

3.    FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS

On April 6, 2023, we issued $500 million aggregate principal amount of 4.950% unsecured senior notes due 2033. Interest is payable semi-annually in April and October of each year, beginning on October 15, 2023. The net proceeds received from the issuance of these notes of $496.4 million were used to repay a portion of the Company's outstanding commercial paper borrowings. As part of the issuance of new debt, we entered and settled treasury locks in a notional amount of $250.0 million to manage our interest rate risk associated with the issuance of the unsecured senior notes. We designated the treasury lock arrangements as cash flow hedges with the realized loss of $2.6 million to be amortized to interest expense over the life of the underlying debt.

In June 2023, we entered into a 364-day $500 million revolving credit facility which will expire in June 2024 and simultaneously cancelled the 364-day $500 million revolving credit facility which was set to expire in July 2023. The current pricing for that credit facility, on a fully drawn basis, is SOFR + 1.23%. 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 SOFR + 1.60%. The provisions of this revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio, consistent with our $1.5 billion five-year revolving credit facility. We do not expect that this covenant would limit our access to this revolving credit facility for the foreseeable future.

On September 1, 2023, we repaid our $250 million, 3.50% notes due in September 2023.

In the third quarter 2023, we executed a nonrecourse accounts receivable sale program whereby certain eligible U.S. receivables are sold to third party financial institution in exchange for cash. The program provides us with an additional means for managing liquidity. Under the terms of the arrangement, we act as the collecting agent on behalf of the financial institution. We account for the transfer of receivables as a sale at the point control is transferred through derecognition of the receivable on our condensed consolidated balance sheet. Receivables sold under this program were approximately $26.1 million during the three and nine months ended August 31, 2023. Of that amount, we collected $11.3 million on behalf of the financial institution during the three and nine months ended August 31, 2023. The incremental costs of selling receivables under this arrangement were insignificant for the three and nine months ended August 31, 2023.

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. 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.

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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. Currency swap agreements are established in conjunction with the terms of the underlying debt issues.

At August 31, 2023, we had foreign currency exchange contracts to purchase or sell $966.5 million of foreign currencies as compared to $560.5 million at November 30, 2022. 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 August 31, 2023 have durations of less than 18 months, including $178.6 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 inventory 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. Hedges of foreign currency denominated assets and liabilities include foreign currency exchange contracts with a notional value of $757.3 million at August 31, 2023. These foreign currency exchange contracts 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. 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 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 derivative contracts, including interest rate swap agreements, to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

The following table discloses the notional amount and fair values of derivative instruments on our balance sheet (in millions):

	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
As of August 31, 2023
Interest rate contracts	Other current assets / Other long-term assets	$	—	$	—	Other long-term liabilities	$	600.0	$	56.3
Foreign exchange contracts	Other current assets	275.9		3.6		Other accrued liabilities	690.6		18.9
Cross currency contracts	Other current assets / Other long-term assets	719.4		23.4		Other long-term liabilities	237.6		5.2
Total				$	27.0				$	80.4
As of November 30, 2022
Interest rate contracts	Other current assets / Other long-term assets	$	—	$	—	Other long-term liabilities	$	600.0	$	42.4
Foreign exchange contracts	Other current assets	344.9		11.0		Other accrued liabilities	215.6		1.5
Cross currency contracts	Other current assets / Other long-term assets	680.0		44.5		Other long-term liabilities	226.1		8.3
Total				$	55.5				$	52.2

In conjunction with the phase out of LIBOR, in the first quarter of 2023 we amended our previously existing cross currency swaps which expire in August 2027 such that, effective February 15, 2023, we now pay and receive at USD Secured Overnight Financing Rate (SOFR) plus 0.907% (previously three-month U.S. LIBOR plus 0.685%). In addition, we amended our

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$100 million interest rate swaps which expire in November 2025 and our $250 million interest rate swaps that expire in August 2027, such that, effective February 15, 2023, we now pay and receive at USD SOFR plus 1.487% (previously U.S. three-month LIBOR plus 1.22%) and USD SOFR plus 0.907% (previously U.S. three-month LIBOR plus 0.685%), respectively.

In the second quarter of 2023, we amended our five-year revolving credit facility expiring in July 2026 to no longer use LIBOR. The current pricing for the five-year credit facility, on a fully drawn basis, is SOFR plus 1.25%.

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 and nine months ended August 31, 2023 and 2022 (in millions):

 

Fair Value Hedges
Derivative	Income statement location	(Expense) income
		Three months ended August 31, 2023		Three months ended August 31, 2022		Nine months ended August 31, 2023		Nine months ended August 31, 2022
Interest rate contracts	Interest expense	$	(4.9)	$	0.6	$	(12.6)	$	5.4

	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2023		2022		Hedged item		2023		2022
Three months ended August 31,
Foreign exchange contracts	Other income, net	$	(12.4)	$	3.6	Intercompany loans	Other income, net	$	10.0	$	(3.2)
Nine months ended August 31,
Foreign exchange contracts	Other income, net	$	(18.1)	$	6.9	Intercompany loans	Other income, net	$	17.1	$	(6.1)

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 and nine months ended August 31, 2023 and 2022.

Cash Flow Hedges
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) reclassified from AOCI
	2023		2022			2023		2022
Three months ended August 31,
Interest rate contracts	$	—	$	1.8	Interest expense	$	—	$	18.8
Foreign exchange contracts	0.7		2.8		Cost of goods sold	(0.4)		0.7
Total	$	0.7	$	4.6		$	(0.4)	$	19.5
Nine months ended August 31,
Interest rate contracts	$	(2.6)	$	18.7	Interest expense/ Other income, net	$	0.2	$	19.1
Foreign exchange contracts	(1.7)		5.2		Cost of goods sold	0.9		0.7
Total	$	(4.3)	$	23.9		$	1.1	$	19.8

As of August 31, 2023, the net amount of accumulated other comprehensive loss associated with all cash flow and settled interest rate fair value hedge derivatives expected to be reclassified in the next 12 months is $0.5 million as a decrease to earnings.

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Net Investment Hedges
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) excluded from the assessment of hedge effectiveness
	2023		2022			2023		2022
Three months ended August 31,
Cross currency contracts	$	(8.0)	$	29.7	Interest expense	$	2.7	$	2.4
Nine months ended August 31,
Cross currency contracts	$	(17.6)	$	51.8	Interest expense	$	8.9	$	4.1

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.

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.

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At August 31, 2023 and November 30, 2022, 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):

			August 31, 2023
	Fair Value		Level 1		Level 2
Assets
Cash and cash equivalents	$	154.7	$	154.7	$	—
Insurance contracts	114.6		—		114.6
Bonds and other long-term investments	2.3		2.3		—
Foreign currency derivatives	3.6		—		3.6
Cross currency contracts	23.4		—		23.4
Total	$	298.6	$	157.0	$	141.6
Liabilities
Foreign currency derivatives	$	18.9	$	—	$	18.9
Interest rate derivatives	56.3		—		56.3
Cross currency contracts	5.2		—		5.2
Total	$	80.4	$	—	$	80.4

 

			November 30, 2022
	Fair Value		Level 1		Level 2
Assets
Cash and cash equivalents	$	334.0	$	334.0	$	—
Insurance contracts	110.0		—		110.0
Bonds and other long-term investments	5.1		5.1		—
Foreign currency derivatives	11.0		—		11.0
Cross currency contracts	44.5		—		44.5
Total	$	504.6	$	339.1	$	165.5
Liabilities
Foreign currency derivatives	$	1.5	$	—	$	1.5
Interest rate derivatives	42.4		—		42.4
Cross currency contracts	8.3		—		8.3
Total	$	52.2	$	—	$	52.2

At August 31, 2023 and November 30, 2022, the carrying amounts of interest rate derivatives, foreign currency derivatives, cross currency contracts, insurance contracts, and bond and other long-term investments were 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 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.

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The following table sets forth the carrying amounts and fair values of our long-term debt including the current portion thereof (in millions):

	August 31, 2023		November 30, 2022
Carrying amount	$	4,390.1	$	3,912.9
Level 1 valuation techniques	$	3,923.0	$	3,424.8
Level 2 valuation techniques	164.4		176.1
Total fair value	$	4,087.4	$	3,600.9

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 August 31, 2023 and 2022 (in millions):

	United States pension				International pension				Other postretirement benefits
	2023		2022		2023		2022		2023		2022
Service cost	$	0.5	$	0.9	$	0.2	$	0.2	$	0.4	$	0.4
Interest costs	9.0		6.5		2.5		1.7		0.7		0.4
Expected return on plan assets	(10.6)		(10.7)		(3.9)		(3.1)		—		—
Amortization of prior service costs	0.2		0.2		—		—		(0.1)		—
Amortization of net actuarial losses (gains)	0.1		2.2		—		0.3		(0.6)		(0.1)
Settlement loss	—		—		—		0.2		—		—
Total (income) expense	$	(0.8)	$	(0.9)	$	(1.2)	$	(0.7)	$	0.4	$	0.7

The following table presents the components of our pension (income) and other postretirement benefits expense for the nine months ended August 31, 2023 and 2022 (in millions):

	United States pension				International pension				Other postretirement benefits
	2023		2022		2023		2022		2023		2022
Service cost	$	1.5	$	2.7	$	0.5	$	0.6	$	1.0	$	1.3
Interest costs	27.1		19.7		7.3		5.3		1.9		1.2
Expected return on plan assets	(31.8)		(32.1)		(11.3)		(9.4)		—		—
Amortization of prior service costs	0.4		0.4		0.1		0.1		(0.3)		(0.2)
Amortization of net actuarial losses (gains)	0.2		6.5		(0.1)		1.0		(1.6)		(0.2)
Settlement loss	—		—		—		0.2		—		—
Total (income) expense	$	(2.6)	$	(2.8)	$	(3.5)	$	(2.2)	$	1.0	$	2.1

During the nine months ended August 31, 2023 and 2022, we contributed $7.4 million and $9.9 million, respectively, to our pension plans. Total contributions to our pension plans in fiscal year 2022 were $11.4 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 $(2.7) million and $(2.4) million for the three months ended August 31, 2023 and 2022, respectively. For the nine months ended August 31, 2023 and 2022, the net aggregate amount

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of pension and other postretirement benefits income, excluding service cost components was $(8.1) million and $(7.5) million, respectively.

6.    STOCK-BASED COMPENSATION

We have four types of stock-based compensation awards: restricted stock units ("RSUs"), stock options, company stock awarded as part of our long-term performance plan ("LTPP") and 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 August 31,				Nine months ended August 31,
	2023		2022		2023		2022
Stock-based compensation expense	$	12.6	$	12.2	$	51.1	$	49.1

Our 2023 annual grant of stock options and RSUs occurred in the second quarter, similar to the 2022 annual grant. The weighted -average grant-date fair value of each stock option granted in 2023 was $19.35 and in 2022 was $22.08 as calculated under a lattice pricing model. Substantially all of the stock options and RSUs granted in 2023 and 2022 vest ratably over a three-year period or, if earlier, upon the retirement eligibility date of the holder. The fair values of stock option grants in the stated periods were computed using the following range of assumptions for our various stock compensation plans:

	2023	2022
Risk-free interest rates	3.5% - 4.9%	0.2% - 2.5%
Dividend yield	1.9%	1.5%
Expected volatility	21.8%	21.2%
Expected lives (in years)	7.3	7.6

The following is a summary of our stock option activity for the nine months ended August 31, 2023 and 2022:

	2023			2022
(shares in millions)	Number of Shares	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
Outstanding at beginning of period	4.8	$	67.08	5.0	$	59.71
Granted	0.9	81.79		0.7	96.92
Exercised	(0.4)	47.85		(0.8)	47.40
Outstanding at end of the period	5.3	$	70.43	4.9	$	67.13
Exercisable at end of the period	3.9	$	64.29	3.5	$	57.97

As of August 31, 2023, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was $78.1 million and for options currently exercisable was $77.9 million. The total intrinsic value of all options exercised during the nine months ended August 31, 2023 and 2022 was $11.1 million and $40.2 million, respectively.

The following is a summary of our RSU activity for the nine months ended August 31, 2023 and 2022:

	2023			2022
(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 period	480	$	77.62	563	$	69.52
Granted	243	78.33		208	94.21
Vested	(225)	78.16		(251)	71.90
Forfeited	(19)	85.58		(30)	84.27
Outstanding at end of period	479	$	77.38	490	$	77.86

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The following is a summary of our price-vested stock options activity for the nine months ended August 31, 2023 and 2022:

	2023			2022
(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 period	2,107	$	9.40	2,193	$	9.40
Forfeited	(52)	9.40		(62)	9.40
Outstanding at end of period	2,055	$	9.40	2,131	$	9.40

The following is a summary of our LTPP activity for the nine months ended August 31, 2023 and 2022:

	2023			2022
(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 period	451	$	106.32	497	$	83.74
Granted	167	89.00		151	95.00
Vested	(176)	86.14		(251)	75.26
Forfeited	(18)	93.18		(4)	95.29
Outstanding at end of period	424	$	93.68	393	$	93.40

7.    INCOME TAXES

Income tax expense for the three months ended August 31, 2023 included $3.3 million of net discrete tax benefits consisting principally of the following: (i) $2.2 million of tax benefits from the net reversal of certain prior year reserves for unrecognized tax benefits and related interest in non-U.S. jurisdictions, (ii) $0.8 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in non-U.S. jurisdictions, (iii) $0.6 million of excess tax benefits associated with stock-based compensation, (iv) $1.5 million of tax benefits resulting from an adjustment to a prior year tax accrual, and related deferred taxes, based on the final returns filed, and (v) $1.9 million of tax expense related to certain unremitted prior year earnings.

Income tax expense for the nine months ended August 31, 2023 included $10.1 million of net discrete tax benefits consisting principally of the following: (i) $3.2 million of tax benefits associated with the adjustment of a valuation allowance due to changes in judgment about the realizability of the deferred tax asset, (ii) $2.2 million of tax benefits from the net reversal of certain prior reserves for unrecognized tax benefits and related interest in non-U.S. jurisdictions, (iii) $2.0 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in non-U.S. jurisdictions, (iv) $1.2 million of tax benefit related to a tax settlement, (v) $0.8 million of tax benefits related to the revaluation of deferred taxes resulting from changes in tax rates, (vi) $1.0 million of excess tax benefits associated with stock-based compensation, (vii) $1.5 million of tax benefits resulting from an adjustment to a prior year tax accrual, and related deferred taxes, based on the final returns filed, and (viii) $1.9 million of tax expense related to certain unremitted prior year earnings.

Income tax expense for the three months ended August 31, 2022 included $3.8 million of net discrete tax expense consisting principally of the following: (i) $11.6 million of tax expense related to the sale of a business, (ii) $1.4 million of net tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iii) $4.7 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations and (iv) $1.3 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed.

Income tax expense for the nine months ended August 31, 2022 included $15.5 million of net discrete tax benefits consisting principally of the following: (i) $9.0 million of excess tax benefits associated with stock-based compensation, (ii) $4.1 million of net tax benefits associated with an adjustment of valuation allowances due to changes in judgment about the realizability of deferred tax assets, (iii) $3.9 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iv) $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business, (v) $6.2 million of tax benefits from the resolution of tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (vi) $1.3 million of tax

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benefits resulting from an adjustment to a prior year tax accrual based on the final return filed, and (vii) $11.6 million of tax expense related to the sale of a business.

Other than the discrete tax benefits previously mentioned and additions for current year tax positions, there were no significant changes to unrecognized tax benefits during the nine months ended August 31, 2023.

As of August 31, 2023, 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 August 31,		Nine months ended August 31,
	2023	2022	2023	2022
Average shares outstanding – basic	268.4	268.3	268.4	268.1
Effect of dilutive securities:
Stock options/RSUs/LTPP	1.7	1.9	1.4	2.3
Average shares outstanding – diluted	270.1	270.2	269.8	270.4

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 August 31,		Nine months ended August 31,
	2023	2022	2023	2022
Anti-dilutive securities	1.8	1.6	1.8	0.7

The following table sets forth common stock activity (in millions):

	Three months ended August 31,		Nine months ended August 31,
	2023	2022	2023	2022
Shares issued under stock options, RSUs, LTPP and employee stock purchase plans	0.1	0.1	0.7	1.4
Shares repurchased under the stock repurchase program and shares withheld for taxes under stock options, RSUs, and LTPP	0.1	0.2	0.5	0.5

As of August 31, 2023, $510.5 million remained of the $600 million share repurchase program authorization approved by our Board of Directors in November 2019.

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9.    ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the components of accumulated other comprehensive loss, net of tax, where applicable (in millions):

	August 31, 2023		November 30, 2022
Foreign currency translation adjustment (1)	$	(312.1)	$	(405.3)
Unrealized gain on foreign currency exchange contracts	1.8		3.8
Unamortized value of settled interest rate swaps	(2.8)		(0.6)
Pension and other postretirement costs	(80.8)		(78.5)
Accumulated other comprehensive loss	$	(393.9)	$	(480.6)

(1)During the nine months ended August 31, 2023, the foreign currency translation adjustment of accumulated other comprehensive loss decreased on a net basis by $93.2 million, inclusive of $17.6 million of unrealized losses 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 ended				Nine months ended				Affected Line Items in the Condensed Consolidated Income Statement
	August 31, 2023		August 31, 2022		August 31, 2023		August 31, 2022
(Gains)/losses on cash flow hedges:
Interest rate derivatives	$	—	$	(0.1)	$	(0.2)	$	(0.4)	Interest expense
Treasury lock contracts(1)	—		(18.7)		—		(18.7)		Other income, net
Foreign exchange contracts	0.4		(0.7)		(0.9)		(0.7)		Cost of goods sold
Total before tax	0.4		(19.5)		(1.1)		(19.8)
Tax effect	(0.1)		4.9		0.3		5.0		Income tax expense
Net, after tax	$	0.3	$	(14.6)	$	(0.8)	$	(14.8)
Amortization of pension and postretirement benefit adjustments:
Amortization of prior service costs (2)	$	0.1	$	0.2	$	0.2	$	0.3	Other income, net
Amortization of net actuarial (gains) losses (1)	(0.5)		2.6		(1.5)		7.5		Other income, net
Total before tax	(0.4)		2.8		(1.3)		7.8
Tax effect	0.1		(0.6)		0.3		(1.8)		Income tax expense
Net, after tax