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 consolidated balance sheet as of February 28, 2019 includes a reclassification of $41.9 million of capitalized software from property, plant and equipment, net, to other long-term assets to conform to our current presentation.
The results of consolidated operations for the three-month period ended February 29, 2020 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 are lower in the first half of the fiscal year and increase 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, 2019.
Accounting Pronouncements Adopted in 2020
As more fully described in note 1 of notes to consolidated financial statements included in our Form 10-K for the year ended November 30, 2019, we were required to adopt the new accounting standard for leases, Accounting Standards Codification Topic 842 Leases (ASC 842), as of December 1, 2019 and we elected to do so using a modified retrospective transition method. That modified retrospective transition method allowed us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to retained earnings in the opening balance sheet in the period of adoption without restating prior periods. ASC 842 revised prior practice related to accounting for leases under Accounting Standards Codification Topic 840 Leases (ASC 840) for both lessees and lessors and requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use ("ROU") assets. Under ASC 842, the lease liability is equal to the present value of lease payments, and the right-of-use asset is based on the lease liability, subject to adjustments, such as for deferred rent and initial direct costs. For income statement purposes, ASC 842 retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to prior accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to prior accounting by lessees for capital leases under ASC 840).
We elected the package of practical expedients permitted under the transition guidance, which, among other things, allows us to carryforward the historical lease classification. In addition, we made accounting policy elections to combine the lease and non-lease components for all asset categories other than real estate. We also made elections to exclude from balance sheet reporting those leases with initial terms of 12 months or less ("short-term leases").
Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $136.5 million and $140.0 million, respectively, with the difference due to prepaid and deferred rent that were reclassified to the ROU asset value. No cumulative-effect adjustment to opening retained earnings was required as of December 1, 2019. The standard did not materially affect our consolidated net income or cash flows for the three-month period ended February 29, 2020. See note 4 for further details.
Recently Issued Accounting Pronouncements — Pending Adoption
In January 2017, the FASB issued ASU No. 2017-04 Intangibles—Goodwill and Other Topics (Topic 350)—Simplifying the Test for Goodwill Impairment. This guidance eliminates the requirement to calculate the implied fair value of goodwill of a reporting unit to measure a goodwill impairment charge. Instead, a company will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The new standard will be effective for the first quarter of our fiscal year ending November 30, 2021. Early adoption is permitted for all entities for annual and interim goodwill impairment
testing dates after January 1, 2017. While we are still evaluating the timing of adoption, we currently do not expect this guidance to have a material impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. The ASU is effective for the first quarter of our fiscal year ending November 30, 2021, and we anticipate that it will primarily impact our credit losses recognized for trade accounts receivable. While we are currently evaluating the effect that ASU No. 2016-13 will have on our consolidated financial statements, we do not expect this guidance to have a material impact.
2. 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 associated with certain actions undertaken by the Company 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 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.
The following is a summary of special charges recognized in the three months ended February 29, 2020 and February 28, 2019 (in millions):
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|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Employee severance and related benefits
|
$
|
0.3
|
|
|
$
|
0.6
|
|
|
|
|
|
Other costs
|
0.7
|
|
|
1.5
|
|
|
|
|
|
Total
|
$
|
1.0
|
|
|
$
|
2.1
|
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|
We continue to evaluate changes to our organization structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness.
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 initiative—to be recognized as “Special charges” in our consolidated income statement over its expected multi-year course—to 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 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 the initiative. We incurred $1.0 million of special charges associated with our GE initiative during the three months ended February 29, 2020. Prior to this, through November 30, 2019, we have spent a cumulative total of $38.3 million on this initiative.
During the three months ended February 29, 2020, we recorded $1.0 million of special charges, all of which related to our GE initiative, including $0.5 million of third-party expenses, $0.3 million related to severance and related benefits, and $0.2 million related to other costs.
During the three months ended February 28, 2019, we recorded $2.1 million of special charges, consisting primarily of costs related to our GE initiative. Of the $2.1 million in special charges recognized in the first quarter of 2019 related to our GE
initiative, $1.0 million related to third party expenses, $0.6 million related to employee severance and related benefits, and $0.5 million related to other costs.
As of February 29, 2020, reserves associated with special charges, which are expected to be paid during the remainder of fiscal year 2020, are included in accounts payable and other accrued liabilities in our consolidated balance sheet.
The following is a breakdown by business segments of special charges for the three months ended February 29, 2020 and February 28, 2019 (in millions):
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2020
|
|
2019
|
|
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|
Consumer segment
|
$
|
0.6
|
|
|
$
|
1.5
|
|
|
|
|
|
Flavor solutions segment
|
0.4
|
|
|
0.6
|
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|
|
|
|
Total special charges
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$
|
1.0
|
|
|
$
|
2.1
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|
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|
3. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS
During each of the three months ended February 29, 2020 and February 28, 2019, we repaid $18.8 million (representing the required quarterly principal payment) of the five-year term loan due August 17, 2022.
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.
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. Management assesses foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps 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 29, 2020, we had foreign currency exchange contracts to purchase or sell $517.1 million of foreign currencies as compared to $489.2 million at November 30, 2019. All of these contracts were designated as hedges of anticipated purchases denominated in a foreign currency or hedges of foreign currency denominated assets or liabilities. Hedge ineffectiveness was not material. All foreign currency exchange contracts outstanding at February 29, 2020 have durations of less than 12 months, including $194.6 million of notional contracts that have durations of less than seven days and are used to hedge short-term cash flow funding.
Contracts which are designated as hedges of anticipated purchases denominated in a foreign currency (generally purchases of raw materials in U.S. dollars by operating units outside the U.S.) are considered cash flow hedges. The gains and losses on these contracts are deferred in accumulated other comprehensive income until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive income is also recognized in cost of goods sold. Gains and losses from contracts that are designated as hedges of assets, liabilities or firm commitments are recognized through income, offsetting the change in fair value of the hedged item.
We also enter into fair value foreign currency exchange contracts to manage exposure to currency fluctuations in certain intercompany loans between subsidiaries. At February 29, 2020, the notional value of these contracts was $400.8 million. During the three months ended February 29, 2020 and February 28, 2019, we recognized (losses) gains of $(2.2) million and $1.7 million, respectively, on the change in fair value of these contracts and gains (losses) of $2.0 million and $(1.8) million, respectively, on the change in the currency component of the underlying loans. Both the gains and the losses were recognized in our consolidated income statement as other income, net.
We also utilize cross currency interest rate swap contracts that are considered net investment hedges. As of February 29, 2020, we had cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at three-month U.S.
LIBOR plus 0.685% and pay £194.1 million at three-month GBP LIBOR plus 0.740% and (ii) £194.1 million notional value to receive £194.1 million at three-month GBP LIBOR plus 0.740% and pay €221.8 million at three-month Euro EURIBOR plus 0.808%. These cross currency interest rate swap contracts expire in August 2027.
Interest 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.
As of February 29, 2020, we have outstanding interest rate swap contracts for a notional amount of $350 million. Those interest rate swap contracts include a $100 million notional value of interest rate swap contracts, where we receive interest at 3.25% and pay a variable rate of interest based on three-month LIBOR plus 1.22%, which expire in November 2025, and are designated as fair value hedges of the changes in fair value of $100 million of the $250 million 3.25% medium-term notes due 2025. We also have $250 million notional interest rate swap contracts where we receive interest at 3.40% and pay a variable rate of interest based on three-month LIBOR plus 0.685%, which expire in August 2027, and are designated as fair value hedges of the changes in fair value of $250 million of the $750 million 3.40% term notes due 2027. Any realized gain or loss on these swap contracts was offset by a corresponding increase or decrease of the value of the hedged debt. Hedge ineffectiveness was not material.
All derivatives are recognized at fair value in the balance sheet and recorded in either other current assets, other long-term assets, other accrued liabilities or other long-term liabilities, depending upon their nature and maturity.
The following table discloses the notional amount and fair values of derivative instruments on our balance sheet (in millions):
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|
As of February 29, 2020
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Asset Derivatives
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|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
Balance sheet
location
|
|
Notional
amount
|
|
Fair
value
|
|
Balance sheet
location
|
|
Notional
amount
|
|
Fair
value
|
Interest rate contracts
|
Other current
assets / Other long-term assets
|
|
$
|
350.0
|
|
|
$
|
34.2
|
|
|
Other accrued liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
Other current
assets
|
|
244.1
|
|
|
5.6
|
|
|
Other accrued
liabilities
|
|
273.0
|
|
|
7.6
|
|
Cross currency contracts
|
Other current assets / Other long-term assets
|
|
247.3
|
|
|
2.6
|
|
|
Other long-term liabilities
|
|
243.9
|
|
|
1.0
|
|
Total
|
|
|
|
|
$
|
42.4
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|
|
|
|
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2019
|
|
Asset Derivatives
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
Balance sheet
location
|
|
Notional
amount
|
|
Fair
value
|
|
Balance sheet
location
|
|
Notional
amount
|
|
Fair
value
|
Interest rate contracts
|
Other current
assets / Other long-term assets
|
|
$
|
250.0
|
|
|
$
|
0.1
|
|
|
Other accrued liabilities
|
|
$
|
100.0
|
|
|
$
|
4.0
|
|
Foreign exchange contracts
|
Other current
assets
|
|
343.0
|
|
|
3.2
|
|
|
Other accrued
liabilities
|
|
204.8
|
|
|
4.8
|
|
Cross currency contracts
|
Other current
assets / Other long-term assets
|
|
—
|
|
|
—
|
|
|
Other long-term liabilities
|
|
509.8
|
|
|
9.2
|
|
Total
|
|
|
|
|
$
|
3.3
|
|
|
|
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, 2019
|
Asset Derivatives
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
Balance sheet
location
|
|
Notional
amount
|
|
Fair
value
|
|
Balance sheet
location
|
|
Notional
amount
|
|
Fair
value
|
Interest rate contracts
|
Other current
assets / Other long-term assets
|
|
$
|
350.0
|
|
|
$
|
20.9
|
|
|
Other accrued liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
Other current
assets
|
|
293.1
|
|
|
3.3
|
|
|
Other accrued
liabilities
|
|
196.1
|
|
|
3.6
|
|
Cross currency contracts
|
Other current
assets / Other long-term assets
|
|
495.5
|
|
|
3.2
|
|
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
Total
|
|
|
|
|
$
|
27.4
|
|
|
|
|
|
|
$
|
3.6
|
|
The following tables disclose the impact of derivative instruments on our other comprehensive income ("OCI"), accumulated other comprehensive income ("AOCI") and our consolidated income statement for the three-month periods ended February 29, 2020 and February 28, 2019 (in millions):
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|
Fair Value Hedges
|
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|
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|
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|
|
|
|
Derivative
|
|
Income statement
location
|
|
Income (expense)
|
|
|
|
|
|
|
|
|
|
|
Three months ended February 29, 2020
|
|
Three months ended February 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Interest expense
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
Three months ended
|
Income statement location
|
Gain (loss) recognized in income
|
|
|
Income statement location
|
Gain (loss) recognized in income
|
|
Derivative
|
|
February 29, 2020
|
February 28, 2019
|
Hedged item
|
|
February 29, 2020
|
February 28, 2019
|
Foreign exchange contracts
|
Other income, net
|
$
|
(2.2)
|
|
$
|
1.7
|
|
Intercompany loans
|
Other income, net
|
$
|
2.0
|
|
$
|
(1.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
Gain or (loss)
recognized in OCI
|
|
|
|
Income
statement
location
|
|
Gain or (loss)
reclassified from
AOCI
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest
expense
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Foreign exchange contracts
|
|
0.6
|
|
|
(1.2)
|
|
|
Cost of goods sold
|
|
0.4
|
|
|
0.3
|
|
Total
|
|
$
|
0.6
|
|
|
$
|
(1.2)
|
|
|
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
For all cash flow and settled interest rate fair value hedge derivatives, the net amount of accumulated other comprehensive income (loss) expected to be reclassified in the next 12 months is $0.3 million as an increase to earnings.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Hedges
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
Gain or (loss)
recognized in OCI
|
|
|
|
Income
statement
location
|
|
Gain or (loss)
excluded from the assessment of hedge effectiveness
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Cross currency contracts
|
|
$
|
0.2
|
|
|
$
|
(9.5)
|
|
|
Interest
expense
|
|
$
|
1.3
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
For all net investment hedges, no amounts have been reclassified out of accumulated other comprehensive income (loss). The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes.
4. LEASES
Our lease portfolio primarily consists of (i) certain real estate, including those related to a number of administrative, distribution and manufacturing locations; (ii) certain machinery and equipment, including forklifts; and (iii) automobiles, delivery trucks and other vehicles, including an airplane. When our real estate lease arrangements include lease and non-lease components (for example, common area maintenance), we account for each component separately, based on their relative standalone prices. For all other asset categories, we combine lease components and non-lease components into a single lease commitment. We determine if an agreement is a lease or contains a lease at inception. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date.
As most of our leases do not provide an implicit borrowing rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date.
Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments that are adjusted periodically based on a market rate or index. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants.
The components of lease expense for the three months ended February 29, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
|
$
|
10.1
|
|
|
Finance lease cost:
|
|
|
|
|
|
Amortization of ROU assets
|
|
|
|
2.2
|
|
|
Interest on lease liabilities
|
|
|
|
1.1
|
|
|
Net lease cost (1)
|
|
|
|
$
|
13.4
|
|
|
|
|
|
|
|
|
(1) Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.
|
|
|
|
|
|
Supplemental balance sheet information related to leases as of February 29, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Classification
|
|
|
Assets
|
|
|
|
|
Operating lease ROU assets
|
|
Other long-term assets
|
|
$
|
128.5
|
|
|
|
|
|
|
Finance lease ROU assets
|
|
Property, plant and equipment, net
|
|
127.5
|
|
|
|
|
|
|
Total leased assets
|
|
|
|
$
|
256.0
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating
|
|
Other accrued liabilities
|
|
$
|
34.2
|
|
Finance
|
|
Current portion of long-term debt
|
|
7.2
|
|
Non-current
|
|
|
|
|
Operating
|
|
Other long-term liabilities
|
|
97.8
|
|
Finance
|
|
Long-term debt
|
|
130.7
|
|
Total lease liabilities
|
|
|
|
$
|
269.9
|
|
Information regarding our lease terms and discount rates as of February 29, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
Weighted-average discount rate
|
Operating leases
|
5.8
|
|
2.2
|
%
|
Finance leases
|
14.7
|
|
3.3
|
%
|
The future maturity of our lease liabilities as of February 29, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
Finance leases
|
|
Total
|
2020 (remainder of year)
|
$
|
28.4
|
|
|
$
|
8.5
|
|
|
$
|
36.9
|
|
2021
|
31.6
|
|
|
11.4
|
|
|
43.0
|
|
2022
|
23.2
|
|
|
11.4
|
|
|
34.6
|
|
2023
|
17.2
|
|
|
11.4
|
|
|
28.6
|
|
2024
|
10.9
|
|
|
11.5
|
|
|
22.4
|
|
Thereafter
|
33.8
|
|
|
125.9
|
|
|
159.7
|
|
Total lease payments
|
145.1
|
|
|
180.1
|
|
|
325.2
|
|
Less: Imputed interest
|
13.1
|
|
|
42.2
|
|
|
55.3
|
|
Total lease liabilities
|
$
|
132.0
|
|
|
$
|
137.9
|
|
|
$
|
269.9
|
|
Supplemental cash flow and other information related to leases for the three months ended February 29, 2020 were as follows (in million):
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurements of lease liabilities:
|
|
Operating cash flows used for operating leases
|
$
|
10.0
|
|
Operating cash flows used for finance leases
|
1.1
|
|
Financing cash flows used for finance leases
|
1.7
|
|
|
|
ROU assets obtained in exchange for lease liabilities
|
|
Operating leases
|
$
|
1.3
|
|
|
|
5.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 29, 2020, February 28, 2019 and November 30, 2019, 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 29, 2020
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
170.8
|
|
|
$
|
170.8
|
|
|
$
|
—
|
|
|
|
Insurance contracts
|
|
120.4
|
|
|
—
|
|
|
120.4
|
|
|
|
Bonds and other long-term investments
|
|
0.7
|
|
|
0.7
|
|
|
—
|
|
|
|
Interest rate derivatives
|
|
34.2
|
|
|
—
|
|
|
34.2
|
|
|
|
Foreign currency derivatives
|
|
5.6
|
|
|
—
|
|
|
5.6
|
|
|
|
Cross currency contracts
|
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
|
Total
|
|
$
|
334.3
|
|
|
$
|
171.5
|
|
|
$
|
162.8
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
$
|
7.6
|
|
|
$
|
—
|
|
|
$
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency contracts
|
|
1.0
|
|
|
—
|
|
|
1.0
|
|
|
|
Total
|
|
$
|
8.6
|
|
|
$
|
—
|
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2019
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
102.3
|
|
|
$
|
102.3
|
|
|
$
|
—
|
|
|
|
Insurance contracts
|
|
111.5
|
|
|
—
|
|
|
111.5
|
|
|
|
Bonds and other long-term investments
|
|
8.1
|
|
|
8.1
|
|
|
—
|
|
|
|
Interest rate derivatives
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
|
Foreign currency derivatives
|
|
3.2
|
|
|
—
|
|
|
3.2
|
|
|
|
Total
|
|
$
|
225.2
|
|
|
$
|
110.4
|
|
|
$
|
114.8
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
4.8
|
|
|
|
Interest rate derivatives
|
|
4.0
|
|
|
—
|
|
|
4.0
|
|
|
|
Cross currency contracts
|
|
9.2
|
|
|
—
|
|
|
9.2
|
|
|
|
Total
|
|
$
|
18.0
|
|
|
$
|
—
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
155.4
|
|
|
$
|
155.4
|
|
|
$
|
—
|
|
|
|
Insurance contracts
|
|
121.7
|
|
|
—
|
|
|
121.7
|
|
|
|
Bonds and other long-term investments
|
|
2.7
|
|
|
2.7
|
|
|
—
|
|
|
|
Interest rate derivatives
|
|
20.9
|
|
|
—
|
|
|
20.9
|
|
|
|
Foreign currency derivatives
|
|
3.3
|
|
|
—
|
|
|
3.3
|
|
|
|
Cross currency contracts
|
|
3.2
|
|
|
—
|
|
|
3.2
|
|
|
|
Total
|
|
$
|
307.2
|
|
|
$
|
158.1
|
|
|
$
|
149.1
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
|
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. 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) at February 29, 2020, February 28, 2019 and November 30, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
November 30, 2019
|
Carrying amount
|
$
|
3,716.8
|
|
|
$
|
4,119.8
|
|
|
$
|
3,723.5
|
|
Fair value
|
3,936.7
|
|
|
4,068.8
|
|
|
3,859.0
|
|
|
|
|
|
|
|
Level 1 valuation techniques
|
$
|
3,536.6
|
|
|
$
|
3,222.2
|
|
|
$
|
3,437.5
|
|
Level 2 valuation techniques
|
400.1
|
|
|
846.6
|
|
|
421.5
|
|
Total fair value
|
$
|
3,936.7
|
|
|
$
|
4,068.8
|
|
|
$
|
3,859.0
|
|
The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments.
6.EMPLOYEE BENEFIT AND RETIREMENT PLANS
We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. We contribute to defined contribution plans in locations outside the U.S., including government-sponsored retirement plans. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees and retirees. As more fully described in the notes included in our Annual Report on Form 10-K for the year ended November 30, 2019, during fiscal years 2018 and 2017, we made significant changes to our employee benefit and retirement plans that froze the accrual of future benefits under certain defined benefit pension plans in the U.S. and certain foreign locations.
The following table presents the components of our pension expense (income) of the defined benefit plans for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
International
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Defined benefit plans
|
|
|
|
|
|
|
|
Service cost
|
$
|
0.8
|
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
$
|
0.9
|
|
Interest costs
|
7.3
|
|
|
8.6
|
|
|
1.9
|
|
|
2.4
|
|
Expected return on plan assets
|
(10.1)
|
|
|
(10.6)
|
|
|
(3.8)
|
|
|
(4.1)
|
|
Amortization of prior service costs
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial losses
|
2.0
|
|
|
0.6
|
|
|
0.5
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Total pension expense (income)
|
$
|
0.1
|
|
|
$
|
(0.8)
|
|
|
$
|
(1.2)
|
|
|
$
|
(0.5)
|
|
During each of the three months ended February 29, 2020 and February 28, 2019, we contributed $1.9 million to our pension plans. Total contributions to our pension plans in fiscal year 2019 were $11.4 million.
The following table presents the components of our other postretirement benefits (income) expense for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
|
|
|
Interest costs
|
|
0.5
|
|
|
0.7
|
|
|
|
|
|
Amortization of prior service credits
|
|
(1.1)
|
|
|
(2.2)
|
|
|
|
|
|
Amortization of net actuarial gains
|
|
(0.1)
|
|
|
(0.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other postretirement benefits (income) expense
|
|
$
|
(0.2)
|
|
|
$
|
(1.2)
|
|
|
|
|
|
All of the amounts in the tables above for pension expense and other postretirement benefits expense, other than service cost, were included in the income statement caption "Other income, net" within our consolidated income statements. The aggregate amount of pension and other postretirement benefits (income) expenses, excluding service cost components, were $(2.8) million and $(4.4) million for the three months ended February 29, 2020 and February 28, 2019, respectively.
7. STOCK-BASED COMPENSATION
We have three types of stock-based compensation awards: restricted stock units ("RSUs"), stock options and company stock awarded as part of our long-term performance plan ("LTPP"). The following table sets forth the stock-based compensation expense recorded in selling, general and administrative ("SG&A") expense for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Stock-based compensation expense
|
$
|
6.4
|
|
|
$
|
6.7
|
|
|
|
|
|
Our 2020 annual grant of stock options and RSUs is expected to occur in the second quarter, similar to the 2019 annual grant.
The following is a summary of our stock option activity for the three months ended February 29, 2020 and February 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
(shares in millions)
|
Number
of
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Number
of
Shares
|
|
Weighted-
Average
Exercise
Price
|
Outstanding at beginning of period
|
2.6
|
|
|
$
|
96.18
|
|
|
3.6
|
|
|
$
|
82.60
|
|
|
|
|
|
|
|
|
|
Exercised
|
(0.1)
|
|
|
70.38
|
|
|
(0.1)
|
|
|
63.07
|
|
Outstanding at end of the period
|
2.5
|
|
|
$
|
96.94
|
|
|
3.5
|
|
|
$
|
83.04
|
|
Exercisable at end of the period
|
1.8
|
|
|
$
|
87.45
|
|
|
2.7
|
|
|
$
|
77.11
|
|
As of February 29, 2020, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was $123.2 million and for options currently exercisable was $107.1 million. The total intrinsic value of all options exercised during the three months ended February 29, 2020 and February 28, 2019 was $8.6 million and $5.9 million, respectively.
The following is a summary of our RSU activity for the three months ended February 29, 2020 and February 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
(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
|
381
|
|
|
$
|
115.89
|
|
|
423
|
|
|
$
|
103.05
|
|
|
|
|
|
|
|
|
|
Vested
|
(4)
|
|
|
70.01
|
|
|
(3)
|
|
|
95.64
|
|
Forfeited
|
(5)
|
|
|
120.43
|
|
|
(2)
|
|
|
99.36
|
|
Outstanding at end of period
|
372
|
|
|
$
|
116.39
|
|
|
418
|
|
|
$
|
103.12
|
|
The following is a summary of our LTPP activity for the three months ended February 29, 2020 and February 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
(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
|
196
|
|
|
$
|
115.96
|
|
|
218
|
|
|
$
|
83.55
|
|
Granted
|
65
|
|
|
168.73
|
|
|
102
|
|
|
150.51
|
|
Vested
|
(44)
|
|
|
89.96
|
|
|
(57)
|
|
|
86.40
|
|
Forfeited
|
(1)
|
|
|
136.95
|
|
|
—
|
|
|
—
|
|
Outstanding at end of period
|
216
|
|
|
$
|
137.04
|
|
|
263
|
|
|
$
|
117.14
|
|
8.INCOME TAXES
Income taxes for the three months ended February 29, 2020 included $10.4 million of discrete tax benefits consisting principally of the following: (i) $9.9 million of tax benefits associated with an intra-entity asset transfer that occurred during the first quarter under the provisions of ASU No. 2016-16, (ii) $1.8 million of excess tax benefits associated with share-based compensation, and (iii) $1.4 million of expense related to the revaluation of deferred tax liabilities resulting from enacted legislation in certain non-U.S. jurisdictions.
Income taxes for the three months ended February 28, 2019 included $17.6 million of discrete tax benefits consisting principally of the following: (i) $16.2 million of tax benefits associated with an intra-entity asset transfer that occurred during the first quarter under the provisions of ASU No. 2016-16, which was adopted on December 1, 2018, and (ii) $1.6 million of excess tax benefits associated with share-based compensation.
Other than additions for current year tax positions, there were no significant changes to unrecognized tax benefits during the three months ended February 29, 2020.
As of February 29, 2020, 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.
9.EARNINGS PER SHARE AND STOCK ISSUANCE
The following table sets forth the reconciliation of average shares outstanding for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Average shares outstanding – basic
|
133.0
|
|
|
132.2
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options/RSUs/LTPP
|
1.3
|
|
|
1.6
|
|
|
|
|
|
Average shares outstanding – diluted
|
134.3
|
|
|
133.8
|
|
|
|
|
|
The following table sets forth the stock options and RSUs for the three months ended February 29, 2020 and February 28, 2019 that were not considered in our earnings per share calculation since they were anti-dilutive (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities
|
0.1
|
|
|
0.1
|
|
|
|
|
|
The following table sets forth the common stock activity for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued, net of shares withheld for taxes, under stock options, RSUs, LTPP and employee stock purchase plans
|
0.1
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased under the stock repurchase program
|
0.1
|
|
|
0.2
|
|
|
|
|
|
As of February 29, 2020, $12.0 million remained of the $600 million share repurchase authorization approved by our Board of Directors in March 2015. An additional $600 million share repurchase program was authorized by our Board of Directors in November 2019, bringing the total remaining share repurchase authorization to $612.0 million as of February 29, 2020.
10.ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table sets forth the components of accumulated other comprehensive income (loss), net of tax, where applicable (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
November 30, 2019
|
Foreign currency translation adjustment (1)
|
$
|
(287.3)
|
|
|
$
|
(206.9)
|
|
|
$
|
(266.5)
|
|
Unrealized loss on foreign currency exchange contracts
|
(0.4)
|
|
|
(1.1)
|
|
|
—
|
|
|
|
|
|
|
|
Unamortized value of settled interest rate swaps
|
0.2
|
|
|
0.5
|
|
|
0.3
|
|
Pension and other postretirement costs
|
(232.0)
|
|
|
(119.9)
|
|
|
(234.0)
|
|
Accumulated other comprehensive loss
|
$
|
(519.5)
|
|
|
$
|
(327.4)
|
|
|
$
|
(500.2)
|
|
(1)The foreign currency translation adjustment of accumulated other comprehensive loss increased by $(20.8) million during the three months ended February 29, 2020. Of that increase, $0.2 million was associated with net investment hedges as 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 for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affected Line Items in the Condensed Consolidated Income Statement
|
|
Accumulated Other Comprehensive Income (Loss) Components
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
(Gains)/losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
$
|
(0.1)
|
|
|
$
|
(0.1)
|
|
|
|
|
|
|
Interest expense
|
|
|
Foreign exchange contracts
|
|
(0.4)
|
|
|
(0.3)
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
Total before tax
|
|
(0.5)
|
|
|
(0.4)
|
|
|
|
|
|
|
|
|
Tax effect
|
|
0.1
|
|
|
0.1
|
|
|
|
|
|
|
Income taxes
|
|
|
Net, after tax
|
|
$
|
(0.4)
|
|
|
$
|
(0.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and postretirement benefit adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs (credit) (1)
|
|
$
|
(1.0)
|
|
|
$
|
(2.1)
|
|
|
|
|
|
|
Other income, net
|
|
|
Amortization of net actuarial losses (1)
|
|
2.4
|
|
|
0.7
|
|
|
|
|
|
|
Other income, net
|
|
|
Total before tax
|
|
1.4
|
|
|
(1.4)
|
|
|
|
|
|
|
|
|
Tax effect
|
|
(0.3)
|
|
|
0.3
|
|
|
|
|
|
|
Income taxes
|
|
|
Net, after tax
|
|
$
|
1.1
|
|
|
$
|
(1.1)
|
|
|
|
|
|
|
|
|
(1) This accumulated other comprehensive income (loss) component is included in the computation of total pension expense and other postretirement benefits expense (refer to note 6 for additional details).
11.BUSINESS SEGMENTS
We operate in two business segments: consumer and flavor solutions. The consumer and flavor solutions segments manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products throughout the world. Our consumer segment sells to retail channels, including grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce under the “McCormick” brand and a variety of brands around the world, including “French’s”, “Frank’s RedHot”, “Lawry’s”, “Zatarain’s”, “Simply Asia”, “Thai Kitchen”, “Ducros”, “Vahine”, “Schwartz”, “Club House”, “Kamis”, “Kohinoor”, “DaQiao”, “Drogheria & Alimentari”, “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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
Flavor Solutions
|
|
Total
|
|
|
|
(in millions)
|
|
|
Three months ended February 29, 2020
|
|
|
|
|
|
Net sales
|
$
|
699.5
|
|
|
$
|
512.5
|
|
|
$
|
1,212.0
|
|
Operating income excluding special charges
|
119.6
|
|
|
75.6
|
|
|
195.2
|
|
Income from unconsolidated operations
|
7.8
|
|
|
2.6
|
|
|
10.4
|
|
|
|
|
|
|
|
Three months ended February 28, 2019
|
|
|
|
|
|
Net sales
|
$
|
744.9
|
|
|
$
|
486.6
|
|
|
$
|
1,231.5
|
|
Operating income excluding special charges
|
135.3
|
|
|
63.7
|
|
|
199.0
|
|
Income from unconsolidated operations
|
7.9
|
|
|
2.2
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of operating income excluding special charges to operating income is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
Flavor Solutions
|
|
Total
|
Three months ended February 29, 2020
|
|
|
|
|
|
Operating income excluding special charges
|
$
|
119.6
|
|
|
$
|
75.6
|
|
|
$
|
195.2
|
|
Less: Special charges
|
0.6
|
|
|
0.4
|
|
|
1.0
|
|
|
|
|
|
|
|
Operating income
|
$
|
119.0
|
|
|
$
|
75.2
|
|
|
$
|
194.2
|
|
|
|
|
|
|
|
Three months ended February 28, 2019
|
|
|
|
|
|
Operating income excluding special charges
|
$
|
135.3
|
|
|
$
|
63.7
|
|
|
$
|
199.0
|
|
|
|
|
|
|
|
Less: Special charges
|
1.5
|
|
|
0.6
|
|
|
2.1
|
|
Operating income
|
$
|
133.8
|
|
|
$
|
63.1
|
|
|
$
|
196.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our net sales, by geographic area, for the three months ended February 29, 2020 and February 28, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
EMEA
|
Asia/Pacific
|
|
Total
|
|
|
|
|
|
|
Three months ended February 29, 2020
|
$
|
819.6
|
|
$
|
250.3
|
|
$
|
142.1
|
|
|
$
|
1,212.0
|
|
Three months ended February 28, 2019
|
807.0
|
|
242.8
|
|
181.7
|
|
|
1,231.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. SUBSEQUENT EVENT
During the three months ended February 29, 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread negatively impacted operating results of our China business in our Asia/Pacific region. The impact of COVID-19 on our consolidated operating results for the three months ended February 29, 2020 was limited, in all material respects, to our operations in China where the Chinese government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees
from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
To the extent that COVID-19 continues or worsens, governments may impose additional restrictions or additional governments may impose restrictions. The result of COVID-19 and those restrictions could result in a number of adverse impacts to our business, including but not limited to additional disruption to the economy and consumers’ willingness and ability to spend, temporary or permanent closures by businesses that consume our products, such as foodservice restaurants, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials to support our business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes which could adversely impact our business, financial condition or results of operations. Further, if our customers’ businesses are similarly affected, they might delay or reduce purchases from us. The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, reductions to our profitability, laws and regulations affecting our business, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, valuation of our pension assets and obligations, credit risks of our customers and counterparties, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.
Given the evolving health, economic, social, and governmental environments, the potential impact that COVID-19 could have on our business remains uncertain.