
	SPECIAL CHARGES

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 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 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 and nine months ended August 31, 2016 and 2015 (in millions):



	Three months ended August 31,				Nine months ended August 31,
	2016		2015		2016		2015
Special charges included in cost of goods sold	$	—	$	3.4	$	—	$	3.4
Other special charges in the income statement (including a non-cash brand impairment charges of $9.6 million for the three and nine months ended August 31, 2015)	4.3		11.7		9.8		59.1
Total special charges	$	4.3	$	15.1	$	9.8	$	62.5

During the three months ended August 31, 2016, we recorded $4.3 million of special charges, consisting of $1.8 million related to the planned exit from our current leased manufacturing facilities in Singapore and Thailand upon construction of a new manufacturing facility in Thailand, $1.7 million related to additional organization and streamlining actions associated with our Europe, Middle East and Africa (EMEA) region, and $0.8 million related to the discontinuance of non-profitable product lines of our Kohinoor business in India. The EMEA and Kohinoor actions taken in the third quarter of 2016 are components of actions that commenced in 2015 and are further described below.

During the third quarter of 2016, our Management Committee approved a plan to construct a new industrial manufacturing facility in Thailand for our Asia/Pacific region, with anticipated completion in 2018. Upon completion of construction, we will exit two leased manufacturing facilities in Singapore and Thailand. The $1.8 million of special charges recorded in the three and nine months ended August 31, 2016, principally relates to severance and other related costs associated with employees located at the existing leased facility in Singapore. We expect to record additional special charges related to this action of approximately $2.2 million over the next two years associated with other exit costs.

During the nine months ended August 31, 2016, we recorded $9.8 million of special charges, consisting of $4.8 million related to additional organization and streamlining actions associated with our EMEA region, $1.8 million associated with actions associated with our planned exit of two leased manufacturing facilities in Singapore and Thailand, $1.7 million for employee severance actions and related with our North American effectiveness initiative initiated in 2015 and further described below, and $1.5 million for other exist costs related to the discontinuance of non-profitable product lines of our Kohinoor business in India.

As approved by our Management Committee, we reached agreement with our joint venture partner in South Africa during the third quarter of 2016 to exit the joint venture. The transfer agreement, which is subject to customary closing conditions (including regulatory approval that was obtained in September 2016), is expected to close in October 2016. Any loss in connection with execution of the transfer agreement and exit from the joint venture, which is not expected to be material, will be reflected in special charges. Sales of this consolidated joint venture, a component of our industrial segment were $4.5 million and $12.0 million for the three and nine months ended August 31, 2016, respectively, and $6.7 million and $19.4 million for the three and nine months ended August 31, 2015, respectively.

During the three months ended August 31, 2015, we recorded a total of $15.1 million of special charges, including $3.4 million classified in cost of goods sold. Of that amount, $13.0 million relates to a program, instituted by our Kohinoor consumer business in India and approved by our Management Committee during the third quarter, to improve the profitability of that business. The plan principally relates to the discontinuance of its non-profitable bulk-packaged and broken basmati rice product lines and other ancillary activities, while concentrating the business’s focus on both its existing consumer-packaged basmati rice product lines and the launch of consumer-packaged herbs and spices under the Kohinoor brand name.

In the third quarter of 2015, we recorded a non-cash impairment charge of $9.6 million for our Kohinoor brand name due to the anticipated sales reduction associated with the business’s discontinuance of its bulk-packaged and broken basmati rice product lines. In addition, as a result of the Kohinoor product line discontinuance approved in the third quarter of 2015, we recognized a $3.4 million charge in cost of goods sold, which represents a provision for the excess of the carrying value of inventories of bulk and broken basmati rice at August 31, 2015, determined on a lower of cost or market basis, over the estimated net realizable value of such inventories upon discontinuance. Also during the third quarter of 2015, we recognized an additional $2.1 million of special charges, consisting of $1.3 million related to employee severance and related costs associated with our North American effectiveness initiative and $0.8 million principally related to other exit costs related to our EMEA reorganization initiated earlier in 2015.

For the nine months ended August 31, 2015, we recorded $62.5 million of special charges as indicated in the above table. In addition to the Kohinoor charges of $13.0 million described in the paragraph above, we have recorded special charges of $27.7 million related to employee severance and related costs, associated with our North American effectiveness initiative, and $23.7 million related to our EMEA reorganization initiated earlier in 2015. Partially offsetting these charges was a credit of $1.9 million for the 2015 reversal of reserves previously accrued as part of the EMEA reorganization plan undertaken in 2013 and 2014, principally as a result of a decision by EMEA management that employee attrition, which occurred and was expected to continue, obviated the need for certain accrued employee severance and related benefits.

The following is a breakdown of special charges by business segments for the three and nine months ended August 31, 2016 and 2015 (in millions):



	Three months ended August 31,				Nine months ended August 31,
	2016		2015		2016		2015
Consumer segment	$	2.4	$	14.7	$	7.2	$	49.6
Industrial segment	1.9		0.4		2.6		12.9
Total special charges	$	4.3	$	15.1	$	9.8	$	62.5

All balances associated with our special charges are included in other accrued liabilities in our consolidated balance sheet.

In January 2015, we offered a voluntary retirement plan, which included enhanced separation benefits but did not include supplementary pension benefits, to certain U.S. employees aged 55 years or older with at least ten years of service to the Company. Upon our receipt of notification from participants that they accepted this plan, which closed early in 2015, we accrued special charges of $24.5 million during the first quarter of 2015 (and an additional $3.2 million in the second and third quarters of 2015), consisting primarily of employee severance and related costs that were largely paid in 2015 as substantially all of the affected employees left the company in 2015. The voluntary retirement plan is part of our North American effectiveness initiative.

Our North American effectiveness initiative generated cost savings of approximately $15 million in 2015 and is expected to generate annual cost savings with a full year impact of approximately $27 million beginning in 2016. The following table outlines the major components of accrual balances and activity relating to the special charges associated with our North American effectiveness initiative for the nine months ended August 31, 2016 and 2015 (in millions):



	Employee severance and related benefits			Other related costs			Total
Balance as of November 30, 2015	$	2.3		$	—		$	2.3
Special charges	1.6			0.1			1.7
Cash paid	(2.7		)	(0.1		)	(2.8		)
Balance as of August 31, 2016	$	1.2		$	—		$	1.2

Balance as of November 30, 2014	$	—		$	—		$	—
Special charges	25.6			2.1			27.7
Cash paid	(22.8		)	(1.5		)	(24.3		)
Balance as of August 31, 2015	$	2.8		$	0.6		$	3.4

In the three and nine months ended August 31, 2015, we recorded special charges of $0.8 million and $23.7 million, respectively, to undertake actions, principally consisting of severance and related costs, to change our organization structure to further reduce selling, general and administrative expenses throughout EMEA. For the last quarter of 2015, additional projects were identified in the EMEA region to further enhance organization efficiency and streamline processes in this region to support its competitiveness and long-term growth. These initiatives center on actions intended to reduce fixed costs and improve business processes, as well as continue to drive simplification across the business and supply chain. These actions include the transfer of certain additional activities to the recently established McCormick Shared Services Center in Lodz, Poland. Further actions were approved in the second quarter of 2016. In total, we recorded $24.4 million of special charges for fiscal year 2015 associated with our EMEA reorganization plans undertaken during that year. In addition to the $1.7 million and $4.8 million of special charges recorded for the three and nine months ended August 31, 2016, we expect to record additional special charges in 2016 of approximately $1.0 million, for future actions approved under these EMEA reorganization and streamlining initiatives, which will be settled in cash and reflected in special charges upon recognition in 2016. Related annual cost savings are projected to be approximately $4 million in 2016 and $22 million by the end of 2017.

The following table outlines the major components of accrual balances and activity relating to the special charges associated with the EMEA reorganization plans described above for the nine months ended August 31, 2016 and 2015 (in millions):



	Employee severance and related benefits			Other related costs			Total
Balance as of November 30, 2015	$	16.2		$	0.6		$	16.8
Special charges	1.2			3.6			4.8
Cash paid	(6.1		)	(2.7		)	(8.8		)
Impact of foreign exchange	0.4			—			0.4
Balance as of August 31, 2016	$	11.7		$	1.5		$	13.2

Balance as of November 30, 2014	$	—		$	—		$	—
Special charges	21.5			2.2			23.7
Cash paid	(3.6		)	(0.7		)	(4.3		)
Impairment of fixed assets	—			(1.1		)	(1.1		)
Impact of foreign exchange	—			0.2			0.2
Balance as of August 31, 2015	$	17.9		$	0.6		$	18.5

In the second half of 2015, we recorded special charges related to initiatives to improve the profitability of our Kohinoor consumer business in India. This action principally related to the discontinuance of Kohinoor’s non-profitable bulk-package and broken basmati rice product lines and other ancillary activities to enable the business to focus on both its existing consumer-packaged basmati product lines and the launch of consumer-packaged seasonings under the Kohinoor brand name. In addition to the special charges recognized in the second half of 2015, which are more fully described in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2015, future actions approved with respect to Kohinoor’s plan to improve its profitability consisted of costs associated with exiting certain contractual arrangements and other costs directly related to the plan, of which $0.8 million and $1.5 million were recognized for the three and nine months ended August 31, 2016, respectively. The estimated cost of future actions, which will be reflected in special charges upon recognition, range from approximately $0.5 million to $2.0 million.

In late 2013, we announced a reorganization in parts of the EMEA region to further improve EMEA’s profitability and process standardization while supporting its competitiveness and long-term growth. These actions included the closure of our sales and distribution operations in the Netherlands, with the transition to a third-party distributor model to continue to sell the Silvo brand, as well as actions intended to reduce selling, general and administrative activities throughout EMEA, including the centralization of shared service activity across the region into Poland. In fiscal years 2013 and 2014, we recorded a total of $27.1 million of cash and non-cash charges related to this reorganization.

The following table outlines the major components of accrual balances and activity relating to the special charges associated with the EMEA reorganization plan undertaken in 2013 and 2014 for the nine months ended August 31, 2016 and 2015 (in millions):



	Employee severance and related benefits			Other related costs			Total
Balance as of November 30, 2015	$	2.3		$	—		$	2.3
Cash paid	(1.4		)	—			(1.4		)
Impact of foreign exchange	0.1			—			0.1
Balance as of August 31, 2016	$	1.0		$	—		$	1.0

Balance as of November 30, 2014	$	9.3		$	0.7		$	10.0
Cash paid	(3.0		)	(0.6		)	(3.6		)
Impact of foreign exchange	(1.5		)	(0.1		)	(1.6		)
Reversal into income (special charges)	(1.9		)	—			(1.9		)
Balance as of August 31, 2015	$	2.9		$	—		$	2.9