
	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 and nine months ended August 31, 2017 and August 31, 2016 (in millions):



	Three months ended August 31,				Nine months ended August 31,
	2017		2016		2017		2016
Employee severance benefits and related costs	$	2.6	$	3.5	$	4.3	$	4.7
Other costs	2.1		0.8		8.7		5.1
Total	$	4.7	$	4.3	$	13.0	$	9.8

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

During the three months ended August 31, 2017, our Management Committee approved a three-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 McCormick Global Enablement (MGE), 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 MGE operating model, we expect the cost of the MGE initiative—to be recognized as “Special charges” in our consolidated income statement over its expected three-year course—to range from approximately $55 million to $65 million. Of that $55 million to $65 million, we estimate that two-thirds will be attributable to employee severance and related benefit payments and one-third will be attributable to cash payments associated with related costs of MGE implementation and transition, including outside consulting and other costs directly related to the initiative. The MGE initiative is expected to generate annual savings, ranging from approximately $30 million to $40 million, once all actions are implemented.

During the three months ended August 31, 2017, we recorded $4.7 million of special charges, consisting primarily of $1.8 million related to third party expenses incurred associated with our evaluation of changes relating to our MGE initiative, $1.2 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities, $1.1 million related to employee severance benefits and other costs associated with action related to the transfer of certain manufacturing operations in our Asia Pacific region to a new facility under construction in Thailand and $0.4 million for severance and other exit costs associated with our Europe, Middle East and Africa (EMEA) region’s closure of its manufacturing plant in Portugal in mid-2017. During the nine months ended August 31, 2017, we recorded $13.0 million of special charges, consisting primarily of $7.3 million related to third party expenses incurred associated with our evaluation of changes relating to our MGE initiative, $2.3 million for severance and other exit costs associated with our EMEA region’s closure of its manufacturing plant in Portugal in mid-2017, $1.4 million related to employee severance benefits and other costs directly associated with the relocation of one of Chinese manufacturing facilities, $1.5 million related to employee severance benefits and other costs associated with actions related to the transfer of certain manufacturing operations to a new facility under construction in Thailand, and $0.6 million related to other exit costs associated with actions undertaken to enhance organization efficiency and streamline processes in our EMEA region (which is more fully described below). These charges were partially offset by a $0.3 million net credit recorded during the nine months ended August 31, 2017 related to our finalization of special charges associated with the 2015 discontinuance of Kohinoor's non-profitable bulk-packaged and broken basmati rice product lines.

Of the $13.0 million in special charges recorded during the nine months ended August 31, 2017, approximately $10.9 million were paid in cash and $0.5 million represented a non-cash asset impairment, with the remaining accrual expected to be substantially paid in 2017.

In addition to the amounts recognized in the first nine months of 2017, we expect to incur additional special charges during the fourth quarter of 2017 of $9.1 million, consisting of $7.1 million of additional third party expenses associated with our evaluation of changes related to our MGE initiative, $0.4 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities, $1.4 million related to ongoing EMEA reorganization plans, and $0.2 million of other costs associated with the planned exit of two leased manufacturing facilities in Singapore and Thailand.

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 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 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 $1.5 million for other exist costs related to the discontinuance of non-profitable product lines of our Kohinoor business in India. The EMEA, Kohinoor and North American effectiveness initiative were all a continuation of actions that were initiated in 2015. The charges related to our manufacturing facilities in Singapore and Thailand were approved by our Management Committee in the third quarter of 2016.

The following is a breakdown by business segments of special charges for the three and nine months ended August 31, 2017 and 2016 (in millions):



	Three months ended August 31,				Nine months ended August 31,
	2017		2016		2017		2016
Consumer segment	$	3.0	$	2.4	$	8.5	$	7.2
Industrial segment	1.7		1.9		4.5		2.6
Total special charges	$	4.7	$	4.3	$	13.0	$	9.8

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

In 2015, we initiated projects to enhance organization efficiency and streamline processes in EMEA in order to support our 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 our shared services center in Poland. These projects were continued in 2016 and 2017.

The following table outlines the major components of accrual balances and activity relating to the special charges associated with the EMEA reorganization plans that were initiated in 2015 for the nine months ended August 31, 2017 and 2016 (in millions):



	Employee severance and related benefits			Other related costs			Total
Balance as of November 30, 2016	$	10.5		$	0.5		$	11.0
Special charges	—			0.6			0.6
Cash paid	(3.4		)	(0.6		)	(4.0		)
Impact of foreign exchange	1.1			0.2			1.3
Balance as of August 31, 2017	$	8.2		$	0.7		$	8.9

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