3. SPECIAL CHARGES

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

The following is a summary of special charges recognized in 2017, 2016 and 2015 (in millions):



	2017		2016		2015
Special charges included in cost of goods sold	$	—	$	0.3	$	4.0
Other special charges in the income statement ⁽¹⁾	22.2		15.7		61.5
Total special charges	$	22.2	$	16.0	$	65.5

⁽¹⁾

Included in special charges for 2017 is a non-cash fixed asset impairment charge of $0.5 million. Included in special charges for 2016 is a non-cash goodwill impairment charge of $2.6 million recognized upon the exit of a consolidated joint venture. Included in special charges for 2015 are non-cash brand impairment charges of $9.6 million and non-cash fixed asset impairment charges of $1.1 million.

The following is a summary of special charges by business segments in 2017, 2016 and 2015 (in millions):



	2017		2016		2015
Consumer segment	$	15.3	$	9.2	$	52.8
Industrial segment	6.9		6.8		12.7
Total special charges	$	22.2	$	16.0	$	65.5

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

During 2017, we recorded $22.2 million of special charges, consisting primarily of (i) $12.7 million related to third party expenses incurred associated with our evaluation of changes relating to our global enablement initiative, which is described below; (ii) $2.8 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities; (iii) $2.5 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; and (iv) $1.7 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 (which began in 2016).

Of the $22.2 million in special charges recorded during 2017, approximately $19.0 million were paid in cash and $0.5 million represented a non-cash asset impairment, with the remaining accrual expected to be paid in early 2018.

During 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 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 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 GE implementation and transition, including outside consulting and other costs directly related to the initiative. The GE initiative is expected to generate annual savings, ranging from approximately $30 million to $40 million, once all actions are implemented.

During 2016, we recorded $16.0 million of special charges, principally consisting of: (i) $5.7 million related to additional organization and streamlining actions associated with our EMEA region, which began in 2015; (ii) $2.8 million associated with the exit from our consolidated joint venture in South Africa, which is described below; (iii) $1.9 million for employee severance actions and other exit costs related to the discontinuance of non-profitable product lines of our Kohinoor business in India, which began in 2015 and is further described below; (iv) $1.8 million associated with actions in connection with our planned exit of two leased manufacturing facilities in Singapore and Thailand, which are described below; and (v) $1.7 million for employee severance actions and related costs associated with our North American effectiveness initiative, which began in 2015. The remainder principally relates to other streamlining actions in 2016, as approved by our Management Committee, in our operations in North America, EMEA and Asia/Pacific.

In 2016, we exited our consolidated joint venture in South Africa and recognized special charges of $2.8 million, principally related to the write-off of $2.6 million of goodwill upon the receipt of regulatory approval to terminate the joint venture in the fourth quarter of 2016. As part of the negotiated agreement related to the exit, our former joint venture partner paid the joint venture $5.1 million for inventory and fixed assets and the joint venture paid $0.9 million to the former partner to settle their joint venture interest.

In 2016, our Management Committee approved a plan to construct a new 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. We have recorded $1.7 million and $1.8 million of special charges in 2017 and 2016, respectively, principally related 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 $1.3 million in 2018 associated with other exit costs.

Of the $65.5 million of special charges recognized in 2015, $29.2 million related to our North American effectiveness initiative, $24.4 million related to streamlining actions in our EMEA region, and $14.2 million related to our Kohinoor business in India as more fully described below. Partially offsetting these charges was a reduction of $2.3 million associated with the 2015 reversal of reserves previously accrued as part of actions undertaken in 2013 and 2014.

In 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 $23.9 million, consisting of employee severance and related benefits that were largely paid in 2015 as substantially all of the affected employees had left the company in 2015. The voluntary retirement plan is part of our North American effectiveness initiative. In addition to the cost of the voluntary retirement plan, we recognized an additional $5.3 million of special charges in 2015 as part of our North American effectiveness initiative, of which $3.0 million represented additional employee severance and related benefits and $2.3 million represented other related expenses. In 2016, we recorded an additional $1.7 million associated with employee severance and related expenses as part of our North American effectiveness initiative.

Our North American effectiveness initiative generated cost savings of approximately $15 million in 2015 and full year annual cost savings of approximately $27 million in 2016. As of November 30, 2016, our North American effectiveness initiative was effectively completed.

In 2015, we recorded special charges of $24.4 million, principally consisting of severance and related costs, 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. In 2017 and 2016, we recorded $0.9 million and $5.7 million of special charges, respectively, principally consisting of other related costs, for EMEA reorganization and streamlining activities that began in 2015.

The following table outlines the major components of accrual balances and activity relating to the special charges associated with the EMEA reorganization plans initiated in 2015 (in millions):



	Employee severance and related benefits			Other related costs			Total
Special charges	$	21.5		$	2.9		$	24.4
Cash paid	(4.5		)	(1.3		)	(5.8		)
Impairment of fixed assets recorded	—			(1.1		)	(1.1		)
Impact of foreign exchange	(0.8		)	0.1			(0.7		)
Balance as of November 30, 2015	16.2			0.6			16.8
Special charges	1.2			4.5			5.7
Cash paid	(6.8		)	(4.6		)	(11.4		)
Impact of foreign exchange	(0.1		)	—			(0.1		)
Balance as of November 30, 2016	10.5			0.5			11.0
Special charges	—			0.9			0.9
Cash paid	(4.2		)	(1.2		)	(5.4		)
Impact of foreign exchange	1.1			0.2			1.3
Balance as of November 30, 2017	$	7.4		$	0.4		$	7.8

Also in 2015, we recorded a total of $14.2 million of special charges related to initiatives to improve the profitability of our Kohinoor consumer business in India. This action principally relates to the discontinuance of Kohinoor's non-profitable bulk-packaged and broken basmati rice product lines and other ancillary activities to enable the business to 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.

Due to the anticipated sales reduction associated with Kohinoor's discontinuance of its bulk-packaged and broken basmati rice product lines, only partially offset by the launch of consumer-packaged herbs and spices, we determined that an impairment of the Kohinoor brand name had occurred in 2015. Using a relief from royalty method (and a discount rate associated with the risk of the launch of consumer-packaged herbs and spices), a Level 3 fair value measurement, we recorded a non-cash impairment charge of $9.6 million in 2015. The remaining carrying value of our Kohinoor brand name as of November 30, 2017 is $8.6 million. In addition, as a result of the Kohinoor product line discontinuance in 2015, we recognized a $4.0 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, determined on a lower of cost or market basis, over the estimated net realizable value of such discontinued inventories. We also recorded $0.6 million of other exit costs associated with this plan of which $0.4 million were paid in 2015 and the balance of $0.2 million paid in 2016. In addition to the $14.2 million of special charges outlined above and recorded in 2015, we recorded and paid $1.9 million of special charges in 2016 consisting of costs associated with exiting certain contractual arrangements to improve Kohinoor's profitability and other severance and related costs directly associated with the plan.

As of November 30, 2017, reserves associated with special charges are included in other accrued liabilities in our consolidated balance sheet.