
	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. In 2018, we also included in special charges, as approved by our Management Committee, expense associated with a one-time payment, made to eligible U.S. hourly employees, to distribute a portion of the non-recurring net income tax benefit recognized in connection with the enactment of the U.S. Tax Act and as more fully described in note 9.

The following is a summary of special charges recognized in the three and six months ended May 31, 2018 and 2017 (in millions):



	Three months ended May 31,				Six months ended May 31,
	2018		2017		2018		2017
Employee severance benefits and related costs	$	0.7	$	—	$	1.1	$	1.7
Other costs	7.7		4.7		9.5		6.6
Total	$	8.4	$	4.7	$	10.6	$	8.3

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 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 the 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 the three months ended May 31, 2018, we recorded $8.4 million of special charges, consisting primarily of: (i) $5.5 million related to our GE initiative, as more fully described below; (ii) a one-time payment, in the aggregate amount of $2.2 million, made to eligible U.S. hourly employees to distribute a portion of the non-recurring net income tax benefit recognized in connection with the enactment of the U.S. Tax Act and more fully described in note 9; and (iii) $0.6 million related to employee severance benefits and other costs directly associated with the relocation of our of our Chinese manufacturing facilities. Of the $5.5 million in special charges recognized in the second quarter of 2018 related to our GE initiative, $2.5 million related to third party expenses and $3.0 million represented a non-cash asset impairment charge. That non-cash asset impairment charge was related to the write-off of certain software assets that are incompatible with our future move, approved in the second quarter of 2018, to a new global enterprise planning (ERP) platform to facilitate planned actions under our GE initiative to align and simplify our end-to-end processes to support our future growth.

During the six months ended May 31, 2018, we recorded $10.6 million of special charges, consisting primarily of: (i) $6.7 million related to our GE initiative, consisting of $3.7 million of third party expenses and the non-cash asset impairment charge of $3.0 million previously described, (ii) a one-time payment, in the aggregate amount of $2.2 million described earlier made to certain U.S. hourly employees associated with the enactment of the U.S Tax Act; (iii) $0.8 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities; and (iv) $0.7 million related to employee severance benefits and other costs related to the transfer of certain manufacturing operations in our Asia Pacific region to a new facility under construction in Thailand.

During the three months ended May 31, 2017, we recorded $4.7 million of special charges, consisting primarily of $4.5 million related to third party expenses incurred associated with our GE initiative and $0.5 million related to other exit costs associated with actions undertaken to enhance organization efficiency and streamline processes in our Europe, Middle East and Africa (EMEA) region. These charges were partially offset by a $0.7 million net credit recorded in the second quarter 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.

During the six months ended May 31, 2017, we recorded $8.3 million of special charges, consisting primarily of $5.5 million related to third party expenses incurred associated with our GE initiative, $1.9 million for severance and other exit costs associated with our EMEA region’s closure of its manufacturing plant in Portugal in mid-2017, $0.5 million related to other exit costs associated with actions undertaken to enhance organization efficiency and streamline processes in our EMEA region, and $0.4 million related to employee severance benefits and other costs related to the transfer of certain manufacturing operations in our Asia Pacific region to a new facility under construction in Thailand. These charges were partially offset by a $0.4 million net credit recorded during the six months ended May 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 $10.6 million in special charges recognized during the six months ended May 31, 2018, approximately $3.6 million were paid in cash and $3.0 million represented a non-cash asset impairment charge, with the remaining accrual expect to be paid in the second half of 2018.

In addition to the amounts recognized in the first six months of 2018, we expect to incur additional special charges during the remainder of 2018. We expect total special charges in 2018 of $18.5 million, consisting of: (i) approximately $13.0 million associated with our GE initiative, including $3.0 million of non-cash asset impairment charges, together with third party expenses and employee severance benefits; (ii) the one-time payment, in the aggregate amount of $2.2 million, previously described made to certain U.S. hourly employees associated with enactment of the U.S. Tax Act; and (iii) the remaining $3.3 million comprised of employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities, ongoing EMEA reorganization plans, and the transfer of certain manufacturing operations in our Asia Pacific region to a new facility under construction in Thailand.

The following is a breakdown by business segments of special charges for the three and six months ended May 31, 2018 and 2017 (in millions):



	Three months ended May 31,				Six months ended May 31,
	2018		2017		2018		2017
Consumer segment	$	5.4	$	3.0	$	6.4	$	5.5
Flavor solutions segment	3.0		1.7		4.2		2.8
Total special charges	$	8.4	$	4.7	$	10.6	$	8.3

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