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. 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 12.

The following is a summary of special charges recognized for the years ended November 30 (in millions):



	2018		2017		2016
Special charges included in cost of goods sold	$	—	$	—	$	0.3
Other special charges in the income statement (1)	16.3		22.2		15.7
Total special charges	$	16.3	$	22.2	$	16.0


⁽¹⁾	Included in special charges for 2018 and 2017 are non-cash fixed asset impairment charges of $3.0 million and $0.5 million, respectively. 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.

The following is a summary of special charges by business segments for the years ended November 30 (in millions):



	2018		2017		2016
Consumer segment	$	10.0	$	15.3	$	9.2
Flavor solutions segment	6.3		6.9		6.8
Total special charges	$	16.3	$	22.2	$	16.0

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

During 2018, we recorded $16.3 million of special charges, consisting primarily of: (i) $11.5 million related to our global enablement initiative, as more fully described below; (ii) a one-time payment, in the aggregate amount of $2.2 million made to certain 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; (iii) $1.0 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities; and (iv) $1.6 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. Of the $11.5 million in special charges recognized in 2018 related to our GE initiative, $7.5 million related to third party expenses, $3.0 million represented a non-cash asset impairment charge, and $1.0 million related to employee severance benefits. 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 2018, to a new global enterprise resource 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.

Of the $16.3 million in special charges recorded during 2018, approximately $12.3 million were paid in cash and $3.0 million represented a non-cash asset impairment, with the remaining accrual expected to be paid in early 2019.

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.

During 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 multi-year course—to range from approximately $55 million to $65 million. Of that $55 million to $65 million, we estimate that approximately half will be attributable to each employee severance and related benefit payments and cash payments associated with related costs of GE implementation and transition, including outside consulting and other costs directly related to the initiative. We incurred $11.5 million and $12.7 million of special charges associated with our GE initiative during 2018 and 2017, respectively. 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; (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 related 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 to replace two leased manufacturing facilities in Singapore and Thailand for our Asia/Pacific region. In 2018, we opened the new manufacturing facility in Thailand, exited the leased manufacturing facility in Singapore and expect to exit the leased Thai facility in 2019. We recorded $1.8 million of special charges in 2016 principally related to severance and other related costs associated with employees located at the former leased facility in Singapore.

As of November 30, 2018, reserves associated with special charges are included in other accrued liabilities in our consolidated balance sheet.