
	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 months ended February 28, 2019 and 2018 (in millions):



	2019		2018
Employee severance benefits and related costs	$	0.6	$	0.4
Other costs	1.5		1.8
Total	$	2.1	$	2.2

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 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 expected multi-year course—to range from approximately $55 million to $65 million. Of that $55 million to $65 million, we estimate that half will be attributable to each employee severance and related benefit payments and half 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. 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 the three months ended February 28, 2019, we recorded $2.1 million of special charges, consisting primarily of costs related to our GE initiative. Of the $2.1 million in special charges recognized in the first quarter of 2019 related to our GE initiative, $1.0 million related to third party expenses and $0.6 million related to employee severance benefits, and $0.5 million related to other costs.

During the three months ended February 28, 2018, we recorded $2.2 million of special charges, consisting primarily of $1.3 million related to third party expenses incurred associated with our evaluation of changes relating to our GE initiative, $0.7 million related to employee severance benefits and other costs associated with the transfer of certain manufacturing operations in our Asia Pacific region to a new facility under construction in Thailand and $0.2 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities.

Of the $2.1 million in special charges recognized during the three months ended February 28, 2019, approximately $1.5 million were paid in cash, with the remaining accrual expected to be paid during the remainder of fiscal year 2019.

In addition to the amounts recognized in the first three months of 2019, we expect to incur additional special charges during the remainder of 2019. We expect total special charges in 2019 of $15.0 million, consisting of: (i) approximately $12.0 million associated with our GE initiative comprised of third party expenses, employee severance benefits and other costs; and (ii) the remaining $3.0 million comprised of employee severance benefits and other costs directly associated with our ongoing EMEA reorganization plans, the relocation of one of our Chinese manufacturing facilities and the transfer of certain manufacturing operations in our Asia Pacific region to a new facility in Thailand.

The following is a breakdown by business segments of special charges for the three months ended February 28, 2019 and 2018 (in millions):



	2019		2018
Consumer segment	$	1.5	$	1.0
Flavor solutions segment	0.6		1.2
Total special charges	$	2.1	$	2.2

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