Special Charges

9 Months Ended

Aug. 31, 2019

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, 2019 and 2018 (in millions):



	Three months ended August 31,				Nine months ended August 31,
	2019		2018		2019		2018
Employee severance and related benefits	$	1.1	$	0.6	$	5.1	$	1.7
Other costs	6.6		2.7		11.8		12.2
Total	$	7.7	$	3.3	$	16.9	$	13.9

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

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 August 31, 2019, we recorded $7.7 million of special charges, consisting primarily of (i) $6.0 million related to our GE initiative, including $5.5 million of third-party expenses, $0.3 million related to severance and related benefits, and $0.2 million related to other costs, and (ii) $1.3 million related to streamlining actions in our Europe, Middle East and Africa (EMEA) region.

During the nine months ended August 31, 2019, we recorded $16.9 million of special charges, consisting primarily of (i) $12.2 million related to our GE initiative, including $8.9 million of third-party expenses, $2.0 million related to severance and related benefits, and $1.3 million related to other costs, (ii) $2.3 million of employee severance and related benefits associated with streamlining actions in the Americas and (iii) $1.9 million related to streamlining actions in EMEA.

During the three months ended August 31, 2018, we recorded $3.3 million of special charges, consisting primarily of: (i) $3.1 million related to our GE initiative, including $2.6 million related to third party expenses and $0.5 million related to employee severance and related benefits, and (ii) $0.1 million related to severance and related benefits and other costs directly associated with the relocation of our Chinese manufacturing facilities.

During the nine months ended August 31, 2018, we recorded $13.9 million of special charges, consisting primarily of: (i) $9.8 million related to our GE initiative, including $6.1 million of third party expenses, $3.0 million for a non-cash impairment charge, and $0.7 million related to severance and related benefits, (ii) a one-time payment in the aggregate amount of $2.2 million made to certain U.S. hourly employees associated with the enactment of the U.S Tax Act; (iii) $0.9 million related to severance and related benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities; and (iv) $0.7 million related to severance and related benefits and other costs related to the transfer of certain manufacturing operations in our Asia Pacific region to a new facility then under construction in Thailand.

The remaining balance associated with our special charges of $4.0 million as of August 31, 2019 are included in accounts payable and other accrued liabilities in our consolidated balance sheet and are expected to be paid during the remainder of fiscal year 2019.

In addition to the amounts recognized in the first nine months of 2019, we expect to incur additional special charges during the remainder of 2019. We expect total special charges in 2019 of $20.0 million, consisting principally of: (i) approximately $15.0 million associated with our GE initiative comprised of third party expenses, severance and related benefits and other costs; (ii) $2.3 million of severance and related benefits associated with streamlining actions in the Americas, and (iii) $2.2 million related to streamlining actions in EMEA.

The following is a breakdown by business segments of special charges for the three and nine months ended August 31, 2019 and 2018 (in millions):



	Three months ended August 31,				Nine months ended August 31,
	2019		2018		2019		2018
Consumer segment	$	4.6	$	2.2	$	11.0	$	8.6
Flavor solutions segment	3.1		1.1		5.9		5.3
Total special charges	$	7.7	$	3.3	$	16.9	$	13.9