Special Charges

6 Months Ended

May 31, 2021

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 six months ended May 31, 2021 and 2020

(in millions):


	Three months ended May 31,				Six months ended May 31,
	2021		2020		2021		2020
Employee severance and related benefits	$	4.5	$	1.9	$	4.8	$	2.2
Other costs	9.2		1.0		10.0		1.7
Total	$	13.7	$	2.9	$	14.8	$	3.9

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.

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 $60 million to $65 million. Of that $60 million to $65 million, we estimate that approximately sixty percent will be attributable to cash payments associated with the related costs of GE implementation and transition, including outside consulting and other costs, and approximately forty percent will be attributable to severance and related benefit payments, all directly related to the initiative. We have spent a cumulative total of $40.4 million on this initiative through May 31, 2021.

During the three months ended May 31, 2021, we recorded $13.7 million of special charges, consisting principally of a non-cash asset impairment charge of $6.5 million associated with an administrative site that will be exited in conjunction with our decision to employ a hybrid work environment and $4.7 million of streamlining actions in the Americas region.

During the six months ended May 31, 2021, we recorded $14.8 million of special charges, consisting principally of the previously described non-cash asset impairment charge of $6.5 million, $5.2 million of streamlining actions in the Americas region, and $1.3 million of streamlining actions in the Europe, Middle East, and Africa (EMEA) region.

During the three months ended May 31, 2020, we recorded $2.9 million of special charges, consisting principally of $2.8 million of streamlining actions in the EMEA region, which included $1.9 million related to severance and related benefits, $0.6 million of third-party expenses, and $0.3 million related to other costs.

During the six months ended May 31, 2020, we recorded $3.9 million of special charges, consisting of $2.8 million of streamlining actions in the EMEA region and $1.1 million related to our GE initiative, which included $0.5 million of third-party expenses, $0.3 million related to employee severance and related benefits, and $0.3 million related to other costs.

As of May 31, 2021, reserves associated with special charges, which are expected to be paid during the remainder of fiscal year 2021, are included in accounts payable and other accrued liabilities in our consolidated balance sheet.

The following is a breakdown by business segments of special charges for the three and six months ended May 31, 2021 and 2020 (in millions):


	Three months ended May 31,				Six months ended May 31,
	2021		2020		2021		2020
Consumer segment	$	8.8	$	2.5	$	9.6	$	3.1
Flavor solutions segment	4.9		0.4		5.2		0.8
Total special charges	$	13.7	$	2.9	$	14.8	$	3.9