Special Charges And Transaction And Integration Expenses

3 Months Ended

Feb. 28, 2023

Special Charges And Transaction And Integration Expenses

SPECIAL CHARGES AND TRANSACTION AND INTEGRATION EXPENSES

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 and Chief Executive Officer. Expenses associated with any 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.

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

The following is a summary of special charges recognized in the three months ended February 28, 2023 and 2022

(in millions):


	Three months ended February 28,
	2023		2022
Employee severance and related benefits	$	24.8	$	14.2
Other costs
Cash	2.2		3.9
Non-Cash	0.8		1.4
Total special charges	$	27.8	$	19.5

During the three months ended February 28, 2023, we recorded $27.8 million of special charges, consisting principally of $24.8 million associated with our Global Operating Effectiveness (GOE) program, as more fully described below, $0.9 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), as more fully described below, and streamlining actions of $1.3 million in the Americas region, and $0.8 million in the EMEA region.

During the three months ended February 28, 2022, we recorded $19.5 million of special charges, consisting principally of $14.9 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, streamlining actions of $2.1 million in the Americas region, and $1.5 million in the EMEA region.

In 2022, our Management Committee approved the GOE program. The GOE program included a voluntary retirement plan, which included enhanced separation benefits to certain U.S. employees aged 55 years or older with at least ten years of service to the company. This voluntary retirement plan commenced in November 2022 and participants were required to submit their notifications by December 30, 2022. As of November 30, 2022, we had accrued special charges of $5.6 million, consisting of employee severance and related benefits. Upon all eligible employees submitting their notifications by the end of December 2022, we accrued an additional $19.7 million during the first quarter of 2023. All related payments will be made in fiscal year 2023 as all of the affected employees will leave the company in 2023. Other special charges recognized during the three months ended February 28, 2023, under our GOE program included $4.5 million in severance and related benefits costs and $0.6 million of third party expenses and other costs.

In 2022, our Management Committee approved an initiative to consolidate our manufacturing operations in the United Kingdom into a net-zero carbon condiments manufacturing and distribution center facility with state-of-the-art technology. We expect to execute these changes to our supply chain operations and improve profitability, from a combination of lower headcount and non-headcount costs, by consolidating our operations into a scalable platform while expanding our capacity. We expect the cost of the initiative to approximate $40 million—to be recognized as special charges in our consolidated income statement during 2022 and 2023. Of that $40 million, we expect the costs to include employee severance and related benefits, non-cash accelerated depreciation, equipment relocation costs, decommissioning and other property related lease exit costs, all directly related to the initiative. During the three months ended February 28, 2023, we recorded $0.4 million in accelerated depreciation and $0.5 million in third party expenses and other costs. During the three months ended February 28, 2022, we recorded $12.5 million in severance and related benefits costs, $1.4 million in accelerated depreciation and $1.0 million in third party expenses and other costs. In total, $21.5 million of special charges related to this initiative were recognized in 2022.

As of February 28, 2023, reserves associated with special charges of $33.0 million, are included in other accrued liabilities in our consolidated balance sheet.

The following is a breakdown by business segment of special charges for the three months ended February 28, 2023 and 2022 (in millions):


	Three months ended February 28,
	2023		2022
Consumer segment	$	19.0	$	3.6
Flavor solutions segment	8.8		15.9
Total special charges	$	27.8	$	19.5

Integration Expenses

Integration expenses recognized during the three months ended February 28, 2022 were $0.7 million relating to the acquisition of FONA International, LLC (FONA).