| Restructuring | 11. Restructuring The Company incurred restructuring costs in both continuing and discontinued operations. The discussion in this note relates to the combination of both continuing and discontinued operations unless otherwise noted. Restructuring costs related to discontinued operations are recorded in discontinued operations within the Company’s Consolidated Condensed Statements of Earnings and are discussed in more detail in Note 12, Discontinued Operations In March of 2014, the Company announced that it was initiating a restructuring plan (2014 Restructuring Plan or “Plan”) to eliminate underperforming operations, consolidate manufacturing facilities and improve efficiencies within the Company. The Company determined that it had redundant manufacturing capabilities in both North America and Europe and that it could lower costs and operate more efficiently by consolidating into fewer facilities. Eight facilities were identified for consolidation in the Flavors & Fragrances segment, four in North America and four in Europe. To date, closures have been announced in Indianapolis, Indiana, United States; Cornwall, Mississauga and Halton Hills, Canada; Bremen, Germany; and Milan, Italy. The Company also discontinued one of the businesses in the Color Group, located near Leipzig, Germany, because it did not fit with the Company’s long term strategic plan and it had generated losses for several years. Based on this Plan, the Company determined that certain long-lived assets associated with the underperforming operations were impaired. The Company reduced the carrying amounts of these assets to their aggregate respective fair values which were determined based on independent market valuations for these assets. The fair values of the remaining long-lived assets are estimated to be approximately $22.0 million. Also, certain machinery and equipment has been identified to be disposed of at the time of the facility closures and the associated depreciation for these assets has been accelerated. The Company recorded long-lived asset impairments, including the impairment charges and accelerated depreciation, of $2.6 million and $18.2 million, during the three months ended September 30, 2015 and 2014, respectively, and $10.1 million and $66.1 million, during the nine months ended September 30, 2015 and 2014, respectively. Since initiating the Plan, the Company has recorded $80.3 million of long-lived asset impairments, including the impairment charges and accelerated depreciation. In addition, certain intangible assets and inventory were also determined to be impaired and were written down. The Company has also incurred employee separation and other restructuring costs as a result of this Plan. The Company will reduce headcount by approximately 400 positions at impacted facilities, primarily in the Flavors & Fragrances Group, related to direct and indirect labor at manufacturing sites. As of September 30, 2015, approximately 185 positions have been eliminated as a result of this Plan. For the three and nine months ended September 30, 2015, the Company recorded total restructuring costs of $10.9 million and $27.7 million, respectively, in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors. For the three and nine months ended September 30, 2014, the Company recorded restructuring costs of $23.1 million and $85.6 million, respectively. Since initiating the 2014 Restructuring Plan, the Company has incurred $126.3 million of restructuring costs through September 30, 2015. Subsequent to September 30, 2015, the Company identified an additional opportunity to eliminate approximately 25 additional positions in the Flavors & Fragrances European business as a result of the 2014 Restructuring Plan. Including these additional severance related costs, the Company expects to incur approximately $9 million of additional restructuring costs by the end of 2015 and approximately $7 million of additional restructuring costs by the end of 2016. The closure of these operations will significantly lower the Company’s operating costs, which will be realized over the next few years. The full benefit of the restructuring will be achieved after 2016. Upon initiating the Plan, the Company estimated the annual cost reductions to be approximately $30 million when fully implemented, but the actual cost reductions will vary based upon changes in exchange rates and other assumptions. The Company achieved cost savings of approximately $3 million in 2014. For the three and nine months ended September 30, 2015, the Company achieved approximately $2.3 million and $5.4 million of incremental savings in continuing operations, respectively, related to the 2014 Restructuring Plan. Based on current exchange rates, the annual incremental cost savings are estimated to be approximately $8 million in full-year 2015. Furthermore, the Company expects to realize incremental savings of approximately $6 million in 2016 and an additional $8 to $9 million in 2017. The current estimate for the annual cost reductions, when fully implemented, is approximately $25 million and in cases where the estimated cost savings have been reduced because of changes in foreign currency exchange rates, the Company has implemented price increases to reduce the impact of foreign currency movements. The Company evaluates performance based on operating income of each segment before restructuring costs. All restructuring costs related to continuing operations are recorded in the Corporate & Other segment. The following table summarizes the restructuring by segment and discontinued operations for the three and nine months ended September 30, 2015 and 2014: Three Months Ended September 30, (In thousands) 2015 2014 Flavors & Fragrances $ 10,035 $ 20,064 Color 245 - Corporate & Other 672 922 Total Continuing Operations 10,952 20,986 Discontinued Operations (71 ) 2,071 Total Restructuring $ 10,881 $ 23,057 Nine Months Ended September 30, (In thousands) 2015 2014 Flavors & Fragrances $ 23,055 $ 74,115 Color 1,828 - Corporate & Other 2,806 1,508 Total Continuing Operations 27,689 75,623 Discontinued Operations 43 10,017 Total Restructuring $ 27,732 $ 85,640 The Company recorded restructuring costs in continuing operations for the three and nine months ended September 30, 2015, as follows: Three Months Ended September 30, 2015 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 745 $ - $ 745 Long-lived asset impairment 2,610 - 2,610 Write-down of inventory - 2,814 2,814 Other costs (1) 4,783 - 4,783 Total $ 8,138 $ 2,814 $ 10,952 Nine Months Ended September 30, 2015 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 4,449 $ - $ 4,449 Long-lived asset impairment 10,090 - 10,090 Gain on asset sales (1,301 ) - (1,301 ) Write-down of inventory - 3,095 3,095 Other costs (1) 11,356 - 11,356 Total $ 24,594 $ 3,095 $ 27,689 (1) Other costs include decommissioning costs, professional services, temporary labor, moving costs and other related costs. The Company recorded restructuring costs in continuing operations for the three and nine months ended September 30, 2014, as follows: Three Months Ended September 30, 2014 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 908 $ - $ 908 Long-lived asset impairment 17,072 - 17,072 Write-down of inventory - 1,914 1,914 Other costs (1) 1,092 - 1,092 Total $ 19,072 $ 1,914 $ 20,986 Nine Months Ended September 30, 2014 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 13,199 $ - $ 13,199 Long-lived asset impairment 59,335 - 59,335 Gain on asset sales (602 ) - (602 ) Write-down of inventory - 1,914 1,914 Other costs (1) 1,777 - 1,777 Total $ 73,709 $ 1,914 $ 75,623 (1) Other costs include facility decommissioning costs, professional services, personnel moving costs and other related costs. The following table summarizes the accrual activity for the restructuring liabilities for the nine months ended September 30, 2015: (In thousands) Employee Separations Other Costs Total Balance as of December 31, 2014 $ 14,909 $ 897 $ 15,806 Expense activity 4,038 11,913 15,951 Cash spent (6,317 ) (12,170 ) (18,487 ) Translation adjustment (1,126 ) - (1,126 ) Balance as of September 30, 2015 $ 11,504 $ 640 $ 12,144 |
