| Restructuring | 10. 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 Note 11, Discontinued Operations In March 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 plans to sell its two European Natural Ingredients facilities, as discussed below. In addition, the Company discontinued one of the businesses in the Color segment, 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. In 2015, the Company identified additional opportunities to consolidate manufacturing operations at one of the Color segment’s facilities in Europe and eliminate additional positions in the European Flavors & Fragrances businesses. 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. The fair values of the remaining long-lived assets are estimated to be approximately $19 million, which includes certain of the land, buildings and equipment in the assets held for sale, as noted below. 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 $0.3 million and $3.7 million, during the three months ended June 30, 2016 and 2015, respectively, and $0.7 million and $7.5 million during the six months ended June 30, 2016 and 2015, respectively. Since initiating the Plan, the Company has recorded $85.5 million of long-lived asset impairments, including the impairment charges and accelerated depreciation. In addition, certain intangible assets, inventory and other current assets 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 anticipates that it will reduce headcount by approximately 400 positions at the affected facilities, primarily in the Flavors & Fragrances segment, related to direct and indirect labor at manufacturing sites. As of June 30, 2016, 272 positions had been eliminated as a result of this Plan. As mentioned above, the Company plans to sell its European Natural Ingredients business, a business in the Flavors & Fragrances segment. This business has two facilities, located in Marchais, France and Elburg, the Netherlands. The European Natural Ingredients business has not generated significant profits for several years and it does not fit with the Company’s long-term strategic plan. The Company is currently working to sell this business and anticipates selling the business within the next year. Upon the completion of a sale of this business, the Company anticipates recognizing an additional non-cash loss of approximately $13 million. As of June 30, 2016, the Company has recorded assets held for sale of land, buildings and equipment of $9.4 million related to the 2014 Restructuring Plan, and inventory, receivables and other assets of $18.8 million related to the anticipated sale of the European Natural Ingredients business. The Company also has $3.1 million of liabilities held for sale related to the anticipated sale of the European Natural Ingredients business. The Company recorded total restructuring income of $0.2 million (as a result of a pre-tax gain from discontinued operations in connection with liquidation of the Leipzig entity, as discussed below) for the three months ended June 30, 2016 and restructuring costs of $9.7 million for the three months ended June 30, 2015, in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors, and restructuring costs of $3.1 million and $16.9 million for the six months ended June 30, 2016 and 2015, respectively. Since initiating the 2014 Restructuring Plan, the Company has incurred $144.6 million of restructuring costs through June 30, 2016. The Company expects to incur approximately $13 million of additional restructuring costs by the end of 2016 and approximately $4 million of restructuring costs in 2017. The Company expects that the closure and sale of these operations will significantly lower the Company’s operating costs over the next few years. Upon initiating the Plan, the Company estimated the annual cost reductions to be approximately $30 million, when fully implemented. The U.S. dollar has strengthened considerably since the initiation of the Plan, and as a result the dollar value of the cost savings has been reduced. In 2015, the Company identified additional cost savings opportunities, and as a result of these actions, the current estimate of annual cost savings is approximately $27 million. The Company has also implemented price increases to further mitigate the impact of foreign currency movements. The Company has already realized cost savings of approximately $3 million in 2014 and an additional $9 million in 2015. The Company expects to realize approximately $6 million to $7 million of incremental savings in 2016, of which $2.1 million and $4.1 million were realized during the three and six months ended June 30, 2016, respectively. The remaining savings are expected to be realized in 2017. In connection with the 2014 Restructuring Plan, the Company approved a plan to dispose of a certain business, located near Leipzig, Germany, within the Color segment. Production ceased in 2014 and the business met the criteria to be reported as a discontinued operation. During the current quarter, the facility and remaining assets were sold for a gain of $0.2 million. In addition, the entity was liquidated resulting in a reclassification of the cumulative translation adjustment related to that entity of $3.3 million into net earnings. The pre-tax gain from discontinued operations, which includes restructuring costs, was $3.4 million during both the three and six months ended June 30, 2016. The Company evaluates performance based on operating income of each segment before restructuring and other costs. All restructuring and other costs related to continuing operations are recorded in the Corporate & Other segment. The following table summarizes the restructuring expense by segment and discontinued operations for the three and six months ended June 30, 2016 and 2015, respectively: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2016 2015 2016 2015 Flavors & Fragrances $ 2,925 $ 7,191 $ 5,867 $ 13,020 Color 93 1,422 132 1,583 Asia Pacific - - - 58 Corporate & Other 257 1,009 618 2,076 Total Continuing Operations 3,275 9,622 6,617 16,737 Discontinued Operations (3,485 ) 85 (3,485 ) 114 Total Restructuring $ (210 ) $ 9,707 $ 3,132 $ 16,851 The Company recorded restructuring costs in continuing operations for the three and six months ended June 30, 2016, as follows: Three Months Ended June 30, 2016 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 319 $ - $ 319 Long-lived asset impairment 262 - 262 Write-down of inventory - 166 166 Other restructuring costs (1) 2,528 - 2,528 Total $ 3,109 $ 166 $ 3,275 Six Months Ended June 30, 2016 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 450 $ - $ 450 Long-lived asset impairment 733 - 733 Write-down of inventory - 810 810 Other restructuring costs (1) 4,624 - 4,624 Total $ 5,807 $ 810 $ 6,617 (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 six months ended June 30, 2015, as follows: Three Months Ended June 30, 2015 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 1,796 $ - $ 1,796 Long-lived asset impairment 3,665 - 3,665 Write-down of inventory - 140 140 Other restructuring costs (1) 4,021 - 4,021 Total $ 9,482 $ 140 $ 9,622 Six Months Ended June 30, 2015 (In thousands) Selling & Administrative Cost of Products Sold Total Employee separation $ 3,704 $ - $ 3,704 Long-lived asset impairment 7,480 - 7,480 Gain on asset sales (1,301 ) - (1,301 ) Write-down of inventory - 281 281 Other restructuring costs (1) 6,573 - 6,573 Total $ 16,456 $ 281 $ 16,737 (1) Other costs include decommissioning costs, professional services, temporary labor, moving costs and other related costs. The following table summarizes the accrual activities for the restructuring activities for the six months ended June 30, 2016: (In thousands) Employee Separations Other Total Balance as of December 31, 2015 $ 10,260 $ 912 $ 11,172 Expense activity 450 4,624 5,074 Cash spent (2,574 ) (4,718 ) (7,292 ) Translation adjustment 145 - 145 Balance as of June 30, 2016 $ 8,281 $ 818 $ 9,099 |
