12. Restructuring Charges

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 Statements of Earnings and are discussed in more detail in Note 13, 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 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, 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 $14.5 million and $70.2 million, during the years ended December 31, 2015 and 2014, respectively. Since initiating the Plan, the Company has recorded $84.7 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 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 December 31, 2015, approximately 220 positions have been eliminated as a result of this Plan.

As a part of the Plan, the Company anticipates selling its European Natural Ingredients business, a business in the Flavors & Fragrances segment, in 2016. This business has two facilities, located in Marchais, France and Elburg, the Netherlands, which will be included in the expected sale. 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. In connection with the anticipated sale of the European Natural Ingredients business, the Company has recorded an impairment charge of $2.0 million in 2015, reducing the carrying value of the long-lived assets for this business to zero. An estimate of the fair value of this business less cost to sell, was determined to be lower than its carrying value. The difference between the fair value and its carrying value exceeded the existing net book value of the long-lived assets. Upon completion of the sale, the Company expects to recognize an additional non-cash loss of approximately $12.0 million.

The Company has recorded assets held for sale of land, buildings and equipment of $9.6 million related to the 2014 Restructuring Plan, and inventory, receivable and other assets of $21.4 million related to the anticipated sale of the European Natural Ingredients business. The Company also has $4.1 million of liabilities held for sale related to the anticipated sale of the European Natural Ingredients business.

The Company recorded total restructuring costs of $42.8 million and $98.4 million in the years ended December 31, 2015 and 2014, respectively, in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors. Since initiating the 2014 Restructuring Plan, the Company has incurred $141 million of restructuring costs through December 31, 2015. The Company expects to incur approximately $16 million of additional restructuring costs by the end of 2016.

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 based on the current exchange rates, the dollar value of the same cost savings would now be approximately $22 million. 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 already realized approximately $12 million of these cost savings, with approximately $3 million realized 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 and the remaining savings in 2017. The Company has also implemented price increases to further mitigate the impact of foreign currency movements.

In connection with the 2014 Restructuring Plan, the Company approved a plan to dispose of a certain business within the Color segment. Production ceased in 2014 and the business met the criteria to be reported as a discontinued operation. The pre-tax loss from discontinued operations, which includes restructuring costs, was not material in 2015 and $11.5 million in 2014.

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 expense by segment and discontinued operations for the years ended December 31, 2015, 2014, and 2013:

(In thousands)	2015		2014		2013
Flavors & Fragrances	$	37,309	$	83,871	$	22,284
Color		2,113		-		7,065
Asia Pacific		82		261		665
Corporate and Other		3,299		3,240		1,721
Total Continuing Operations		42,803		87,372		31,735
Discontinued Operations		43		10,998		-
Total Restructuring⁽¹⁾	$	42,846	$	98,370	$	31,735

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In 2014, the Company recorded $3.2 million of proxy costs related to the 2014 proxy contest. These costs were included in this disclosure in the Company’s 2014 Annual Report to Shareholders. These costs have been removed from the disclosure to conform to current year presentation.

The Company recorded restructuring costs in continuing operations for the year ended December 31, 2015, as follows:

(In thousands)	Selling & Administrative			Cost of Products Sold		Total
Employee separation	$	7,155		$	-	$	7,155
Long-lived asset impairment		14,551			-		14,551
Gain on asset sales		(1,301	)		-		(1,301	)
Write-down of inventory		-			6,098		6,098
Other costs⁽¹⁾		16,300			-		16,300
Total	$	36,705		$	6,098	$	42,803

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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 year ended December 31, 2014, as follows:

(In thousands)	Selling & Administrative			Cost of Products Sold		Total
Employee separation	$	17,794		$	-	$	17,794
Long-lived asset impairment		63,431			-		63,431
Gain on asset sales		(602	)		-		(602	)
Write-down of inventory		-			1,914		1,914
Other costs⁽¹⁾		4,835			-		4,835
Total⁽²⁾	$	85,458		$	1,914	$	87,372

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Other costs include decommissioning costs, professional services, moving costs and other related costs.

⁽²⁾

The Company recorded restructuring costs in continuing operations for the year ended December 31, 2013, as follows:

(In thousands)	Selling & Administrative			Cost of Products Sold		Total
Employee separation	$	18,081		$	-	$	18,081
Long-lived asset impairment		4,176			-		4,176
Gain on asset sales		(3,019	)		-		(3,019	)
Write-down of inventory		-			1,840		1,840
Other costs⁽¹⁾		10,657			-		10,657
Total	$	29,895		$	1,840	$	31,735

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Other costs include decommissioning costs, professional services, moving costs and other related costs.

In 2013, the Company completed its 2013 restructuring program related to relocating the Flavors & Fragrances segment headquarters to Chicago and generating operating efficiencies across all segments of the Company by consolidating multiple facilities throughout Europe and North America. The Company recorded $31.7 million of restructuring costs in 2013. The plan resulted in the reduction of global headcount by approximately 280 employees performing various functions.

The following table summarizes the accrual activity for the restructuring liabilities for the years ended December 31, 2015 and 2014:

(In thousands)	Employee Separations			Other Costs			Total
Balance as of December 31, 2013	$	4,562		$	1,588		$	6,150
Expense activity⁽¹⁾		18,951			4,904			23,855
Cash spent⁽¹⁾		(7,067	)		(5,595	)		(12,662	)
Translation adjustment		(1,537	)		-			(1,537	)
Balance as of December 31, 2014	$	14,909		$	897		$	15,806
Expense activity		6,853			16,748			23,601
Cash spent		(10,174	)		(16,733	)		(26,907	)
Translation adjustment		(1,328	)		-			(1,328	)
Balance as of December 31, 2015	$	10,260		$	912		$	11,172

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