13. 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 14, 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 $14 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 $1.9 million, $14.5 million and $70.2 million during the years ended December 31, 2016, 2015 and 2014, respectively. Since initiating the Plan, the Company has recorded $87 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 December 31, 2016, 300 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 $20 million.

As of December 31, 2016, the Company has recorded assets held for sale of land, buildings and equipment of $7.2 million related to the 2014 Restructuring Plan. In addition, $19.5 million of inventory, receivables and other assets are included in assets held for sale related to the anticipated sale of the European Natural Ingredients business. The Company also has $3.8 million of liabilities held for sale related to the anticipated sale of the European Natural Ingredients business.

The Company recorded total restructuring costs of $11.1 million, $42.8 million and $98.4 million in the years ended December 31, 2016, 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 $95 million of non-cash related restructuring costs and $57 million of cash related restructuring costs for a total of $152 million of restructuring costs through December 31, 2016. The Company expects to incur approximately $20 million of additional non-cash related restructuring costs and $2 million of additional cash related restructuring costs for a total of $22 million of additional restructuring costs by the end of 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. Since initiating the Plan, the Company has realized total savings of approximately $22 million as of December 31, 2016, of which $9.1 million was recognized in 2016. The remaining savings are expected to be realized in 2017. The Company intends to continue to optimize production at the consolidating sites after the completion of the restructuring activities.

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. In 2016, 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 Company evaluates performance based on operating income of each segment before restructuring costs. All restructuring costs related to continuing operations are recorded in Corporate & Other. The following table summarizes the restructuring expense by segment and discontinued operations for the years ended December 31, 2016, 2015, and 2014:

(In thousands)	2016			2015		2014
Flavors & Fragrances	$	13,719		$	37,309	$	83,871
Color		81			2,113		-
Asia Pacific		-			82		261
Corporate and Other		751			3,299		3,240
Total Continuing Operations		14,551			42,803		87,372
Discontinued Operations		(3,485	)		43		10,998
Total Restructuring⁽¹⁾	$	11,066		$	42,846	$	98,370

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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, 2016, as follows:

(In thousands)	Selling & Administrative		Cost of Products Sold		Total
Employee separation	$	1,279	$	-	$	1,279
Long-lived asset impairment		1,659		-		1,659
Loss on asset sales		212		-		212
Write-down of inventory		-		2,065		2,065
Other costs⁽¹⁾		9,336		-		9,336
Total	$	12,486	$	2,065	$	14,551

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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, 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, 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.

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The following table summarizes the accrual activity for the restructuring liabilities for the years ended December 31, 2016 and 2015:

(In thousands)	Employee Separations			Other Costs			Total
Balance as of December 31, 2014	$	14,909		$	897		$	15,806
Expense activity⁽¹⁾		6,853			16,748			23,601
Cash spent⁽¹⁾		(10,174	)		(16,733	)		(26,907	)
Translation adjustment		(1,328	)		-			(1,328	)
Balance as of December 31, 2015	$	10,260		$	912		$	11,172
Expense activity		1,279			9,336			10,615
Cash spent		(4,434	)		(9,678	)		(14,112	)
Translation adjustment		(146	)		-			(146	)
Balance as of December 31, 2016	$	6,959		$	570		$	7,529

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