2. SPECIAL (GAINS) AND CHARGES

Special (gains) and charges reported on the Consolidated Statement of Income include the following:



	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2017		2016		2017		2016
Cost of sales
Restructuring activities		$-		$-		$2.2		$0.9
Acquisition and integration costs		0.3		-		12.9		-
Energy related charges		-		-		-		51.0
Other		-		-		11.1		10.0
Subtotal		0.3		-		26.2		61.9

Special (gains) and charges
Restructuring activities		4.1		(7.7)		34.6		(6.8)
Acquisition and integration costs		1.8		1.7		12.7		5.0
Energy related charges		-		-		-		12.6
Venezuela related gain		(3.2)		-		(8.5)		(7.8)
Other		2.2		9.2		9.1		32.7
Subtotal		4.9		3.2		47.9		35.7

Total special (gains) and charges		$5.2		$3.2		$74.1		$97.6

For segment reporting purposes, special (gains) and charges are not allocated to reportable segments, which is consistent with the Company’s internal management reporting.

Restructuring activities

The Company’s restructuring activities are associated with plans to enhance its efficiency and effectiveness and sharpen its competitiveness. Restructuring plans include net costs associated with significant actions involving employee-related severance charges, contract termination costs and asset write-downs and disposals. Employee termination costs are largely based on policies and severance plans, and include personnel reductions and related costs for severance, benefits and outplacement services. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the actions. Contract termination costs include charges to terminate leases prior to the end of their respective terms and other contract terminations. Asset write-downs and disposals include leasehold improvement write-downs, other asset write-downs associated with combining operations and disposal of assets. Restructuring activities have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income. Restructuring liabilities have been classified as a component of both other current and other noncurrent liabilities on the Consolidated Balance Sheet.

During the second quarter of 2017, the Company commenced restructuring and other cost-saving actions in order to streamline its operations. These actions include a reduction of the Company’s global workforce by approximately 570 positions, as well as asset disposals and lease terminations. As a result of these actions, the Company expects to incur $40 to $45 million ($30 to $35 million after tax) of restructuring charges, the majority of which is expected to be incurred during 2017. The Company recorded restructuring charges of $3.6 million ($1.3 million after tax) and $36.6 million ($26.2 million after tax) during the third quarter and first nine months of 2017, respectively, related primarily to employee termination costs. As of September 30, 2017, the restructuring liability balance related to these actions was $28.2 million. The Company anticipates the majority of the pretax charges will represent net cash expenditures which are expected to be paid over a period of a few months to several quarters and will be funded from operating activities. Cash payments during the third quarter and first nine months of 2017 were $4.3 million and $4.9 million, respectively.

Net restructuring charges related to the Company’s Energy and Combined restructuring plans during 2017 were minimal during the third quarter and first nine months of 2017. During the third quarter and first nine months of 2016, net restructuring activities included net restructuring gains of $7.7 million ($7.2 million after tax) and $5.9 million ($7.3 million after tax), respectively. The restructuring liability balance was $23.1 million and $39.6 million as of September 30, 2017 and December 31, 2016, respectively. The reduction in liability was driven primarily by severance and other cash payments. The remaining accrual is expected to be paid over a period of a few months to several quarters and continues to be funded from operating activities.

Acquisition and integration related costs

Acquisition and integration costs reported in cost of sales on the Consolidated Statement of Income include $0.3 million ($0.2 million after tax) in the third quarter of 2017 related to disposal of excess inventory and $12.9 million ($8.2 million after tax) during the first nine months of 2017 related primarily to recognition of accelerated rent expense upon the closure of Swisher Hygiene Inc. (“Swisher”) plants and disposal of excess inventory. The first nine months of 2017 also include amounts related to recognition of fair value step-up in the Laboratoires Anios (“Anios”) inventory.

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income include $1.8 million ($1.2 million after tax) and $12.7 million ($8.5 million after tax) of acquisition costs, advisory and legal fees, and integration charges for the Anios and Swisher acquisitions during the third quarter and first nine months of 2017, respectively.

During the third quarter and first nine months of 2016, the Company incurred acquisition and integration charges of $1.7 million ($1.0 million after tax) and $5.0 million ($3.1 million after tax), respectively. Further information related to the Company’s acquisitions is included in Note 3.

Energy related charges

Oil industry activity remained depressed during 2016 when compared with 2014 levels, resulting from excess oil supply pressures, which have negatively impacted exploration and production investments in the energy industry, particularly in North America. As a result of these conditions and their corresponding impact on the Company’s business outlook, the Company recorded total charges of $63.6 million ($42.9 million after tax) during the first nine months of 2016, comprised of inventory write downs and related disposal costs, fixed asset charges, headcount reductions and other charges. No such charges were incurred in 2017.

The inventory write-downs and related disposal costs of $31.1 million include adjustments due to the significant decline in activity and related prices of certain specific-use and other products, coupled with declines in replacement costs, as well as estimated costs to dispose the respective excess inventory. The fixed asset charges of $18.2 million resulted from the write-down of certain assets related to the reduction in certain aspects of the Company’s North American Global Energy segment, as well as abandonment of certain projects under construction. The carrying value of the corresponding fixed assets was reduced to zero. The employee termination costs of $12.8 million include a reduction in the Global Energy segment’s global workforce to better align its workforce with anticipated activity levels in the near term. As of the end of the third quarter of 2017, the Company had $3.2 million of corresponding severance remaining to be paid, which is expected to be paid in the next several months and be funded from operating activities.

The charges discussed above have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income.

Venezuela related gain

Effective as of the end of the fourth quarter of 2015, the Company deconsolidated its Venezuelan subsidiaries. The Company recorded gains due to U.S. dollar cash recoveries of intercompany receivables written off at the time of deconsolidation of $3.2 million ($2.0 million after tax) during the third quarter of 2017 and $8.5 million ($5.3 million after tax) during the first nine months of 2017. In 2016, the Company recorded no such gains during the third quarter and $7.8 million ($4.9 million after tax) during the first nine months.

Other

During the third quarter of 2017, the Company recorded charges of $2.2 million ($1.4 million after tax) related to litigation. During the first nine months of 2017, the Company recorded charges of $20.2 million ($15.9 million after tax) related to litigation and a Global Energy vendor contract termination. These charges have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income.

During the first nine months of 2016, the Company recorded a charge of $10.0 million ($6.3 million after tax) related to a fixed asset impairment and related inventory charges. The fixed asset impairment corresponds to additional charges of certain U.S. production equipment and buildings, resulting from further lower production, initially impaired during the fourth quarter of 2015. This charge has been included as a component of cost of sales on the Consolidated Statement of Income. There were no such charges in the third quarter of 2016.

Additionally, during the third quarter and first nine months of 2016, the Company recorded charges of $9.2 million ($5.6 million after tax) and $32.7 million ($20.7 million after tax), respectively, primarily consisting of litigation related charges. These charges have been included as a component of special (gains) and charges on the Consolidated Statement of Income.