Asset Impairment Charges and Facility Closing and Reorganization Costs

Asset Impairment Charges

We evaluate our long-lived assets for impairment when circumstances indicate that the carrying value may not be recoverable. Indicators of impairment could include, among other factors, significant changes in the business environment or the planned closure of a facility. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. As a result of certain changes to our business and plans for consolidating our production network, we evaluated the impact that we expect these changes to have on our projected future cash flows as of September 30, 2014.

Testing the assets for recoverability involved developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. The inputs for the fair value calculations were based on assessment of an individual asset’s alternative use within other production facilities, evaluation of recent market data and historical liquidation sales values for similar assets. As the inputs into these calculations are largely based on management’s judgments and are not generally observable in active markets, we consider such measurements to be Level 3 measurements in the fair value hierarchy. See Note 6.

The results of our analysis indicated an impairment of our plant, property and equipment of $7.4 million, which we recorded in the third quarter of 2014, due to changes in our expectations regarding estimated future cash flows at one of our production facilities. During the three and nine months ended September 30, 2013, we recorded impairment of our plant, property and equipment of $4.4 million and $35.5 million, respectively, in addition to impairment related to certain intangible assets of approximately $6.4 million during the nine months ended September 30, 2013. All of these charges were recorded in the impairment of long-lived assets line item in our unaudited Condensed Consolidated Statements of Operations. We can provide no assurance that we will not have impairment charges in future periods as a result of changes in our business environment, operating results or the assumptions and estimates utilized in our impairment tests.

Facility Closing and Reorganization Costs

Approved plans within our multi-year initiatives and related charges are summarized as follows:



	Three Months Ended September 30				Nine Months Ended September 30
	2014		2013		2014		2013
	(In thousands)
Closure of Facilities(1)	$	2,805	$	6,667	$	4,510	$	11,842
Functional Realignment(2)	—		186		—		704
Field and Functional Reorganization (3)	—		415		—		5,266
Other	—		—		—		5
Total	$	2,805	$	7,268	$	4,510	$	17,817

(1)

These charges in 2014 and 2013 primarily relate to facility closures in Riverside, California; Delta, Colorado; Denver, Colorado; Dallas, Texas; Waco, Texas; Springfield, Virginia; Buena Park, California; Evart, Michigan; Bangor, Maine; Shreveport, Louisiana; and Mendon, Massachusetts; as well as other approved closures. We have incurred $42.7 million of charges related to these initiatives to date. We expect to incur additional charges related to these facility closures of approximately $3.7 million related to contract termination, shutdown and other costs. As we continue the evaluation of our supply chain and distribution network, as well as our accelerated cost reduction efforts, it is likely that we will close additional facilities in the future.

(2)

The Functional Realignment initiative was focused on aligning key functions within our legacy Fresh Dairy Direct operations under a single leadership team and permanently removing certain costs from the organization. We have incurred total charges of approximately $33.1 million under this initiative as of September 30, 2013, and we do not expect to incur any material future charges related to this plan.

(3)

The Field and Functional Reorganization initiative streamlined the leadership structure and has enabled faster decision-making and created enhanced opportunities to strategically build our business. We have incurred total charges of $11.3 million under this plan as of September 30, 2013, all of which were associated with headcount reductions. We do not currently anticipate incurring any material charges under this plan going forward.

Activity with respect to facility closing and reorganization costs during the nine months ended September 30, 2014 is summarized below and includes items expensed as incurred:



	Accrued Charges at December 31, 2013		Charges and Adjustments			Payments			Accrued Charges at September 30, 2014
	(In thousands)
Cash charges:
Workforce reduction costs	$	9,028	$	(1,916	)	$	(4,519	)	$	2,593
Shutdown costs	—		3,366			(3,366		)	—
Lease obligations after shutdown	8,361		359			(1,504		)	7,216
Other	—		401			(401		)	—
Subtotal	$	17,389	2,210			$	(9,790	)	$	9,809
Noncash charges:
Write-down of assets (1)			1,631
Other, net			669
Total charges			$	4,510

(1)

The write-down of assets relates primarily to owned buildings, land and equipment of those facilities identified for closure. The assets were tested for recoverability at the time the decision to close the facilities was more likely than not to occur. Our methodology for testing the recoverability of the assets is consistent with the methodology described in the "Asset Impairment Charges" section above.