Asset Impairment Charges and Facility Closing and Reorganization Costs

Asset Impairment Charges

We evaluate our finite-lived intangible and 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, the planned closure of a facility, or deteriorations in operating cash flows. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows.

Testing the assets for recoverability involves 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. Other inputs are 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 for testing recoverability 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 8.

The results of our analysis indicated an impairment to our property, plant and equipment at one of our production facilities of $2.2 million. The impairment was the result of declines in operating cash flows at this facility on both a historical and forecasted basis. This charge was recorded during the nine months ended September 30, 2018.

The results of our analysis indicated an impairment of our property, plant and equipment at three of our production facilities totaling $25.0 million. These impairments were the result of declines in operating cash flows at these facilities on both a historical and forecasted basis. These charges were recorded during the three months ended September 30, 2017.

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

Costs associated with approved plans within our ongoing network optimization and reorganization strategies are summarized as follows:



	Three Months Ended September 30					Nine Months Ended September 30
	2018			2017		2018			2017
	(In thousands)
Closure of facilities, net(1)	$	(2,679	)	$	3,048	$	58,912		$	10,737
Organizational effectiveness(2)	—			4,796		(331		)	12,210
Enterprise-wide cost productivity plan(3)	—			—		14,863			—
Facility closing and reorganization costs, net	$	(2,679	)	$	7,844	$	73,444		$	22,947

(1)

Reflects charges, net of gains on the sales of assets, associated with closed facilities that were incurred in 2018 and 2017. These charges are primarily related to facility closures in Braselton, GA; Louisville, KY; Erie, PA; Huntley, IL; Thief River Falls, MN; Lynn, MA; Livonia, MI; Richmond, Virginia; Orem, Utah; New Orleans, Louisiana; Rochester, Indiana; Riverside, California; Denver, Colorado; and Buena Park, California. The net gain during the three months ended September 30, 2018 was primarily due to gains from the sale of properties for which we recognized restructuring charges in previous periods. We have incurred net charges to date of $110.4 million related to these facility closures through September 30, 2018. We expect to incur additional charges related to these facility closures of approximately $10.7 million related to shutdown, contract termination and other costs. As we continue the evaluation of our supply chain and distribution network, it is likely that we will close additional facilities in the future.

(2)

During 2017, we initiated a company-wide, multi-phase organizational effectiveness assessment to better align each key function of the Company with our strategic plan. This initiative has resulted in headcount reductions due to changes to our organizational structure, and the charges shown in the table above are primarily comprised of severance benefits and other employee-related costs associated with these organizational changes. We do not expect to incur any material additional costs associated with this initiative.

(3)

In the fourth quarter of 2017, we announced an enterprise-wide cost productivity plan, which includes rescaling our supply chain, optimizing spend management and integrating our operating model. This plan has resulted in headcount reductions due to changes to our organizational structure, and the charges shown in the table above are primarily comprised of severance benefits and other employee-related costs associated with these changes. Efforts with respect to the enterprise-wide cost productivity plan are ongoing, and we expect that we will incur additional costs in the coming months associated with the approval and implementation of additional phases of the plan; however, as specific details of these phases have not been finalized and approved, future costs are not yet estimable.

Activity with respect to facility closing and reorganization costs during the nine months ended September 30, 2018 is summarized below and includes items expensed as incurred:



	Accrued Charges at December 31, 2017		Charges and Adjustments			Payments			Accrued Charges at September 30, 2018
	(In thousands)
Cash charges:
Workforce reduction costs	$	5,863	$	30,318		$	(11,508	)	$	24,673
Shutdown costs	—		3,784			(3,784		)	—
Lease obligations after shutdown	2,606		74			(1,005		)	1,675
Other	—		406			(406		)	—
Subtotal	$	8,469	34,582			$	(16,703	)	$	26,348
Non-cash charges:
Write-down of assets(1)			44,700
Gain on sale/disposal of related assets			(5,976		)
Other, net			138
Subtotal			38,862
Total			$	73,444

(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. Over time, refinements to our estimates used in testing for recoverability may result in additional asset write-downs. The write-down of assets can include accelerated depreciation recorded for those facilities identified for closure. Our methodology for testing the recoverability of the assets is consistent with the methodology described in the “Asset Impairment Charges” section above.