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Restructuring and Other Costs, Net
6 Months Ended
Jul. 02, 2016
Restructuring and Related Activities [Abstract]  
Restructuring and Other Costs, Net [Text Block]
Note 14.
Restructuring and Other Costs, Net
Restructuring and other costs in the first six months of 2016 primarily included continuing charges for headcount reductions and facility consolidations in an effort to streamline operations, including the closure and consolidation of operations within several facilities in the U.S., Europe and Asia; third-party acquisition transaction and integration costs primarily associated with the acquisition of Affymetrix; sales of inventories revalued at the date of acquisition; and synergy costs related to acquisitions, including severance and abandoned facility costs. These charges were partially offset by net gains on settlement of litigation and gains on sales of real estate. In the first six months of 2016, severance actions associated with facility consolidations and cost reduction measures affected approximately 1% of the company’s workforce.
As of August 5, 2016, the company has identified restructuring actions that will result in additional charges of approximately $40 million, primarily in 2016 which will be recorded when specified criteria are met, such as communication of benefit arrangements and abandonment of leased facilities.
Second Quarter of 2016
During the second quarter of 2016, the company recorded net restructuring and other costs by segment as follows:
(In millions)
 
Cost of
Revenues

 
Selling,
General and
Administrative
Expenses

 
Restructuring
and Other
Costs, Net

 
Total

 
 
 
 
 
 
 
 
 
Life Sciences Solutions
 
$
15.7

 
$
(0.1
)
 
$
18.4

 
$
34.0

Analytical Instruments
 

 
1.8

 
5.4

 
7.2

Specialty Diagnostics
 

 

 
(0.5
)
 
(0.5
)
Laboratory Products and Services
 
1.7

 
0.1

 
11.9

 
13.7

Corporate
 

 
2.0

 
0.2

 
2.2

 
 
 
 
 
 
 
 
 
 
 
$
17.4

 
$
3.8

 
$
35.4

 
$
56.6


The components of net restructuring and other costs by segment are as follows:
Life Sciences Solutions
In the second quarter of 2016, the Life Sciences Solutions segment recorded $34.0 million of net restructuring and other charges. The segment recorded charges to cost of revenues of $15.7 million primarily for sales of inventories revalued at the date of acquisition. The segment also recorded $0.1 million of income to selling, general and administrative expenses, including $1.8 million of credits from contingent acquisition consideration, largely offset by $1.4 million of third-party transaction and integration costs related to the acquisition of Affymetrix and $0.3 million of accelerated depreciation at facilities closing due to real estate consolidation. In addition, the segment recorded $18.4 million of restructuring and other costs, net, $10.8 million of which were cash costs, primarily associated with headcount reductions and related synergy actions in the U.S. The segment also recorded $7.8 million of charges for litigation-related matters at acquired businesses.
Analytical Instruments
In the second quarter of 2016, the Analytical Instruments segment recorded $7.2 million of net restructuring and other charges. The segment recorded $1.8 million of charges to selling, general, and administrative expense primarily for third-party transaction costs related to the pending acquisition of FEI (Note 2). The segment also recorded $5.4 million of cash restructuring costs primarily associated with headcount reductions and facility consolidations in the U.S. and Europe.
Specialty Diagnostics
In the second quarter of 2016, the Specialty Diagnostics segment recorded $0.5 million of net restructuring and other income, including $1.7 million of gains on the sale of real estate, offset in part by cash costs of $1.2 million for severance and related costs associated with headcount reductions.
Laboratory Products and Services
In the second quarter of 2016, the Laboratory Products and Services segment recorded $13.7 million of net restructuring and other charges. The segment recorded charges to cost of revenues of $1.7 million for accelerated depreciation at facilities closing due to real estate consolidation, as well as $5.1 million of cash restructuring costs, primarily for employee severance and other costs associated with headcount reductions and facility consolidations in the U.S. In addition, the segment recorded $6.8 million of charges for an increase in environmental remediation cost estimates associated with a Superfund site in the U.S.
Corporate
In the second quarter of 2016, the company recorded $2.2 million of restructuring and other costs, including $2.0 million of selling, general, and administrative charges associated with accelerated depreciation on information systems to be abandoned due to acquisition synergies, and $0.6 million of cash restructuring costs for severance at its corporate operations. These charges were offset in part by $0.4 million of income from the settlement of a retirement plan.
First Six Months of 2016
During the first six months of 2016, the company recorded net restructuring and other costs by segment as follows:
(In millions)
 
Cost of
Revenues

 
Selling,
General and
Administrative
Expenses

 
Restructuring
and Other
Costs, Net

 
Total

 
 
 
 
 
 
 
 
 
Life Sciences Solutions
 
$
20.1

 
$
26.4

 
$
47.2

 
$
93.7

Analytical Instruments
 

 
1.8

 
24.5

 
26.3

Specialty Diagnostics
 

 

 
(0.1
)
 
(0.1
)
Laboratory Products and Services
 
7.9

 
0.5

 
13.9

 
22.3

Corporate
 

 
4.0

 
0.5

 
4.5

 
 
 
 
 
 
 
 
 
 
 
$
28.0

 
$
32.7

 
$
86.0

 
$
146.7


The components of net restructuring and other costs by segment are as follows:
Life Sciences Solutions
In the first six months of 2016, the Life Sciences Solutions segment recorded $93.7 million of net restructuring and other charges. The segment recorded charges to cost of revenues of $20.1 million, including $16.2 million for the sales of inventories revalued at the date of acquisition and $3.9 million to conform the accounting policies of Affymetrix with the company's accounting policies. The segment also recorded $26.4 million of charges to selling, general and administrative expenses, including $25.0 million of third-party transaction and integration costs related to the acquisition of Affymetrix and $3.3 million for accelerated depreciation at facilities closing due to real estate consolidation, which were offset in part by credits of $1.9 million from contingent acquisition consideration. In addition, the segment recorded $52.2 million of cash restructuring costs, including $34.7 million of severance and related costs primarily associated with acquisition synergies, and $17.5 million of abandoned facilities costs principally for the consolidation of facilities in the U.S. These costs were offset in part by $4.2 million of net gains on litigation-related matters at acquired businesses and $0.8 million of other non-cash income, net.
Analytical Instruments
In the first six months of 2016, the Analytical Instruments segment recorded $26.3 million of net restructuring and other charges, including $1.8 million of charges to selling, general, and administrative expense, primarily for third-party transaction costs related to the pending acquisition of FEI. The segment also recorded $27.2 million of cash restructuring costs primarily associated with abandoned facilities, including remediation and other closure costs of a manufacturing facility in the U.S. These costs were offset in part by $2.7 million of gains on the sale of real estate.
Specialty Diagnostics
In the first six months of 2016, the Specialty Diagnostics segment recorded $0.1 million of net restructuring and other income, including $2.4 million of other income primarily due to gains on the sale of real estate. These gains were largely offset by cash restructuring costs of $2.3 million, principally for severance and other costs associated with headcount reductions and facility consolidations.
Laboratory Products and Services
In the first six months of 2016, the Laboratory Products and Services segment recorded $22.3 million of net restructuring and other charges. The segment recorded charges to cost of revenues of $7.9 million, including $6.2 million for sales of inventories revalued at the date of acquisition, and $1.7 million for accelerated depreciation at facilities closing due to real estate consolidation. The segment also recorded $0.5 million of charges to selling, general and administrative expenses for accelerated depreciation at facilities closing due to real estate consolidation. The segment recorded $7.9 million of cash restructuring costs, primarily for employee severance and other costs associated with headcount reductions and facility consolidations. The segment also recorded $6.8 million of charges for an increase in environmental remediation cost estimates associated with a Superfund site in the U.S., offset in part by $1.3 million of gains on the settlement of litigation.
Corporate
In the first six months of 2016, the company recorded $4.5 million of restructuring and other costs, including $4.0 million of selling, general, and administrative charges associated with accelerated depreciation on information systems to be abandoned due to acquisition synergies, and $0.9 million of cash restructuring costs for severance at its corporate operations. These charges were offset in part by $0.4 million of income from the settlement of a retirement plan.
The following table summarizes the cash components of the company’s restructuring plans. The non-cash components and other amounts reported as restructuring and other costs, net, in the accompanying statement of income have been summarized in the notes to the tables. Accrued restructuring costs are included in other accrued expenses in the accompanying balance sheet.
(In millions)
 
Severance

 
Abandonment
of Excess
Facilities

 
Other (a)

 
Total

 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
$
15.2

 
$
13.1

 
$
3.0

 
$
31.3

Costs incurred in 2016 (c)
 
47.9

 
36.8

 
6.8

 
91.5

Reserves reversed (b)
 
(0.7
)
 
(0.2
)
 
(0.1
)
 
(1.0
)
Payments
 
(24.1
)
 
(11.7
)
 
(7.2
)
 
(43.0
)
Currency translation
 
0.1

 

 

 
0.1

 
 
 
 
 
 
 
 
 
Balance at July 2, 2016
 
$
38.4

 
$
38.0

 
$
2.5

 
$
78.9

(a)
Other includes relocation and moving expenses associated with facility consolidations, as well as employee retention costs which are accrued ratably over the period through which employees must work to qualify for a payment.
(b)
Represents reductions in cost of plans.
(c)
Excludes $4.5 million of income, net, primarily associated with environmental and litigation-related matters and sales of real estate.
The company expects to pay accrued restructuring costs as follows: severance, employee-retention obligations and other costs, primarily through 2016; and abandoned-facility payments, over lease terms expiring through 2027.