Washington, DC  20549

FORM 10‑Q

(Mark One)

See accompanying notes to consolidated condensed financial statements.

See accompanying notes to consolidated condensed financial statements.

 

See accompanying notes to consolidated condensed financial statements.

In the opinion of Sensient Technologies Corporation (the “Company”), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of September 30, 2016;March 31, 2017, and the results of operations, and comprehensive income, for the three and nine months ended September 30, 2016 and 2015; and cash flows for the ninethree months ended September 30, 2016March 31, 2017 and 2015.2016.  The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Expenses are charged to operations in the period incurred.

In NovemberJuly 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies current guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet. This guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. The guidance can be applied retrospectively or prospectively. The Company retrospectively applied this guidance to all prior periods. The Company adopted this ASU in the first quarter of 2016. As a result, the Company reclassified $17.1 million of current deferred tax assets to Deferred Tax Asset Noncurrent as of December 31, 2015. The Company also reclassified $7.3 million of current deferred tax assets to Deferred Tax Liability Noncurrent as of December 31, 2015.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. Under this guidance, inventory that is accounted for using first-in-first-out, or average cost method, shall be measured at the lower of cost or net realizable value, as opposed to the lower of cost or market measurement under current guidance. This guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. This new guidance is required to be retrospectively applied to all prior periods. The Company is currently evaluating the expected impactadopted this standard in first quarter of this standard.2017 and it did not have a material effect on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the lease assets and lease liabilities that arise from leases on the balance sheet and to disclose qualitative and quantitative information about lease transactions. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the expected impact of this standard.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2015,2016, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.

Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. As of September 30, 2016,March 31, 2017, and December 31, 2015,2016, the Company’s assets and liabilities subject to this standard are forward exchange contracts and investments in a money market fund and municipal investments. The fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.2 million as of March 31, 2017, and a liability of $0.2 million as of September 30, 2016, and December 31, 2015.2016. The fair value of the investments based on September 30, 2016,March 31, 2017, and December 31, 2015,2016, market quotes (Level 1 inputs) was an asset of $4.2$1.5 million and $1.5$1.8 million, respectively, and is reported in Other Assets in the Consolidated Condensed Balance Sheets.

The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, and short-term borrowings approximated fair values as of September 30, 2016.March 31, 2017. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at September 30, 2016,March 31, 2017, was $596.8$572.2 million. The fair value of the long-term debt at September 30, 2016,March 31, 2017, was $619.4$587.0 million.

Operating results by segment for the periods presented are as follows:

 

Beginning in the first quarter of 2016,2017, the results of operations for certain of the Company’s color business in China, South Koreacosmetic and Japan, previously reportedfragrance businesses in the Asia Pacific segment are now reported in the Color segment.segment and Flavors & Fragrances segment, respectively. The results for 20152016 have been restated to reflect these changes.

The Company evaluates performance based on operating income of the respective segments before restructuring and other costs, interest expense and income taxes. The 20162017 and 20152016 restructuring and other costs related to continuing operations are reported in the Corporate & Other segment.Other. See Note 10,11, Restructuring, for more information on the Company’s restructuring activities. The 2017 other costs in 2016 pertain to the costs associated with the Company’s anticipated divestiture of a facility and certain related business lines within the Flavors & Fragrances business in Strasbourg, France; see Note 12,13, Anticipated Divestiture, and the other costs in 2015 are acquisition related costs..

At September 30, 2016,March 31, 2017, and December 31, 2015,2016, inventories included finished and in-process products totaling $277.1$273.1 million and $291.9$273.8 million, respectively, and raw materials and supplies of $129.8$137.0 million and $117.3$130.5 million, respectively.

The Company repurchased 89,251 and 400,477155,849 shares of its common stock for an aggregate cost of $6.7$12.4 million and $25.2 million, respectively, during the three and nine months ended September 30, 2016,March 31, 2017, and 0.6 million and 2.5 million263,770 shares of its common stock for an aggregate cost of $38.2$15.4 million and $165.4 million, respectively, during the three and nine months ended September 30, 2015.March 31, 2016. The amount of treasury stock purchases reported in the Company’s Consolidated Condensed Statements of Cash Flow represent purchases that have settled within each respective nine-monththree-month period.

The Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk by reducing the effect of fluctuating foreign currencies on short-term foreign currency denominated intercompany transactions, non-functional currency raw material purchases, non-functional currency sales, and other known foreign currency exposures. These forward exchange contracts generally have maturities of less than 18 months. The Company’s primary hedging activities and their accounting treatment are summarized below:

Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $16.4$19.5 million and $35.2$25.4 million of forward exchange contracts, designated as hedges, outstanding as of September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. For the three months ended September 30,March 31, 2017, the losses reclassified were not material. For the three months ended March 31, 2016, and 2015, losses of $0.2 million and $0.5 million respectively, were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the earnings impact of the related non-functional asset or liability hedged in the same period. For the nine months ended September 30, 2016 and 2015, losses of $0.9 million and $0.8 million, respectively, were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the earnings impact of the related non-functional asset or liability hedged in the same period. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges, the results of these transactions are not material to the financial statements.

Net investment hedges – The Company has certain debt denominated in Euros and Swiss Francs. These debt instruments have been designated as partial hedges of the Company’s Euro and Swiss Franc net asset positions. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in other comprehensive income (“OCI”). As of September 30, 2016,March 31, 2017, and December 31, 2015,2016, the total value of the Company’s Euro and Swiss Franc debt was $208.5$198.2 million and $162.5$195.6 million, respectively.  For the three and nine months ended September 30, 2016,March 31, 2017, the impact of foreign exchange rates on these debt instruments increased debt by $2.2$2.6 million, and  $5.8 million, respectively, which has been recorded as foreign currency translation in OCI.

The effective income tax rates for continuing operations for the quarters ended September 30,March 31, 2017 and 2016, were 31.4% and 2015, were 23.5% and 29.0%, respectively. For the nine-month periods ended September 30, 2016 and 2015, the effective income tax rates for continuing operations were 28.6% and 28.2%27.0%, respectively. The effective tax rates in both 20162017 and 20152016 were impacted by restructuring activities, changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, adjustments to valuation allowances, and mix of foreign earnings. The tax rate in 20162017 was also impacted by the deferredlimited tax adjustmentsdeductibility of losses related to the anticipated divestituredivestitures discussed in Note 12,11, Anticipated Restructuring and Note 13, Divestiture.

The following table summarizes the changes in OCI during the three- and nine-month periodsthree-month period ended September 30, 2016:March 31, 2017:

During the three months ended June 30, 2016,March 31, 2017, the Company completed the liquidationdivestiture of a facility and certain related business unit withinlines in the ColorFlavors & Fragrances segment (see Note 13, Divestiture, for additional information), resulting in the reclassification of the cumulative translation adjustmentloss of $2.8 million into net earnings. SeeIn addition, the Company completed the sale of its European Natural Ingredient business (see Note 11, Discontinued OperationsRestructuring, for additional information.information), resulting in the reclassification of the cumulative translation loss of $3.7 million into net earnings.

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 Condensed Statements of Earnings and are discussed in Note 11,12, Discontinued Operations, in more detail.

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, closuresClosures have been announced in Indianapolis, Indiana, United States; Cornwall, Mississauga and Halton Hills, Canada; Bremen, Germany; and Milan, Italy. The Company also plans to sellidentified its two European Natural Ingredients facilities to be sold as part of the Plan, 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. The Company has operationally completed all of the above mentioned activities and closures with the exception of the closure of the Indianapolis facility, which is anticipated to be closed in the second quarter of 2017.

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 $19$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 $0.2$0.5 million and $2.6 million, during each of the three months ended September 30, 2016March 31, 2017 and 2015, respectively, and $0.9 million and $10.1 million during the nine months ended September 30, 2016 and 2015, respectively.2016. Since initiating the Plan, the Company has recorded $85.6$87.2 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 September 30, 2016, 256March 31, 2017, 355 positions had been eliminated as a result of this Plan.

As mentioned above,During the three months ended March 31, 2017, the Company plans to sellsold its European Natural Ingredients business (also known as the European Dehydrated Vegetable business), a business in the Flavors & Fragrances segment. This business hashad two facilities, located in Marchais, France, and Elburg, the Netherlands. The European Natural Ingredients business hashad not generated significant profits for several years and it doesdid not fit with the Company’s long-term strategic plan. The Company is currently working to sell this business and anticipates sellingcompleted the business within the next year. Upon the completion of a sale of this business the Company anticipates recognizing an additionalon March 27, 2017, for a de minimis amount and recognized a non-cash loss of approximately $15$21 million.

As of September 30, 2016,March 31, 2017, the Company has recorded assets held for sale of land, buildings, and equipment of $9.7$6.8 million related to the 2014 Restructuring Plan.  In addition, $20 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 $4.6 million of liabilities held for sale related to the anticipated sale of the European Natural Ingredients business.

The Company recorded total restructuring costs of $2.8$20.2 million for the three months ended September 30, 2016,March 31, 2017, and $10.9$3.3 million for the three months ended September 30, 2015,March 31, 2016, in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors, and restructuring costs of $5.9 million and $27.7 million for the nine months ended September 30, 2016 and 2015, respectively.GAAP.  Since initiating the 2014 Restructuring Plan, the Company has incurred $147.3$172.7 million of restructuring costs through September 30, 2016.March 31, 2017. The Company expects to incur approximately $4$7 million of additional restructuring costs by the end of 2016 and approximately $16 million2017.  The increase in the 2017 expected costs are primarily due to the delay in closing the Indianapolis facility, which is now anticipated to be closed in the second quarter of restructuring costs in 2017.

The Company expects that the closure and sale of these operations willhave significantly lowerlowered the Company’s operating costs over the nextlast few years.years and anticipates additional savings in 2018. 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 September 30, 2016.March 31, 2017. During the three months ended September 30, 2016,March 31, 2017, the Company realized approximately $3 milliona de minimis amount of savings and expects to realize approximately $1 million of additional savings by the end of 2016. The remaining2017 and approximately $3 to $4 million in 2018. Expected savings are expectedhave shifted from 2017 to be realized2018 primarily due to the delay in 2017.closing the Indianapolis facility. 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. During the three months ended June 30,In 2016, the facility and remaining assets were sold for a gain of $0.2 million. In addition,and the entity was liquidated resulting in a reclassification of the cumulative translation adjustment related to that entity of $3.3 million into net earnings.liquidated.

The Company evaluates performance based on operating income of each segment before restructuring and other costs. All restructuring and other costs related to continuing operations are recorded in the Corporate & Other segment.Other. The following table summarizes the restructuring expense by segment and discontinued operations for the three and nine months ended September 30,March 31, 2017 and 2016, and 2015, respectively:

The Company recorded restructuring costs in continuing operations for the three and nine months ended September 30, 2016,March 31, 2017, as follows:

The Company recorded restructuring costs in continuing operations for the three and nine months ended September 30, 2015,March 31, 2016, as follows:

The following table summarizes the accrual activities for the restructuring activities for the ninethree months ended September 30, 2016:March 31, 2017:

In connection with the 2014 Restructuring Plan, the Company approved a plan to dispose of a business unit within the Color segment, located near Leipzig, Germany. Since 2014, the business has met the criteria to be presented as a discontinued operation as established in ASC Subtopic 205-20, Discontinued Operations. The results of this business have been reported as a discontinued operation in the Consolidated Condensed Statements of Earnings for all periods presented. During the three months ended June 30,In 2016, the facility and remaining assets were sold for a gain of $0.2 million. In addition,and the entity was liquidated resulting in a reclassification of the cumulative translation adjustment of $3.3 million into net earnings.liquidated.

The following table summarizes the discontinued operation’s results for the three and nine months ended September 30, 2016March 31, 2017 and 2015:2016:

DuringIn 2016, the three months ended June 30, 2016, theCompany’s Board of Directors authorized management to explore strategic alternatives for a facility and certain related business lines within the Flavors & Fragrances segment in Europe. The Company anticipates a sale within the next year and has recorded assets held for sale of inventory and other assets of $19.1 million and $1.6 million of liabilities held for sale related to the anticipated sale as of September 30, 2016.Strasbourg, France. In addition,2016, the Company recorded ana non-cash impairment charge of $10.3$10.8 million, during the second quarter of 2016, in selling and administrative expense, reducing the carrying value of the long-lived assets for this facility to zero. An estimate of the fair value of this business less cost to sell was determined to be lower than its carrying value. The difference between the fair value and its carrying value exceeded the existing net book value of the long-lived assets. IfIn addition, the Company incurred $0.7 million of outside professional fees and other related costs in 2016, as a sale isresult of the then anticipated divestiture.

On January 6, 2017, the Company completed the sale of this facility and certain related business lines for approximately $12.5 million. The Company expects to recognizerecognized an additional non-cash loss of approximately $7 million. During$11 million during the three months ended September 30, 2016,March 31, 2017. The additional non-cash loss is primarily due to changes in the estimates related to the amount of the cumulative translation loss, deferred tax assets, and updating working capital balances and other estimates upon closing the transaction. The Company also incurred $0.2approximately $0.1 million of outside professional fees and other related to the anticipated divestiture.costs.

On OctoberMay 3, 2016,2017, the Company entered into an accounts receivable securitization program withissued three new fixed-rate notes consisting of a commitment size7-year note of $40€50 million whereby transactions under(approximately $53 million) at a fixed rate of 1.27%; a 10-year note of €40 million (approximately $43 million) at a fixed rate of 1.71%; and a 7-year note of $27 million at a fixed rate of 3.65%. Also, on May 3, 2017, the program are accounted for as salesCompany extended the maturity date of trade receivables in accordance with Accounting Standards Codification Topic 860, Transfersits revolver from November 2020 to May 2022, and Servicing. Trade receivablesincreased its credit facility term loan from $115 million to $145 million. Proceeds were soldused to the third-party financial institution, Wells Fargo, for which $40 million in proceeds was received.refinance existing debt.

On September 21, 2015, the U.S. Equal Employment Opportunity Commission (EEOC) filed a civil complaint against Sensient Natural Ingredients LLC (SNI) in the U.S. District Court for the Eastern District of California. SNI is a wholly owned subsidiary of the Company. The EEOC’s complaint alleges that SNI failed to comply with the Americans with Disabilities Act (ADA), as amended, when it terminated five employees in 2011. The EEOC seeks to enjoin SNI from engaging in employment practices that discriminate on the basis of disability;disability; asks the Court to order SNI to implement policies, practices, and programs to ensure it does not violate the ADA;ADA; and requests back pay with prejudgment interest, reinstatement, front pay, compensation for past and future pecuniary and non-pecuniary losses, and punitive damages on behalf of the five named former employees and any similarly aggrieved individuals. Recoverable compensatory and punitive damages are subject to statutory caps. The complaint does not request a specific damages amount. To date, the EEOC has provided the Company with a list of 13 additional potentially aggrieved former employees not listed in the complaint who may have been terminated in violation of the ADA during the relevant time period. In its discovery responses, the EEOC has identified 3 of those 13 former employees as additional claimants for whom the Agency seeks relief.  The Parties are currently engaged in the discovery process.

On September 20, 2016, the Company and the EEOC engaged in a mediation session in whichAs of May 1, 2017, the parties worked to settle this matter.  The parties are still negotiating and attempting to finalize the terms offinalized a settlement, agreement, but thewhich is pending Court approval. The Company previously accrued $0.6 million for the settlement of this matter, duringwhich it will pay to claimants after the three months ended September 30, 2016.settlement is approved by the Court.

The Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters, based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.

 

OVERVIEW

Revenue was $349.7$341.4 million and $344.5$342.5 million for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, an increasea decrease of 1.5%. Revenue was $1.1 billion and $1.0 billion for the nine months ended September 30, 2016 and 2015, respectively, an increase of 1.6%0.3%. The impact of foreign exchange rates decreased consolidated revenue by approximately 1.0% and 2.1%1.2% for the three and nine months ended September 30, 2016, respectively.March 31, 2017.

The Company’s gross margin was 35.1%35.4% and 32.7%33.8% for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively. Included in the cost of sales are $2.8$0.3 million and $0.6 million of restructuring costs for the three months ended September 30, 2015.March 31, 2017 and 2016, respectively. The increase in gross margin for the three months ended September 30, 2016,March 31, 2017 is primarily a result of higher selling prices, higher volumes mainly inand the Color segment, and savings associated withfavorable impact of the 2014 Restructuring Plan ($2.5 million)divestiture (see the discussion below under Divestiture). Restructuring costs did not have an impact on gross margin for the three months ended September 30, 2016, and restructuring costs reduced gross margin by 8010 basis points and 20 basis points for the three months ended September 30, 2015.

Selling and Administrative Expense

Selling and administrative expenses as a percent of revenue were 20.4%28.4% and 20.2%20.0% for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively. Restructuring and other costs (see the discussions below regarding Restructuring, Anticipated Divestiture, and Non-GAAP Financial Measures) of $3.0$30.9 million and $8.2$2.7 million were included in selling and administrative expenses for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively. For the three months ended September 30, 2016, theThe increase in selling and administrative expenses as a percent of revenue is primarily due to an increase in performance based executive compensation of $3.9 million and outside professional fees of $1.8 million. Restructuringthe restructuring and other costs which increased selling and administrative expense as a percent of revenue by 80910 basis points and 24080 basis points for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively.

Operating income was $51.2$24.0 million and $43.2$47.5 million for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively. Operating margins were 14.6%7.0% and 12.5%13.9% for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively. Restructuring and other costs reduced operating margins by 90920 basis points and 320100 basis points during the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively.

Interest expense was $4.6 million and $4.3$4.8 million for the three months ended September 30, 2016March 31, 2017 and 2015, respectively, and $14.0 million and $12.3 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in the expense in both the three- and nine-month periods is primarily due to the increase in the average debt outstanding which is partially offset by the lower average interest rates.2016.

The effective income tax rates for continuing operations for the three months ended September 30,March 31, 2017 and 2016, were 31.4% and 2015, were 23.5% and 29.0%, respectively. For the nine-month periods ended September 30, 2016 and 2015, the effective income tax rates were 28.6% and 28.2%27.0%, respectively. The effective tax rates in both 20162017 and 20152016 were impacted by restructuring activities, changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, adjustments to valuation allowances, and mix of foreign earnings. The tax rate in 20162017 was also impacted by the deferred tax adjustmentsdeductibility of losses related to the anticipated divestituredivestitures discussed below.in Note 11, Restructuring and Note 13, Divestiture.

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 Condensed Statements of Earnings and are discussed in Note 11,12, Discontinued Operations, in more detail.

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, closuresClosures have been announced in Indianapolis, Indiana, United States; Cornwall, Mississauga and Halton Hills, Canada; Bremen, Germany; and Milan, Italy. The Company also plans to sellidentified its two European Natural Ingredients facilities to be sold as part of the Plan, 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. The Company has operationally completed all of the above mentioned activities and closures with the exception of the closure of the Indianapolis facility, which is anticipated to be closed in the second quarter of 2017.

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 $19$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 $0.2$0.5 million and $2.6 million, during each of the three months ended September 30, 2016March 31, 2017 and 2015, respectively, and $0.9 million and $10.1 million during the nine months ended September 30, 2016 and 2015, respectively.2016. Since initiating the Plan, the Company has recorded $85.6$87.2 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 September 30, 2016, 256March 31, 2017, 355 positions had been eliminated as a result of this Plan.

As of September 30, 2016,March 31, 2017, the Company has recorded assets held for sale of land, buildings, and equipment of $9.7$6.8 million related to the 2014 Restructuring Plan.  In addition, $20 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 $4.6 million of liabilities held for sale related to the anticipated sale of the European Natural Ingredients business.

The Company recorded total restructuring costs of $2.8$20.2 million for the three months ended September 30, 2016,March 31, 2017, and $10.9$3.3 million for the three months ended September 30, 2015,March 31, 2016, in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors, and restructuring costs of $5.9 million and $27.7 million for the nine months ended September 30, 2016 and 2015, respectively.GAAP.  Since initiating the 2014 Restructuring Plan, the Company has incurred $147.3$172.7 million of restructuring costs through September 30, 2016.March 31, 2017. The Company expects to incur approximately $4$7 million of additional restructuring costs by the end of 2016 and approximately $16 million2017.  The increase in the 2017 expected costs are primarily due to the delay in closing the Indianapolis facility, which is now anticipated to be closed in the second quarter of restructuring costs in 2017.

The Company expects that the closure and sale of these operations willhave significantly lowerlowered the Company’s operating costs over the nextlast few years.years and anticipates additional savings in 2018. 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 September 30, 2016.March 31, 2017. During the three months ended September 30, 2016,March 31, 2017, the Company realized approximately $3 milliona de minimis amount of savings and expects to realize approximately $1 million of additional savings by the end of 2016. The remaining2017 and approximately $3 to $4 million in 2018. Expected savings are expectedhave shifted from 2017 to be realized2018 primarily due to the delay in 2017.closing the Indianapolis facility. 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. During the three months ended June 30,In 2016, the facility and remaining assets were sold for a gain of $0.2 million. In addition,and the entity was liquidated resulting in a reclassification of the cumulative translation adjustment related to that entity of $3.3 million into net earnings.liquidated.

DuringIn 2016, the three months ended June 30, 2016, theCompany’s Board of Directors authorized management to explore strategic alternatives for a facility and certain related business lines within the Flavors & Fragrances segment in Europe. The Company anticipates a sale within the next year and has recorded assets held for sale of inventory and other assets of $19.1 million and $1.6 million of liabilities held for sale related to the anticipated sale as of September 30, 2016.Strasbourg, France. In addition,2016, the Company recorded ana non-cash impairment charge of $10.3$10.8 million, during the second quarter of 2016, in selling and administrative expense, reducing the carrying value of the long-lived assets for this facility to zero. An estimate of the fair value of this business less cost to sell was determined to be lower than its carrying value. The difference between the fair value and its carrying value exceeded the existing net book value of the long-lived assets. IfIn addition, the Company incurred $0.7 million of outside professional fees and other related costs in 2016, as a sale isresult of the then anticipated divestiture.

On January 6, 2017, the Company completed the sale of this facility and certain related business lines for approximately $12.5 million. The Company expects to recognizerecognized an additional non-cash loss of approximately $7 million. During$11 million during the three months ended September 30, 2016,March 31, 2017. The additional non-cash loss is primarily due to changes in the estimates related to the amount of the cumulative translation loss, deferred tax assets, and updating working capital balances and the other estimates upon closing the transaction. The Company also incurred $0.2approximately $0.1 million of outside professional fees and other related to the anticipated divestiture.costs.

NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted EPS from continuing operations (which exclude restructuring and other costs) and (2) percentage changes in revenue, operating income, diluted EPS, adjusted operating income, and adjusted diluted EPS on a local currency basis (which eliminate the effects that result from translating its international operations into U.S. dollars). The other costs in 20162017 are for the anticipated divestiture related costs discussed under “Anticipated Divestiture” above, and the other costs in 2015 are acquisition related costs. above.

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.