Divestitures

6 Months Ended

Jun. 30, 2020

2.	Divestitures

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. In the fourth quarter of 2019, the Board of Directors approved the sale of the inks product line, which is within the Color segment, and the fragrances product line (excluding its essential oils product line), which is within the Flavors & Fragrances segment. The Company signed memorandums of understanding with potential buyers during the fourth quarter of 2019 for these product lines.

In April 2020, the Board of Directors approved the sale of, and the Company signed a memorandum of understanding with a potential buyer for, the yogurt fruit preparations product line, which is within the Flavors & Fragrances segment. In June 2020, the Company entered into a definitive agreement to sell certain assets related to this product line.

The divesting and exit of these products lines does not meet the criteria to be presented as a discontinued operation on the Consolidated Condensed Statements of Earnings.

On June 30, 2020, the Company completed the sale of its inks product line. The Company estimates it will realize an enterprise value of approximately $14.5 million. At closing, the Company received $10.3 million of net cash, subject to post-closing working capital and net debt adjustments, and estimates it will realize additional value for the sale of certain assets post-closing and the collection of retained accounts receivables. As a result of the completion of the sale, the Company recorded a non-cash net gain of $8.2 million related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Condensed Statements of Earnings. During the six months ended June 30, 2020, the Company had recorded a non-cash impairment charge of $9.4 million as the estimated fair value less costs to sell of the inks product line was lower than its carrying value. The charge adjusted the carrying value of certain long-lived assets, primarily property, plant, and equipment, and allocated goodwill, to their estimated fair value. There were no additional impairment charges during the three months ended June 30, 2020.

The assets and liabilities related to the inks, fragrances, and yogurt fruit preparations product lines are recorded in Assets held for sale and Liabilities held for sale as of June 30, 2020, and December 31, 2019, as follows:

(in thousands)	June 30, 2020		December 31, 2019
Assets held for sale:
Trade accounts receivable, net	$	23,291	$	31,653
Inventories		23,171		34,612
Prepaid expenses and other current assets		4,540		5,528
Property, plant, and equipment, net		5,811		14,496
Intangible assets, net		1,820		5,004
Assets held for sale	$	58,633	$	91,293

Liabilities held for sale:
Trade accounts payable	$	14,723	$	12,318
Accrued salaries, wages and withholdings from employees		1,405		1,677
Other accrued expenses		3,415		5,190
Liabilities held for sale	$	19,543	$	19,185

During the year ended December 31, 2019, the Company estimated that the fair value of the fragrances product line less costs to sell was lower than its carrying value resulting in a non-cash impairment charge of $18.2 million. As of March 31, 2020, the Company revised its estimate of the fair value of the fragrances product line based on indicative bids resulting in an additional non-cash impairment charge of $0.3 million recorded in Selling and Administrative Expenses during the three months ended March 31, 2020. The charges adjusted the carrying value of certain long-lived assets, primarily property, plant, and equipment, and allocated goodwill, to their estimated fair value. The Company did not change the estimated fair value of the fragrances product line during the three months ended June 30, 2020. This estimate will be finalized and adjusted as necessary upon the closing of the sale or as estimates change. In addition, the Company currently estimates a non-cash charge of $10 million to $12 million upon closing related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Condensed Statement of Earnings.

In March 2020, the Company was notified by a potential buyer of the Company’s fragrances product line that environmental sampling conducted at the Company’s Granada, Spain location had identified the presence of contaminants in soil and groundwater in certain areas of the property. The Company records liabilities related to environmental remediation obligations when estimated future expenditures are probable and the amount of the liability is reasonably estimable. Based upon an environmental investigation and a quantitative risk assessment performed by a consultant hired by the Company during the three months ended June 30, 2020, the Company has recorded $0.8 million related to these obligations in Selling and Administrative Expenses during the period.

As a result of the definitive agreement entered into in June 2020 to sell certain assets related to the yogurt fruit preparations product line, the Company reviewed its long-lived assets for impairment and determined that the carrying amount of certain asset groups were not fully recoverable. As such, the Company recorded a non-cash impairment charge of $2.4 million in Selling and Administrative Expenses related to the long-lived assets in order to reduce their carrying value to their estimated fair value. In addition, the Company recorded a non-cash charge of $1.7 million in Cost of Products Sold related to the yogurt fruit preparations divestiture. The non-cash charge reduced the carrying value of certain inventories as of June 30, 2020, as they were determined to be excess based on changes in assumptions resulting from the finalization of the definitive agreement.

The Company also incurred $1.8 million and $3.7 million of other divestiture and other related costs, primarily severance and legal expenses, during the three and six month periods ended June 30, 2020, respectively, which are recorded in Selling and Administrative Expenses. Also during the six month period ended June 30, 2020, the Company recorded additional non-cash charges of $0.2 million in Cost of Products Sold related to the value of certain inventories. There were no additional non-cash charges recorded in Cost of Products Sold for the three months ended June 30, 2020.

The Company expects total cash costs in 2019 and 2020 associated with the divestitures of all three product lines to be between $6 million and $9 million, primarily related to severance and other exit activities.