PERFORMANCE TRANSFORMATION PLAN

As announced on April 17, 2017, our Board of Directors and senior management team have been conducting a comprehensive review of our Company’s operations with the goal of significantly improving its financial performance to deliver greater value to shareholders. As a result of this review, we have initiated a Performance Transformation Plan (the "Transformation Plan") focused on six key areas:


•	SG&A Expense Efficiency. Reduce direct spending and accelerate zero-based budgeting to improve indirect costs.


•	Manufacturing and Supply Chain Productivity. Reduce manufacturing and distribution network complexity and improve productivity.


•	Product and Portfolio Optimization. Reduce business complexity through stock keeping unit ("SKU") rationalization and ongoing portfolio maintenance.


•	Price Realization. Improve trade spend productivity and effectiveness and optimize brand assortment.


•	Marketing Investment Optimization. Reset working/non-working ratios and increase investment in our core branded portfolio.


•	Channel Execution Excellence. Elevate the performance of the existing independent business owner direct store delivery partnership.

As part of the plan, on June 26, 2017, our Board of Directors approved the closure of our manufacturing facility in Perry, Florida and an incremental reduction in workforce across the organization. To date, we have eliminated approximately 300 jobs. The production of products previously manufactured in the Perry facility has been relocated to facilities with available capacity. In the third quarter of 2017, additional actions have been taken to reduce headcount, resulting in additional severance expense. A liability of $2.5 million and $0.9 million is included in accrued compensation and accounts payable on the Condensed Consolidated Balance Sheet as of September 30, 2017, respectively. The cash payments related to these liabilities are expected to occur primarily in the fourth quarter of 2017.

During the first nine months of 2017, changes to the balance related to the Transformation Plan were as follows:



(in thousands)	Severance and Related Costs ⁽¹⁾			Asset Impairments			Professional Fees			Other			Total
Liability balance, December 31, 2016	$	—		$	—		$	—		$	—		$	—
Charges	8,607			7,216			7,278			681			23,782
Cash spent	(5,861		)	—			(6,365		)	—			(12,226		)
Non-cash settlements/adjustments	(209		)	(7,216		)	—			(681		)	(8,106		)
Liability balance, September 30, 2017	$	2,537		$	—		$	913		$	—		$	3,450

⁽¹⁾This represents only the accrued severance and related costs for the Transformation Plan. This does not include all severance accrued as of December 31, 2016 or September 30, 2017.

The following table summarizes recognized charges related to the Transformation Plan in the third quarter and first nine months of 2017:



(in thousands)	Quarter Ended		Nine Months Ended
(in thousands)	September 30, 2017		September 30, 2017
Cost of sales	$	838	$	3,568
Selling, general, and administrative	6,252		12,998
Impairment charges	—		7,216
Total	$	7,090	$	23,782

The full scope of the Transformation Plan and specific actions to be taken are currently being developed by senior management and our Board of Directors. These plans will evolve over the course of the Transformation Plan. At this point in time, we cannot reasonably estimate the future expenses and cash payments, nor their timing other than those outlined above. The Transformation Plan is targeting completion in 2020. We are anticipating that the Transformation Plan will result in 14% operating profit margin and an incremental operating income of $175 million improvement to our operating income by 2020.