Notes to the Consolidated Financial Statements
(Dollars in millions, except per-share data and unless otherwise indicated)
Note 9 – Restructuring and Asset Impairment Charges
We have engaged in a series of restructuring programs related to downsizing our employee base, exiting certain activities, outsourcing certain internal functions and engaging in other actions designed to reduce our cost structure and improve productivity. Management continues to evaluate our business and, therefore, there may be supplemental provisions for new plan initiatives as well as changes in estimates to amounts previously recorded, as payments are made or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for those assets made obsolete as a result of these programs.
The net restructuring and asset impairment charges in the Consolidated Statements of Income totaled $(6), $385 and $366 in 2007, 2006 and 2005, respectively. Detailed information related to restructuring program activity during the three years ended December 31, 2007 is outlined below (in millions):
| Restructuring Activity |
Severance and
Related Costs |
Lease
Cancellation and Other Costs |
Asset
Impairments (1) |
Legacy
Programs (2) |
Total | |||||||||||||||
|
Ending Balance December 31, 2004 |
$ | 70 | $ | 23 | $ | – | $ | 24 | $ | 117 | ||||||||||
|
Restructuring Provision |
371 | 12 | 15 | 1 | 399 | |||||||||||||||
|
Reversals of prior accruals |
(21 | ) | (6 | ) | – | (6 | ) | (33 | ) | |||||||||||
|
Net current year charges (3) |
350 | 6 | 15 | (5 | ) | 366 | ||||||||||||||
|
Charges against reserve and currency |
(203 | ) | (10 | ) | (15 | ) | (19 | ) | (247 | ) | ||||||||||
|
Ending Balance December 31, 2005 |
$ | 217 | $ | 19 | $ | – | $ | – | $ | 236 | ||||||||||
|
Restructuring Provision |
351 | 39 | 30 | – | 420 | |||||||||||||||
|
Reversals of prior accruals |
(33 | ) | (2 | ) | – | – | (35 | ) | ||||||||||||
|
Net current year charges (3) |
318 | 37 | 30 | – | 385 | |||||||||||||||
|
Charges against reserve and currency |
(242 | ) | (12 | ) | (30 | ) | – | (284 | ) | |||||||||||
|
Ending Balance December 31, 2006 |
$ | 293 | $ | 44 | $ | – | $ | – | $ | 337 | ||||||||||
|
Restructuring Provision |
27 | 7 | 1 | – | 35 | |||||||||||||||
|
Reversals of prior accruals |
(38 | ) | (3 | ) | – | – | (41 | ) | ||||||||||||
|
Net current year charges (3) |
(11 | ) | 4 | 1 | – | (6 | ) | |||||||||||||
|
Charges against reserve and currency |
(211 | ) | (10 | ) | (1 | ) | – | (222 | ) | |||||||||||
|
Ending Balance December 31, 2007 (4) |
$ | 71 | $ | 38 | $ | – | $ | – | $ | 109 | ||||||||||
| (1) Charges associated with asset impairments represent the write-down of the related assets to their new cost basis and are recorded concurrently with the recognition of the provision. |
| (2) Legacy Programs, includes the runoff activity of several predecessor restructuring programs which were initiated between 2000 and 2001. |
| (3) Represents amount recognized within the Consolidated Statements of Income for the years shown. |
| (4) We expect to utilize the majority of the December 31, 2007 restructuring balance in 2008. |
Additional details about our restructuring programs are as follows:
Reconciliation to Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
Charges to reserve |
$ | (222 | ) | $ | (284 | ) | $ | (247 | ) | |||
|
Asset impairments |
1 | 30 | 15 | |||||||||
|
Effects of foreign currency and other non-cash |
(14 | ) | (11 | ) | 18 | |||||||
|
Cash payments for restructurings |
$ | (235 | ) | $ | (265 | ) | $ | (214 | ) | |||
Restructuring: In recent years we have initiated a series of ongoing restructuring initiatives designed to leverage cost savings resulting from realized productivity improvements, realign and lower our overall cost structure and outsource certain internal functions. These initiatives primarily include severance actions and impact all major geographies and segments. Recent initiatives include:
- Restructuring activity was minimal in 2007 and the related charges primarily reflected changes in estimates in severance costs from previously recorded actions.
- The 2006 charges primarily relate to the elimination of approximately 3,400 positions primarily in North America and Europe. The 2006 actions associated with these charges primarily include the following: technical and professional services infrastructure and global back-office optimization; continued R&D efficiencies and productivity improvements; supply chain optimization to ensure, for example, alignment to our global two-tier model implementation; and selected off-shoring opportunities. The lease termination and asset impairment charges primarily related to the relocation of certain manufacturing operations as well as an exit from certain leased and owned facilities. These charges were offset by reversals of $35 primarily related to changes in estimates in severance costs from previously recorded actions.
- The 2005 charges primarily related to initiatives to eliminate approximately 3,900 positions worldwide. The initiatives in 2005 were focused on cost reductions in service, manufacturing and back office support operations primarily within the Office and Production segments. These charges were offset by reversals of $27 primarily related to changes in estimates in severance costs from previously recorded actions.
The following table summarizes the total amount of costs incurred in connection with these restructuring programs by segment for the three years ended December 31, 2007 (in millions):
| 2007 | 2006 | 2005 | ||||||||
|
Production |
$ | (7 | ) | $ | 142 | $ | 150 | |||
|
Office |
3 | 127 | 175 | |||||||
|
DMO |
1 | 21 | 22 | |||||||
|
Other |
(3 | ) | 95 | 19 | ||||||
|
Total Provisions |
$ | (6 | ) | $ | 385 | $ | 366 | |||
