Notes to the Consolidated Financial Statements
(Dollars in millions, except per-share data and unless otherwise indicated)
Note 9 – Restructuring and Asset Impairment Charges
The net restructuring and asset impairment charges in the Consolidated Statements of Income totaled $429, $(6) and $385 in 2008, 2007 and 2006, respectively. Detailed information related to restructuring program activity during the three years ended December 31, 2008 is outlined below (in millions):
|
Restructuring Activity |
Severance and
Related Costs |
Lease Cancellation
and Other Costs |
Asset
Impairments(1) |
Total | ||||||||||||
|
Balance December 31, 2005 |
$ | 217 | $ | 19 | $ | — | $ | 236 | ||||||||
|
Restructuring provision |
351 | 39 | 30 | 420 | ||||||||||||
|
Reversals of prior accruals |
(33 | ) | (2 | ) | — | (35 | ) | |||||||||
|
Net current year charges(2) |
318 | 37 | 30 | 385 | ||||||||||||
|
Charges against reserve and currency |
(242 | ) | (12 | ) | (30 | ) | (284 | ) | ||||||||
|
Balance December 31, 2006 |
$ | 293 | $ | 44 | $ | — | $ | 337 | ||||||||
|
Restructuring provision |
27 | 7 | 1 | 35 | ||||||||||||
|
Reversals of prior accruals |
(38 | ) | (3 | ) | — | (41 | ) | |||||||||
|
Net current year charges(2) |
(11 | ) | 4 | 1 | (6 | ) | ||||||||||
|
Charges against reserve and currency |
(211 | ) | (10 | ) | (1 | ) | (222 | ) | ||||||||
|
Balance December 31, 2007 |
$ | 71 | $ | 38 | $ | — | $ | 109 | ||||||||
|
Restructuring provision |
363 | 20 | 53 | 436 | ||||||||||||
|
Reversals of prior accruals |
(6 | ) | (1 | ) | — | (7 | ) | |||||||||
|
Net current year charges(2) |
357 | 19 | 53 | 429 | ||||||||||||
|
Charges against reserve and currency |
(108 | ) | (25 | ) | (53 | ) | (186 | ) | ||||||||
|
Balance December 31, 2008(3) |
$ | 320 | $ | 32 | $ | — | $ | 352 | ||||||||
|
(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) |
Represents amount recognized within the Consolidated Statements of Income for the years shown. |
|
(3) |
We expect to utilize the majority of the December 31, 2008 restructuring balance in 2009. |
Reconciliation to Consolidated Statements of Cash Flows
| Year Ended December 31, | ||||||||||||
|
(in millions) |
2008 | 2007 | 2006 | |||||||||
|
Charges to reserve |
$ | (186 | ) | $ | (222 | ) | $ | (284 | ) | |||
|
Asset impairments |
53 | 1 | 30 | |||||||||
|
Effects of foreign currency and other non-cash items |
2 | (14 | ) | (11 | ) | |||||||
|
Cash payments for restructurings |
$ | (131 | ) | $ | (235 | ) | $ | (265 | ) | |||
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, 2008 (in millions):
| 2008 | 2007 | 2006 | ||||||||
|
Production |
$ | 190 | $ | (6 | ) | $ | 147 | |||
|
Office |
200 | 3 | 138 | |||||||
|
Other |
39 | (3 | ) | 100 | ||||||
|
Total net charges |
$ | 429 | $ | (6 | ) | $ | 385 | |||
Over the past several years 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. These initiatives primarily include severance actions and impact all major geographies and segments. Management continues to evaluate our business and, therefore, there may be additional 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.
2008 Activity
During 2008, we recorded $357 of net restructuring charges predominantly consisting of severance and costs related to the elimination of approximately 4,900 positions primarily in both North America and Europe. Focus areas for the actions include the following:
- Improving efficiency and effectiveness of infrastructure including: marketing, finance, human resources & training.
- Capturing efficiencies in technical services, managed services and supply chain & manufacturing infrastructure.
- Optimizing product development and engineering resources.
In addition, related to these activities, we also recorded lease cancellation and other costs of $19 and asset impairment charges of $53. The lease termination and asset impairment charges primarily related to: (i) the relocation of certain manufacturing operations including the closing of our toner plant in Oklahoma City and the consolidation of our manufacturing operations in Ireland; and (ii) the exit from certain leased and owned facilities as a result of the actions noted above.
2007 Activity
Restructuring activity was minimal in 2007 and the related charges primarily reflected changes in estimates in severance costs from previously recorded actions.
2006 Activity
The 2006 charges primarily relate to the elimination of approximately 3,400 positions primarily in North America and Europe. The 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.