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NOTE 2 - Restructuring
and Asset Impairment Charges
2001 RESTRUCTURING
In January 2001, the Company announced a plan to restructure its operations
(the Plan). The Plan intended to deliver cost reductions through the reduction
of overhead, the consolidation of plants, warehouses, and sale offices,
and the alignment of Corporate resources with its future business model.
Costs to be incurred included severance and employer related costs, contract
exit and termination costs, inventory and other asset write-downs and
other costs directly related to the restructuring effort. Based upon original
estimates, the Plan was expected to result in a total charge of $69,934
($41,524, after tax) that was recorded in the first quarter of 2001.
Due to the nature of the charges and the
duration of the program, estimates of the timing and amount of cost savings
required significant judgment and changed during 2001. The Plan resulted
in the closing of 25 production facilities. In addition, 149 sales offices
and 29 warehouses were consolidated into other locations. In connection
with the closing of these facilities, the Company recorded $24,288 in
severance and employer related costs related to the elimination of 2,330
positions Company wide. The employment reduction primarily affected employees
in the manufacturing, sales, warehousing, and administrative positions.
The remaining liability balance is expected to be paid in 2002.
Liabilities recorded for contract exit and
termination costs aggregated $20,814 and include $12,837 for various contractual
commitments on leased facilities. The majority of the $13,202 inventory
and other assets write-downs are in relation to excess supplies inventory
and inventory from lost customers due to the restructuring program. The
remaining liability balance of contract exit and termination costs is
expected to be paid through 2006.
Pre-tax components of the restructuring activity in fiscal 2001 were as
follows:
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RECONCILIATION
OF ACCRUAL |
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2001
RESTRUCTURING
EXPENSE |
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CHARGES
DIRECTLY TO
RESTRUCTURING
EXPENSE |
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CHARGES TO
RESTRUCTURING
ACCRUAL |
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ADJUSTMENTS
TO CHARGES TO
RESTRUCTURING
ACCRUAL |
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INCURRED
IN 2001 |
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BALANCE
ACCRUED AT
DECEMBER 30,
2001 |
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Severance and employer related
costs |
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$24,288 |
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$
--- |
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$30,916 |
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$ (6,628) |
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$(21,115) |
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$ 3,173 |
Contract exit and termination
costs |
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26,701 |
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5,887 |
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21,297 |
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(483) |
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(9,112) |
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11,702 |
Inventories and other assets
write-downs |
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18,994 |
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5,792 |
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17,721 |
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(4,519) |
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(13,064) |
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138 |
| Implementation costs |
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14,031 |
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14,031 |
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--- |
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--- |
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--- |
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--- |
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| Total |
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$84,014 |
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$25,710 |
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$69,934 |
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$(11,630) |
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$(43,291) |
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$15,013 |
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In addition to the original charge, the
Company incurred $5,887 of contract exit and termination costs and $5,792
of inventory and other asset write-downs that were in excess of the originally
estimated charges and charged directly to restructuring expense. Implementation
costs related to the relocation of equipment and personnel from closed
facilities were also charged directly to restructuring expense as incurred
.
2000 RESTRUCTURING
In the first and fourth quarters of 2000, the Company announced the reduction
of 364 employees and the closing of four production facilities. In connection
with this program, the Company recorded a provision of $24,633 ($14,915
after tax). At December 31, 2000, this program had $6,932 remaining in
the liability balance. As of December 30, 2001, this program has been
substantially completed and the remaining liability balance is $294. The
remaining liability is for non-cancelable lease obligations. There were
no material changes to the program since its announcement in the first
and fourth quarters of 2000.
PREVIOUS RESTRUCTURING
At December 31, 2000, the restructuring plan established with the acquisition
of Uarco, Inc. had $1,651 remaining in the liability balance. As of December
.30, 2001, this program has been completed and has no remaining liability
balance.
2001 IMPAIRMENT
In conjunction with the reorganization, management performed a review
of its existing property and equipment and, based on its evaluation, determined
that there was a significant impairment of long-lived assets associated
with plants that were closed. Certain assets that had no long-term strategic
value were either written off or written down to estimated fair market
value if the asset was to be sold. The amount of non-cash write-offs related
to impaired assets was $41,512.
2000 IMPAIRMENT
In the fourth quarter of 2000, the Company completed a balance sheet review
that identified assets whose carrying amounts are not recoverable. As
a result of this review, the Company recorded asset impairment charges
totaling $73,746. These charges include the write-off of goodwill of $48,129,
write-off of unamortized software costs of $6,280, $17,242 of machinery
and equipment write-downs, and a $2,095 investment impairment.
The write-off of goodwill is based on the
market value method of assessing enterprise level goodwill for impairment.
The impairment of goodwill results from the continued decline during 1999
and 2000 of the market price of the Company's stock. The software cost
write-off relates to license fees and other costs incurred for projects
that were subsequently abandoned. The machinery and equipment write-downs
relate to idle manufacturing assets held for disposal. The investment
impairment is recognized for permanent decline in value of a company in
which the Company had a 10% equity interest. In addition to the impairment,
goodwill amortization for 2000 and 1999 was $4,011.
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