Management's Discussion and Analysis
Restructuring charges in the consumer business were $57.1 million in 2006, which included severance costs and special early retirement benefits associated with our voluntary separation program in several functions in the U.S.; closures of manufacturing facilities in Salinas, California, Sydney, Australia, and Kerava, Finland; and the reduction of both administrative and plant personnel at other global locations. Restructuring charges in the industrial business were $27.0 million in 2006, which consisted of severance costs and special early retirement benefits associated with our voluntary separation program in several functions in the U.S.; closures of manufacturing facilities in Hunt Valley, Maryland, and Paisley, Scotland; and the reduction of both administrative and plant personnel at other global locations.
In 2001, we adopted a plan to streamline our operations which was completed in 2005. This plan included the consolidation of several distribution and manufacturing locations, the reduction of 392 administrative and manufacturing positions, and the reorganization of several joint ventures. The cost of the total plan was $30.9 million ($21.1 million after-tax). Total cash expenditures in connection with these costs approximated $16.2 million, which was funded through internally generated funds. The remaining $14.7 million of costs associated with the plan consisted of write-offs of assets. Annualized cash savings from the plan were approximately $8.0 million ($5.3 million after-tax). Savings under the plan are being used for spending on initiatives such as brand support and supply chain management. These savings are included within the cost of goods sold and selling, general and administrative expense in the income statement.
During the year ended November 30, 2005, we recorded restructuring charges of $0.5 million ($0.3 million after-tax). The costs recorded in 2005 primarily were severance costs.
During the year ended November 30, 2004, we recorded restructuring charges of $6.2 million ($4.3 million after-tax). The costs recorded in 2004 primarily included costs related to the consolidation of industrial manufacturing facilities in the U.K. and Canada, the reorganization of a consumer joint venture and additional severance costs. During 2004, total cash expenditures in connection with the 2001 restructuring plan were $4.7 million. Also included in restructuring charges/(credits) was a net gain of $8.7 million ($5.5 million after-tax) related to funds received from a class action lawsuit that was settled in our favor in the second quarter of 2004. This matter dated back to 1999 when a number of class action lawsuits were filed against manufacturers and sellers of various flavor enhancers for their violation of antitrust laws. We, as a purchaser of such products, participated as a member of the plaintiff class. In the second quarter of 2004, we received $11.1 million as a settlement of this claim and as a result of the settlement, were required to settle claims against us for a portion of this gross amount. The net gain recorded was $8.7 million.
Market Risk Sensitivity
We utilize derivative financial instruments to enhance our ability to manage risk, including foreign exchange and interest rate exposures, which exist as part of our ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instrument. The use of derivative financial instruments is monitored through regular communication with senior management and the utilization of written guidelines. The information presented below should be read in conjunction with notes 7 and 8 of the financial statements.
Foreign Exchange Risk -We are exposed to fluctuations in foreign currency in the following main areas: cash flows related to raw material purchases; the translation of foreign currency earnings to U.S. dollars; the value of foreign currency investments in subsidiaries and unconsolidated affiliates and cash flows related to repatriation of these investments. Primary exposures include the U.S. dollar versus functional currencies of our major markets (Euro, British pound sterling, Australian dollar, Canadian dollar, Mexican peso and Chinese renminbi). We routinely enter into foreign currency exchange contracts to facilitate managing foreign currency risk.
During 2006, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on our net investments in France, the U.K., Canada and Australia. We did not hedge our net investments in subsidiaries and unconsolidated affiliates.