realized $56 million of annual cost savings by the end
of 2008. In 2006, we realized $10 million of savings and
another $35 million in 2007. This has improved margins
and increased earnings per share, offset higher costs, as
well as allowed us to invest a portion of these savings in
sales growth drivers such as marketing support for our
brands. These savings are reflected in both cost of goods
sold and selling, general and administrative expenses in
the income statement.
Total pre-tax charges under this restructuring plan are
estimated to be $125 million with approximately 65%
related to the consumer segment and 35% related to
the industrial segment. Of these charges, we expect
that approximately $100 million will consist of severance
and other personnel costs and approximately $50 million
of other exit costs. Asset write-offs are expected to
be $10 million, exclusive of the
$34 million gain on our
redemption of Signature in 2006.
Restructuring charges to date include $10.7 million
recorded in 2005, $50.1 million recorded during 2006
(including the gain on Signature), $34.8 million recorded
in 2007 and $16.6 million recorded in 2008. For the
total plan, the cash related portion of the charges will
be approximately $105 million, with total cash spent to
date of $84.1 million, after offsetting the $14.4 million of
net cash received from the sale of the Salinas, California
manufacturing facility in 2008 and $9.2 million in net cash
received from the redemption of Signature in 2006. We
are funding this spending through internally generated
funds. A significant portion of the cash expenditure is for
employee severance. The actions being taken pursuant
to the restructuring plan are expected to eliminate 1,325
positions by the conclusion of the plan. Of the expected
global workforce reduction, 1,270 positions have been
eliminated as of November 30, 2008.
|
|
Joint Venture Transactions – Previously, we participated in two separate joint ventures with the same joint venture partner, Hero A.G. We owned 50% of Signature and 51% of Dessert Products International (DPI). In 2006, we received the remaining 49% share of DPI in redemption of our 50% ownership investment in Signature. In addition, we received $9.2 million in cash with this transaction.
In recording this transaction, we valued both the investment received and the investment given at their fair value. On the disposition of our Signature investment, the fair value of our investment was $56.0 million as compared to our book value of this unconsolidated subsidiary of
$21.7 million. After consideration of transaction costs of
$0.6 million and taxes of $7.2 million, we recorded a net after-tax gain of $26.5 million which is shown on the line entitled “(Loss) gain on sale of unconsolidated operations” in our income statement. On the acquisition of the 49% minority interest of DPI, the fair value of these shares was assessed at $46.9 million. As this business was consolidated, the book value of this 49% share was shown as $29.9 million of minority interest on our balance sheet. After consideration of transaction costs of $0.7 million, we allocated $17.7 million to goodwill. The impact of increasing our share in DPI and disposing of Signature on future net income is not material.
In 2006, in connection with exiting an unconsolidated joint venture in Japan, we recorded a net gain of $0.3 million, after-tax. Finalization of these unconsolidated joint venture transactions resulted in a loss of $0.8 million, after tax, in 2007.
These actions are part of our plan to simplify our joint venture structure under the restructuring program and focus on those areas we believe have strong growth potential.
Other Restructuring Costs – In 2008, we recorded restructuring charges of $16.6 million, of which $12.1 million is reflected in restructuring charges and $4.5 million is reflected in cost of goods sold in our income statement. In 2008, we recorded $13.0 million of severance costs, primarily associated with the reduction of administrative personnel in Europe, the U.S. and
|
