BAX » Topics » Restructuring Charges, Net

This excerpt taken from the BAX 10-K filed Feb 28, 2007.
Restructuring Charges, Net
The following is a summary of restructuring charges recorded by the company in 2004, and income adjustments recorded in 2005 related to restructuring charges. See Note 4 for additional information.
 
2005 Adjustments to Restructuring Charges
During 2005, the company recorded a $109 million benefit ($83 million, or $0.13 per diluted share, on an after-tax basis) relating to the adjustment of restructuring charges recorded in 2004 (as further discussed below) and a prior restructuring program, as the implementation of the programs progressed, actions were completed, and the company refined its estimates of remaining spending. The restructuring reserve adjustments principally related to severance and other employee-related costs. The company’s targeted headcount reductions were achieved with a higher level of attrition than originally anticipated. Accordingly, the company’s severance payments were projected to be lower than originally estimated. The remaining reserve adjustments principally related to changes in estimates regarding certain contract termination costs, certain adjustments related to asset disposal proceeds that were in excess of original estimates, and the finalization of certain employment termination arrangements. Additional adjustments may be recorded in the future as the restructuring programs are completed.
 
2004 Restructuring Charge
In 2004, the company recorded a $543 million restructuring charge ($394 million, or $0.64 per diluted share, on an after-tax basis), principally associated with the company’s decision to implement actions to reduce the company’s overall cost structure and to drive sustainable improvements in financial performance. The charge was primarily for severance and costs associated with the closing of facilities and the exiting of contracts. These actions included the elimination of over 4,000 positions, or 8% of the global workforce, as the company was reorganized and streamlined.
 
During 2006 and 2005, $38 million and $101 million, respectively, of the reserve for cash costs was utilized. Substantially all of the remaining reserve of $55 million is expected to be utilized in 2007, with the rest of the cash outflows principally relating to certain long-term leases and remaining employee severance payments. The company believes that the restructuring program is substantially complete and that the remaining reserves are adequate. However, remaining cash payments are subject to change. The payments are being funded with cash generated from operations.
 
The company estimates that the 2004 restructuring initiative yielded savings of approximately $0.07 per diluted share during 2006 and $0.22 per diluted share during 2005. The program is substantially complete, and the company does not expect incremental cost savings in 2007. The company realized the total cumulative savings originally estimated for this restructuring program.


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MANAGEMENT’S DISCUSSION and ANALYSIS
 
This excerpt taken from the BAX 10-K filed Mar 7, 2006.
Restructuring Charges, Net
The company recorded restructuring charges totaling $543 million in 2004 and $337 million in 2003. The net-of-tax impact of the charges was $394 million ($0.64 per diluted share) in 2004 and $202 million ($0.33 per diluted share) in 2003. In 2005, the company recorded income adjustments to these charges totaling $109 million ($83 million on a net-of-tax basis, or $0.13 per diluted share). The following is a summary of the charges and adjustments.

2004 Restructuring Charge The company recorded a $543 million restructuring charge in 2004, principally associated with management’s decision to implement actions to reduce the company’s overall cost structure and to drive sustainable improvements in financial performance. The charge was primarily for severance and costs associated with the closing of facilities (including the closure of additional plasma collection centers) and the exiting of contracts.

These actions included the elimination of over 4,000 positions, or 8% of the global workforce, as management reorganized and streamlined the company. Approximately 50% of the eliminated positions were in the United States. Approximately three-quarters of the estimated savings impacted general and administrative expenses, with the remainder primarily impacting cost of goods sold. The eliminations impacted all three of the company’s segments, along with the corporate headquarters and administrative functions.

During 2005 and 2004, $101 million and $92 million, respectively, of the reserve for cash costs was utilized. Approximately $70 million of the remaining reserve is expected to be utilized in 2006, with the rest of the cash outflows principally relating to certain long-term leases. The payments are being funded with cash generated from operations. Approximately 90% of the targeted positions have been eliminated as of December 31, 2005. See discussion below and Note 3 for additional information, including a discussion of restructuring charge adjustments recorded in 2005 based on changes in estimates and completion of planned actions.

Management’s original estimates of the benefits of the program are unchanged. The initiatives yielded savings of approximately $0.22 per diluted share during 2005, or incremental savings of $0.17 as compared to full-year 2004. Once fully implemented in 2006, management anticipates incremental annual savings compared to 2005 of approximately $0.10 per diluted share.

 
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MANAGEMENT’S DISCUSSION AND ANALYSIS

2003 Restructuring Charge The company recorded a $337 million restructuring charge in 2003, principally associated with management’s decision to close certain facilities and reduce headcount by approximately 3,200 positions on a global basis. Management undertook these actions in order to position the company more competitively and to enhance profitability. The company closed 26 plasma collection centers in the United States, as well as a plasma fractionation facility located in Rochester, Michigan. In addition, the company consolidated and integrated several facilities, including facilities in Maryland; Frankfurt, Germany; Issoire, France; and Mirandola, Italy. Management discontinued Baxter’s recombinant hemoglobin protein program because it did not meet expected clinical milestones. Also included in the restructuring charge were costs related to other reductions in the company’s workforce. This program is substantially complete. The remaining reserve principally relates to severance and other cash payments relating to lease agreements. The payments are being funded with cash generated from operations. See discussion below as well as Note 3 for additional information, including a discussion of restructuring charge adjustments recorded in 2005 based on changes in estimates and completion of planned actions.

Management estimates that the cost savings totaled approximately $0.15 per diluted share in 2004 and approximately $0.05 per diluted share in 2003 (since the June 2003 announcement date). As mentioned above, these benefits were offset by increased employee benefit costs.

2005 Adjustments to Restructuring Charges During 2005, the company recorded a $109 million benefit relating to the adjustment of restructuring charges recorded in 2004 and 2003, as the implementation of the programs progressed, actions were completed, and management refined its estimates of remaining spending. The restructuring reserve adjustments principally related to severance and other employee-related costs. The company’s targeted headcount reductions are being achieved with a higher level of attrition than originally anticipated. Accordingly, the company’s severance payments are projected to be lower than originally estimated. The remaining reserve adjustments principally related to changes in estimates regarding certain contract termination costs, certain adjustments related to asset disposal proceeds that were in excess of original estimates, and the finalization of certain employment termination arrangements. Additional adjustments may be recorded in the future as the restructuring programs are completed. Refer to Note 3 for additional information.

EXCERPTS ON THIS PAGE:

10-K
Feb 28, 2007
10-K
Mar 7, 2006
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