SIGNIFICANT RESTRUCTURING AND IMPAIRMENT COSTS
To better align its resources with its growth strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, the Company committed to a significant restructuring plan in fiscal 2012 and recorded $297 million of significant restructuring and impairment costs, of which $52 million was recorded in the third quarter and $245 million in the fourth quarter of fiscal 2012. As a continuation of its restructuring plan announced in fiscal 2012, the Company recorded $985 million of significant restructuring and impairment costs in fiscal 2013, of which $84 million was recorded in the second quarter, $143 million in the third quarter and $758 million in the fourth quarter of fiscal 2013. The restructuring actions related to cost reduction initiatives in the Company’s Automotive Experience, Building Efficiency and Power Solutions businesses and included workforce reductions, plant closures, and asset and goodwill impairments. The restructuring actions are expected to be substantially complete by the end of fiscal 2014.
The following table summarizes the changes in the Company’s restructuring reserve, included within other current liabilities in the consolidated statements of financial position (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Employee Severance and Termination Benefits | | Long-Lived Asset Impairments | | Goodwill Impairment | | Other | | Currency Translation | | Total |
Original Reserve | $ | 237 |
| | $ | 39 |
| | $ | — |
| | $ | 21 |
| | $ | — |
| | 297 |
|
Utilized—cash | (16 | ) | | — |
| | — |
| | (6 | ) | | — |
| | (22 | ) |
Utilized—noncash | — |
| | (39 | ) | | — |
| | (8 | ) | | — |
| | (47 | ) |
Balance at September 30, 2012 | $ | 221 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | 228 |
|
Additional restructuring and impairment costs | 392 |
| | 156 |
| | 430 |
| | 7 |
| | — |
| | 985 |
|
Utilized—cash | (141 | ) | | — |
| | — |
| | (7 | ) | | — |
| | (148 | ) |
Utilized—noncash | — |
| | (156 | ) | | (430 | ) | | (4 | ) | | 2 |
| | (588 | ) |
Transfer to liabilities held for sale | (31 | ) | | — |
| | — |
| | — |
| | — |
| | (31 | ) |
Balance at September 30, 2013 | $ | 441 |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 2 |
| | $ | 446 |
|
The Company's restructuring plans included workforce reductions of approximately 16,700 employees (9,500 for the Automotive Experience business, 6,200 for the Building Efficiency business and 1,000 for the Power Solutions business). Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements. As of September 30, 2013, approximately 6,300 of the employees have been separated from the Company pursuant to the restructuring plans. In addition, the restructuring plans included twenty-one plant closures (seventeen for Automotive Experience, two for Building Efficiency and two for Power Solutions). As of September 30, 2013, five of the twenty-one plants have been closed.
Refer to Note 17, “Impairment of Long-Lived Assets,” of the notes to consolidated financial statements for further information regarding the long-lived asset impairment charges recorded as part of the restructuring actions.
Refer to Note 6, “Goodwill and other Intangible Assets," of the notes to consolidated financial statements for further information regarding the goodwill impairment charge recorded in the fourth quarter of fiscal 2013.
Company management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in low cost countries in close proximity to customers. This ongoing analysis includes a review of its manufacturing, engineering and purchasing operations, as well as the overall global footprint for all its businesses. Because of the importance of new vehicle sales by major automotive manufacturers to operations, the Company is affected by the general business conditions in this industry. Future adverse developments in the automotive industry could impact the Company’s liquidity position, lead to impairment charges and/or require additional restructuring of its operations.
