Analyzing Business Earnings 69Dibrell’s currency gain made a major contribution to its profit growth in- Hence, a separate note to the financial statements is devoted to its dis-
cussion and disclosure. Following the recommended search sequence, these
items would be identified at step 2, the statement of cash f lows, or step 6,
MD&A. If search failures occur at these steps, then examination of the foreign
exchange note would be a backup to ensure that the important information
contained in this note is available in assessing Dibrell’s 1993 performance.
Restructuring Notes
The past decade has been dominated by the corporate equivalent of a diet pro-
gram. Call it streamlining, downsizing, rightsizing, redeploying, or strategic
repositioning—the end result is that firms have been recording nonrecurring
charges of a size and frequency that are unprecedented in our modern eco-
nomic history. The size and scope of these activities ensure that they leave their
tracks throughout the statements and notes. Notes on restructuring charges are
among the most common transaction-specific notes. The Fairchild Corpora-
tion’s restructuring note is provided in Exhibit 2.25.
A number of different items make up the Fairchild restructuring charge.
Included are severance benefits, asset write-offs, and integration costs.
Fairchild declares that the charges recorded in fiscal 2000 “were the direct re-
sult of formal plans to move equipment, close plants and to terminate employ-
ees.” This point is made to counter criticism that some restructuring charges
go well beyond restructuring activities to accrue unrelated costs plus costs that
should properly be charged against future operations.
A tendency to overaccrue restructuring charges has a number of possible
explanations. First, firms facing a poor year for profits may decide to take a “big
EXHIBIT 2.25 Sample restructuring note: The Fairchild Corporation,
year ended June 30, 2000 (in thousands).
In fiscal 1999, we recorded $6,374 of restructuring charges. Of this amount, $500 was
recorded at our corporate office for severance benefits and $348 was recorded at our aero-
space distribution segment for the write-off of building improvements from premises va-
cated. The remaining $5,526 was recorded as a result of the Kaynar Technologies initial
integration into our aerospace fasteners segment, i.e., for severance benefits ($3,932), for
product integration costs incurred as of June 30, 1999 ($1,334) and for the write-down of
fixed assets ($260). In fiscal 2000, we recorded $8,578 of restructuring charges as a result of
the continued integration of Kaynar Technologies into our aerospace fasteners segment. All
of the charges recorded during the current year were a direct result of product and plant in-
tegration costs incurred as of June 30, 2000. These costs were classified as restructuring and
were the direct result of formal plans to move equipment, close plants and to terminate em-
ployees. Such costs are nonrecurring in nature. Other than a reduction in our existing cost
structure, none of the restructuring charges resulted in future increases in earnings or repre-
sented an accrual of future costs. As of June 30, 2000, significantly all of our integration plans
have been executed and our integration process is substantially complete.
SOURCE: The Fairchild Corporation, annual report, June 2000, F-27.