Table of Contents

Restructuring Charge: Definition, Examples, and How It Works

By

澳洲幸运5开奖号码历史查询:Daniel Liberto

Updated November 30, 2023

Fact checked by

Michael Logan

What Is a Restructuring Charge?

A restructuring charge is a 澳洲幸运5开奖号码历史查询:one-time expense that a compan﷽y pays when reorཧganizing its operations.

Ex🅺amples of one-time expenses include furloughing or laying off employees, closi꧃ng manufacturing plants, and shifting production to a new location.

Companies undertake these moves in an effort to boost profitability, but first take a one-o🎐ff hit in the form of an upfront restructuring charge. The idea is that, once that charge is taken, there should be no other expenses related to the par❀ticular reorganization.

Key Takeaways

A restructuring charge is a one-time expense that a company pays when it reorganizes its business.
It is a short-term expense undertaken with an eye toward boosting long-term profitability.
Restructuring charges are usually harmless for shareholders but can sometimes be manipulated by creative accountants.

Understanding Restructuring Charges

Companies restructure their operations to improve efficiency an𓆏d boost profitability ove✅r the long-term. So, restructuring charges can occur for a variety of reasons.

These include when a company makes an 澳洲幸运5开奖号码历史查询:acquisition, sells a 澳洲幸运5开奖号码历史查询:subsidiary, downsizes, implements new technology, relocates assets, decreases or 澳洲幸运5开奖号码历史查询:consolidates debt, diversifies into a new market, or 澳洲幸运5开奖号码历史查询:writes off assets.

Whatever the reason, a company restructuring is usually driven by a need for change in the organization or business model. For instance, a company that chooses to restructure is often experiencing s꧂ignificant problems such that it is prepared to stomach certain added costs to improve its fortunes.

Accounting for Restructuring Charges

Restructuring charges are 澳洲幸运5开奖号码历史查询:nonrecurring operating expenses that show up as a line item on the 澳洲幸运5开奖号码历史查询:income statement and factor into 澳洲幸运5开奖号码历史查询:net income.

Because the charge is an unusual or infrequent expense, it is unlikely that it will impact 澳洲幸运5开奖号码历史查询:shareholders' stakes in the company. In other words, news of a restru꧂cturing charge probably won't significantly impact a company's share price.

To find out more details about a restructuring charge, investors should consult the relevant 澳洲幸运5开奖号码历史查询:f꧅ootnote to the financial statements. Additional information might also be found in the 澳洲𝕴幸运5开奖号码历史查询:management discussion and analysis (MD&A) section of the financial statement.

Fast Fact

A restructuring charge will cost a compan✱y in the short term, but should save it money 𒁏in the long run.

Example of a Restructuring Charge

Due to worrisome industry forecasts, Company A has decided to downsize operations. It lays off several employees who each receive severance checks. The severance cost associated wit꧂h this s🌼tructural change in the business is a restructuring charge.

In contrast, Company Z is flourishing and growing rapidly. The company de♊cides to hire more employees to keep up with its expansion. The costs associated with hiring new staff, such as signing bonuses and acquiring more office space, are also classified as restructuring🌊 charges.

Special Considerations

A restructuring charge will be mentioned in financial analyses as decreasing a company's 澳洲幸运5开奖号码历史查询:operating income and 澳洲幸运5开奖号码历史查询:diluted earnings. As a result, restructuring charges will often have a significant impact on a company's i💜ncome sta👍tement.

Net income may be manipulated by inflating the amount for a restructuring charge. The charge is purposely exaggerated in order to create an expense reserve that will be used to offset ongoing 澳洲幸运5开奖号码历史查询:operating expenses.

澳洲幸运5开奖号码历史查询:Creative accountants use the restructuring provision to get rid of losses through one-time charges and to clean out th💛e books.

In effect, a large restructuring charge is reported so the company can take a big hit to earnings in the ♉current period in order to make future period earnings appear more profitable.

Analysts closely scrutinize any restructuring ch൩arge that shows up on a company's income statement to see if a🐟 company may have charged a recurring expense to its restructuring account.

What Types of Expenses Are Restructuring Charges?

You might see restructuring charges that relate to obtaining a bigger production facility, closing an office building, or payi♓ng bonuses to high-value employees to keep them from movi🙈ng to competitors. Or they might be expenses related to training new hires and purchasing much needed manufacturing equipment.

Are Restructuring Charges Always Made When a Company's in Trouble?

Not always. They're made when a company feels that a reorganization is necessary for its financial well-being, which can be for a variety of reasons. For instance, they can occur when high demand for a company's products requires it to add more production space and employees. But they also can occur when a slow economy has depressed consumer spending and a company must shut down a plant to save money.

How Big Can a Restructuring Charge Be?

As big (or small) as the associated expenses dictate it needs to be. For instance, in early 2023, the company Meta (which owns Facebook) announced a $4.2 billion restructuring charge relating to its plan to terminate office leases, make severance payments to laid-off workers, and more.

The Bottom Line

A restructuring charge is a nonrecurring (one-time), upfront charge that a company posts to reflect expenses to be paid when a company reorganizes an aspect of its business. The goal of the restructuring charge (and reorganization) is to eliminate certain future expenses, improve company profitability, and pave the way for long-term financial success.

Article Sources

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The New York Times. "."

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