Restructuring And Impairment Costs

3 Months Ended

Jun. 30, 2011

Restructuring And Impairment Costs

Restructuring And Impairment Costs

NOTE 4.   RESTRUCTURING AND IMPAIRMENT COSTS

During fiscal year 2011 and continuing into fiscal year 2012, Universal has recorded restructuring and impairment costs related to initiatives to adjust various operations and reduce costs.  A significant portion of the restructuring and impairment charges related to the Company's November 2010 decision to close its leaf tobacco processing facility in Simcoe, Ontario, Canada.  The Company will continue to buy tobacco grown in Canada, but will process that leaf at its U.S. factory in North Carolina.  The Simcoe processing facility and a separate storage complex were classified as "held for sale" at the date the decision was made to close the operations, and an impairment charge of approximately $5.6 million was recorded in the third quarter of fiscal year 2011 to write those assets down to their fair values, net of selling costs.  The sales of both properties were completed during the first quarter of fiscal year 2012 at prices approximating their adjusted book values.  As of June 30, 2011, all full-time salaried employees at the Simcoe location had been terminated.  During fiscal year 2011, the Company recorded approximately $2.4 million in costs for termination benefits payable to those employees under Canadian law and $4.1 million in pension curtailment and settlement costs related to the termination of the Canadian employees' defined benefit pension plan.  The Canadian operations are included in the North America segment, and revenues and earnings for those operations were not material to that segment in recent years.

In addition to the restructuring and impairment costs related to the decision to close the facility in Canada, the Company has recorded restructuring costs associated with various other cost reduction initiatives.  A significant portion of those costs represent employee termination benefits associated with voluntary early retirement offers and involuntary separations at the Company's headquarters and operating locations in the United States, South America, Africa, and Europe that are part of the North America and Other Regions reportable segments.  In addition, during the three months ended June 30, 2011, the Company recorded approximately $3.1 million in costs related to the termination of its business arrangements with a supplier and processor of tobacco in Europe in response to market changes.  That cost relates to an operating subsidiary that is part of the Other Regions reportable segment.

A summary of the cumulative restructuring and impairment costs recorded through June 30, 2011, is as follows:

(in thousands of dollars)	Closure of Processing Facility in Canada		Other Restructuring and Cost Reduction Initiatives		Total
Restructuring Costs:
Employee termination benefits	$	2,412	$	12,505	$	14,917
Pension curtailment and settlement costs		4,081		—		4,081
Other costs		—		3,733		3,733
		6,493		16,238		22,731
Impairment Costs:
Property, plant and equipment		5,632		—		5,632
Total restructuring and impairment costs	$	12,125	$	16,238	$	28,363

The above summary includes restructuring costs of approximately $6.9 million and $0.9 million recorded during the quarters ended June 30, 2011 and 2010, respectively.  The amounts recorded in the quarter ended June 30, 2011, included approximately $3.8 million for employee termination benefits, primarily related to the Company's U.S. operations, and the $3.1 million of costs incurred to exit the supplier arrangement in Europe.  The restructuring costs recorded in the quarter ended June 30, 2010, consisted entirely of termination benefits related to the U.S. operations.

A reconciliation of the Company's liability for the restructuring costs outlined above (excluding pension curtailment and settlement costs) through June 30, 2011, is as follows:

(in thousands of dollars)	Employee Termination Benefits			Other Costs			Total
Fiscal Year 2011 activity:
Costs charged to expense	$	11,155		$	636		$	11,791
Payments		(4,769	)		(411	)		(5,180	)
Balance at March 31, 2011		6,386			225			6,611
Fiscal Year 2012 activity through June 30, 2011:
Costs charged to expense		3,762			3,097		$	6,859
Payments		(5,194	)		(36	)	$	(5,230	)
Balance at June 30, 2011	$	4,954		$	3,286		$	8,240

The employee termination benefits outlined in the tables above relate to approximately 250 total employees, including those affected by the facility closure in Canada.  The majority of the restructuring liability at June 30, 2011, will be paid before the end of fiscal year 2012.  Universal continually reviews its business for opportunities to realize efficiencies, reduce costs, and realign its operations in response to business changes.  The Company expects to incur additional restructuring costs and may also incur asset impairment charges in future periods as business changes occur and additional cost savings initiatives are implemented.