Restructuring charge definition

What is a Restructuring Charge?

A restructuring charge is a large one-time write-off taken by a business in contemplation of a reorganization. The charge is taken in advance in order to take a one-time "hit" for the full amount of all expected reorganization costs, after which there should be no additional charges.

Examples of Restructuring Charges

There are several types of restructuring charges that a business may take, which include the following:

• Employee layoffs. Perhaps the most common restructuring charge is for employee layoffs, since a restructuring can involve the loss of a large part of an organization’s workforce.

• Losses on asset sales. A restructuring may involve the selective sale of assets, some of which may not result in sale prices that match their remaining book values.

• Shut down of research activities. Management may choose to shut down selected research groups when it retreats from certain market niches. The cost to lay off researchers and dispose of the associated facilities can be substantial.

• Subsidiary divestitures. Management may choose to sell off entire subsidiaries, perhaps at a loss.

Disadvantages of a Restructuring Charge

Restructuring charges can be taken too far, where the charge is inflated in order to create a "piggy bank" expense reserve that can be used to offset ongoing operating expenses, thereby inflating reported profits. The result can be a spike in a company’s share price.