Restructuring charge

Shayne Fitz-Coy on recurring restructuring costs

A restructuring charge is meant to be a one-time cost that does not reflect the underlying business. In practice some companies restructure every year.

A charge that shows up annually is an operating expense wearing a costume. Ask how many of the last five years carried one.

Reconcile the charge, the cash and the adjustment

Hypothetical restructuring cost. All amounts are US dollars.

Assume a $300,000 charge has been properly recognized, reduced the year’s reported EBITDA and created a payable. The company pays $100,000 during that year and owes the remaining $200,000 at year-end.

Recognition requirements are assumed satisfied here; payment timing alone does not determine them.

If a reviewer accepts the entire charge as an adjustment, adjusted EBITDA rises by $300,000. The $200,000 still due does not disappear.

When it is paid the following year, assume it settles that payable without creating a new expense. Adding back the cash payment to that following year’s EBITDA would then remove a cost that did not reduce that year’s EBITDA.

Acceptance also requires examining the nature of the cost and its history. The SEC’s non-GAAP guidance warns that excluding necessary recurring cash operating expenses can mislead investors, including expenses that recur at irregular intervals.

That public-reporting guidance does not decide a private transaction’s adjustment; it explains why “restructuring” is insufficient evidence by itself.