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What Is a Restructuring Charge?

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  • Written By: K. Kinsella
  • Edited By: Shereen Skola
  • Last Modified Date: 06 November 2018
  • Copyright Protected:
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    Conjecture Corporation
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A restructuring charge is a reportable expense related to reorganization of some kind that a company incurs. Such expenses are often connected with redundancy settlements, stock dilutions or a drop in the firm's share price. Accounting laws vary from nation to nation but a restructuring charge must be recorded in a firm's quarterly or annual financial statement even though such charges are unusual rather than recurring events.

When a particular product line or service proves to be unprofitable, a company may decide to stop offering that product or service. As a consequence of such a move, the firm may have to enter a reorganization phase during which offices and plants are closed since the individuals who were involved in the marketing of those products and services are surplus to requirements. In such instances, the firm may have to pay fees to the real estate agents who help to sell the vacant properties and the company may also have to pay capital gains tax if properties sell for more than the original purchase price. Additionally, some of the laid-off workers may receive settlement packages; these costs, together with property related expenses, all form part of the restructuring charge that the company must report in its accounts.

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In some instances, a restructuring charge may be the result of a company expanding rather than curtailing its operations. Purchases of new machines, equipment and buildings are the kind of one-off charges that a business must contend with if it decides to increase production or expand its market presence. Additionally, costs associated with hiring new workers such as advertising costs, sign-on bonuses and staffing agency fees are other costs the company must incur. When a business begins operating in a new nation or region, it may have to pay fees to register as licensed business entity; in some instances, fees may have to be paid for individual members of staff to be licensed or certified to work in new areas.

Aside from out of pocket costs, a restructuring charge may also involve a firm losing money as the result of its share price falling. This sometimes happens when a company decides to launch a new stock offering. When more shares of the firm are placed on the market, the value of the existing shares drops begins the ownership of the firm is diluted. Consequently, the firm's overall net worth decreases because the company's actual value is based in part upon the market price of its outstanding shares. Investors often pay less attention to restructuring charges than other kinds of operating costs because these one-time events are unlikely to be repeated within the near future.

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