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Special Charges (Tables)

3 Months Ended

6 Months Ended

Jun. 02, 2012

Acquisition and transformation related costs of $11,087 for the 13 weeks ended June 2, 2012 and $19,514 for the 26 weeks ended June 2, 2012, include costs related to organization consulting, investment advisory, financial advisory, legal and valuation services necessary to acquire and integrate the Forbo industrial adhesives business into our existing operating segments. For the 26 weeks ended June 2, 2012, we also incurred other costs related to the acquisition of the Forbo industrial adhesives business including an expense of $4,300 to make a bridge loan available if needed and an expense of $841 related to the purchase of a foreign currency option to hedge a portion of the acquisition purchase price.

During the first quarter of 2012, we purchased forward currency contracts maturing on March 5, 2012 to purchase 370,000 Swiss francs at a blended forward rate of 1.06245 USD/CHF. Our objective was to economically hedge the purchase price for the pending acquisition of the global industrial adhesives business of Forbo Group after the price was established. The currency contracts were not designated as hedges for accounting purposes. At the end of the first quarter on March 3, 2012, the mark-to-market adjustments on these forward currency contracts was a gain of $11,625 due to the increase of the blended forward rate to 1.09387 USD/CHF. When the acquisition closed on March 5, 2012, the forward currency contracts were settled at a rate of 1.09385 USD/CHF and resulted in a loss of $4 in our second quarter. For the six months ended June 2, 2012, the net gain on the forward currency contracts was $11,621 which partially offset other acquisition and transformation related costs.

During the 13 weeks ended June 2, 2012, we incurred workforce reduction costs of $19,567, other related costs of $316 and non-cash facility exit costs of $1,153 related to the Business Integration Project and for the 26 weeks ended June 2, 2012, we incurred workforce reduction costs of $23,522, other related costs of $557 and non-cash facility exit costs of $1,496 related to the Business Integration Project.

For the six months ended June 2, 2012, the activity in accrued compensation associated with the Business Integration Project, is as follows:

Note 6: Special Charges, net

We completed the acquisition of the Forbo industrial adhesives business on March 5, 2012. The integration of this business will involve a significant amount of restructuring and capital investment to optimize the new combined entity. In addition, in July of 2011 we announced our intentions to take a series of actions in our existing EIMEA operating segment to improve the profitability and future growth prospects of this operating segment. We have combined these two initiatives into a single project which we refer to as the “Business Integration Project”. During the 13 weeks ended June 2, 2012 and for the 26 weeks ended June 2, 2012, we incurred special charges, net of $32,127 and $38,609 respectively, for costs related to the Business Integration Project.

		13 Weeks Ended		26 Weeks Ended
	($ in millions)	June 2, 2012		June 2, 2012
Acquisition and transformation related costs:
	Professional services	$	11,087	$	19,514
	Financing availability costs		-		4,300
	Foreign currency option contract		-		841
	Loss (gain) on foreign currency forward contracts		4		(11,621)
	Other related costs		316		557
Restructuring costs:
	Workforce reduction costs		19,567		23,522
	Facility exit costs		1,153		1,496

Special charges, net		$	32,127	$	38,609

		13 Weeks Ended		26 Weeks Ended
	($ in millions)	June 2, 2012		June 2, 2012
Acquisition and transformation related costs:
	Professional services	$	11,087	$	19,514
	Financing availability costs		-		4,300
	Foreign currency option contract		-		841
	Loss (gain) on foreign currency forward contracts		4		(11,621)
	Other related costs		316		557
Restructuring costs:
	Workforce reduction costs		19,567		23,522
	Facility exit costs		1,153		1,496

Special charges, net		$	32,127	$	38,609

For the six months ended June 2, 2012, the activity in accrued compensation associated with the Business Integration Project, is as follows:

		Workforce Reduction Costs
Balance at December 3, 2011		$	0
	Restructuring charges		23,522
	Cash payments		(638)
Balance at June 2, 2012		$	22,884

Of the $22,884 in accrued restructuring costs at June 2, 2012, $11,662 was included in accrued compensation and $11,222 was included in other liabilities on our Condensed Consolidated Balance Sheets as this portion is not expected to be paid within the next year. In Europe, the accrued restructuring charges were based primarily on the statutory minimum amounts as required by the various governments. Final severance amounts will be determined upon completion of negotiations with the various works councils in the European countries. At the communication date to employees, final termination benefits will be measured and will be recognized ratably over the service period employees are required to work to be eligible for termination benefits. In North America, the benefits were accrued based primarily on the formal severance plans in place for the various locations. The restructuring costs are not allocated to our operating segments. See Note 11 to Condensed Consolidated Financial Statements.

The specific work streams of the Business Integration Project which have been approved by management and recorded in our results of operations are as follows:

In January 2012, we initiated a facility closure and transfer plan as part of our previously announced actions in our existing EIMEA operating segment, including the closure of facilities in Wels, Austria and Borgolavezzaro, Italy and the transfer of shared services functions to a single location in Mindelo, Portugal. We expected to incur total exit costs of approximately $22,400 related to these actions. In May 2012, we approved an additional plan for the integration of the recently acquired Forbo industrial adhesives business in our EIMEA operating segment, including the closure of three additional production facilities located in Europe. We expect to incur additional exit costs of approximately $51,100 related to these actions. The total exit costs of $73,500 for this portion of the Business Integration Project include expenditures of approximately $49,000 primarily for severance and related employee costs, approximately $19,400 for other costs primarily related to facility shut downs and non-cash charges of approximately $5,100 primarily related to accelerated depreciation of long-lived assets. This portion of the Business Integration Project began in the first quarter and is expected to be completed by the end of fiscal year 2014.

In April 2012, we approved a plan for the integration of the recently acquired Forbo industrial adhesives business in our North America Adhesives operating segment, including the closure of six production facilities located in North America. We expect to incur exit costs of approximately $12,700 related to these actions. The cash exit costs for this portion of the Business Integration Project include expenditures of approximately $5,000 for severance and related employee costs and approximately $7,700 for other associated costs, primarily related to facility shutdowns. This portion of the Business Integration Project began in the second quarter and is expected to be completed by the end of fiscal year 2013.

The remaining costs for the management approved workstreams will be incurred over the next several quarters as the measures are implemented. Costs expected to be incurred in the remainder of fiscal year 2012 are estimated to total approximately $30,300 cash costs and $1,800 non-cash costs. We expect approximately $12,400 cash costs and $2,900 non-cash costs in fiscal year 2013 and approximately $8,700 cash costs in fiscal year 2014.

Accrued Compensation Restructuring Charges (Table)

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