Exit Or Disposal Activities

9 Months Ended

Sep. 25, 2011

Exit Or Disposal Activities

Exit Or Disposal Activities

3. EXIT OR DISPOSAL ACTIVITIES

In February 2008, the Company's Board of Directors approved certain exit or disposal activities as part of a plan to rationalize both our manufacturing and distribution footprints and to eliminate administrative redundancies in an effort to curtail losses resulting from record-high feed ingredient costs and an oversupply of chicken in the US. Beginning in January 2010, Company management implemented certain additional exit or disposal activities to integrate the administrative functions of the Company into those of JBS USA. In July 2011, additional exit and disposal activities were implemented by Company management to consolidate operations at our Dallas, Texas facility into other facilities in the surrounding area. These exit or disposal activities eliminated a total of approximately 5,100 positions and resulted in net pre-tax charges totaling $142.1 million. Of these charges, we recognized $49.1 million of severance and other personnel costs, $46.3 million of asset impairments, $31.8 million in losses related to the sale of unneeded eggs and the depletion of unneeded flocks, $4.0 million of grower compensation, $2.0 million of lease continuation costs, $2.1 million in losses related to scrapped inventory and $6.8 million in other restructuring costs. All exit or disposal costs related to these activities, with the exception of costs or losses related to asset impairments, sales of unneeded eggs, depletion of unneeded flocks and scrapped inventory, resulted in cash expenditures or will result in cash expenditures within one year. The cash-related portion of these exit or disposal costs totaled $54.2 million.

Results of operations for the thirteen weeks ended September 25, 2011 and September 26, 2010 included exit or disposal costs totaling $1.0 million and $3.2 million, respectively. Results of operations for the thirteen weeks ended September 25, 2011 and September 26, 2010 also included adjustments totaling $0.3 million and $10.1 million, respectively, which reduced accrued costs. Adjustments recognized in the thirteen weeks ended September 25, 2011 included the elimination of accrued severance in excess of actual severance costs incurred during the exit or disposal period. Adjustments recognized in the thirteen weeks ended September 26, 2010 included favorable adjustments to incentive compensation related to excise taxes upon finalization of an incentive plan analysis as well as elimination of accrued severance and other exit or disposal costs.

Results of operations for the thirty-nine weeks ended September 25, 2011 and September 26, 2010 included exit or disposal costs totaling $2.3 million and $41.1 million, respectively. Results of operations for the thirty-nine weeks ended September 25, 2011 and September 26, 2010 also included adjustments totaling $1.0 million and $11.0 million, respectively, which reduced accrued costs. Adjustments recognized in the thirty-nine weeks ended September 25, 2011 and September 26, 2010 included the elimination of accrued severance in excess of actual severance costs incurred during the exit or disposal period. During the thirty-nine weeks ended September 26, 2010, we also recognized an adjustment for the assumption of a lease obligation related to a closed office building by an outside party and favorable adjustments to incentive compensation related to excise taxes upon finalization of an incentive plan analysis.

The following table sets forth activity that was recorded through the Company's accrued exit or disposal cost accounts during the thirty-nine weeks ended September 25, 2011 and September 26, 2010:

	Accrued Severance			Accrued Lease Obligation			Accrued Grower Pay			Accrued Other Exit or Disposal Costs			Accrued Inventory Charges			Total
	(In thousands)
Balance at December 26, 2010	$	4,150		$	—		$	—		$	—		$	793		$	4,943
Accruals		2,290			—			—			—			—			2,290
Payment /Disposal		(4,357	)		—			—			—			—			(4,357	)
Adjustments		(964	)		—			—			—			—			(964	)
Balance at September 25, 2011	$	1,119		$	—		$	—		$	—		$	793		$	1,912
Balance at December 27, 2009	$	516		$	20		$	3,615		$	—		$	1,903		$	6,054
Accruals		29,074			—			—			9,870			2,118			41,062
Payment /Disposal		(24,647	)		—			(1,055	)		—			(2,649	)		(28,351	)
Adjustments		(139	)		(20	)		(1,004	)		(9,870	)		—			(11,033	)
Balance at September 26, 2010	$	4,804		$	—		$	1,556		$	—		$	1,372		$	7,732

Net exit or disposal costs totaling $0.7 million and $1.3 million were recognized during the thirteen and thirty-nine weeks ended September 25, 2011, respectively, and were recorded in either Cost of sales, Selling, general and administrative expense, or Administrative restructuring charges, net on the accompanying Condensed Consolidated Statements of Operations. Net exit or disposal costs recognized during the thirteen and thirty-nine weeks ended September 26, 2010 were classified as Administrative restructuring charges, net or Operational restructuring charges, net. Certain exit or disposal costs were classified as Administrative restructuring charges, net, a component of operating income below gross profit, on the accompanying Consolidated Statements of Operations because management believed these costs were not directly related to the Company's ongoing production. Components of operational restructuring charges and administrative restructuring charges recognized during the thirteen and thirty-nine weeks ended September 25, 2011 and September 26, 2010 are summarized below:

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	September  25, 2011		September  26, 2010			September  25, 2011		September  26, 2010
	(In thousands)
Operational restructuring charges, net:
Relocation charges expensed as incurred	$	—	$	2,121		$	—	$	2,121
Asset impairments (Note 9-Property, Plant and Equipment)		—		404			—		404
Total	$	—	$	2,525		$	—	$	2,525
Administrative restructuring charges, net:
Accrued severance provisions (adjustments)	$	1,000	$	3,897		$	1,000	$	29,784
Reversal of incentive compensation cost and related excise tax		—		(9,869	)		—		—
Relocation charges expensed as incurred		—		4,966			—		4,966
Asset impairments (Note 9-Property, Plant and Equipment)		8,832		—			8,832		14,827
Loss on egg sales and flock depletion expensed as incurred		1,640		—			1,640		2,118
Total	$	11,472	$	(1,006	)	$	11,472	$	51,695

We continue to review and evaluate various restructuring and other alternatives to streamline our operations, improve efficiencies and reduce costs. Such initiatives may include selling assets, consolidating operations and functions, employee relocation and voluntary and involuntary employee separation programs. Any such actions may require us to obtain the pre-approval of our lenders under our Exit Credit Facility. In addition, such actions will subject the Company to additional short-term costs, which may include asset impairment charges, lease commitment costs, employee retention and severance costs and other costs. Certain of these activities may have a disproportionate impact on our income relative to the cost savings in a particular period.

Additional information regarding the Dallas, Texas facility closure is included in "Note 9. Property, Plant and Equipment."