Summary
PepsiCo, Inc. (PEP) filed an 8-K on October 20, 2006, to announce significant operational changes within its Frito-Lay North America (FLNA) division. The company is undertaking a consolidation of its manufacturing network, reducing the number of production sites from 34 to 32 by closing two older plants, one in Lubbock, Texas, and another in Honolulu, Hawaii. This strategic move is aimed at enhancing manufacturing productivity and improving supply chain efficiencies across the FLNA segment. This restructuring is expected to result in a pre-tax charge of approximately $66 million. This charge is comprised of asset impairments, severance costs for the 387 affected employees, and other associated expenses. The financial impact will be recognized primarily in the fourth quarter of 2006 and into 2007, with cash payments for employee and other costs occurring within this timeframe. Investors should note that while this action is designed to improve long-term efficiency, it also involves immediate restructuring costs.
Key Highlights
- 1PepsiCo's Frito-Lay North America (FLNA) division is consolidating its manufacturing network, reducing sites from 34 to 32.
- 2Two older plants, located in Lubbock, Texas, and Honolulu, Hawaii, will be closed.
- 3The plant closures are expected to be largely complete by the end of 2006.
- 4A total of 387 jobs will be eliminated as a result of these closures.
- 5PepsiCo anticipates incurring a pre-tax charge of approximately $66 million related to these exit activities.
- 6The charge includes $43 million for asset impairments, $12 million for severance and employee costs, and $11 million for other expenses.
- 7Cash payments for employee and other costs are expected in Q4 2006 and during 2007.