Medtronic 2008 Annual Report Download - page 65

3. Restructuring Charges
Global Realignment Initiative
In fiscal year 2008, as part of a global realignment initiative, the Company
recorded a $31 restructuring charge, which consisted of employee
termination costs of $27 and asset write-downs of $4. This initiative
began in the fourth quarter of fiscal year 2008 and focuses on shifting
resources to those areas where the Company has the greatest
opportunities for growth and streamlining operations to drive operating
leverage. The global realignment initiative impacts most businesses and
certain corporate functions. Within the Company’s Cardiac Rhythm
Disease Management (CRDM) business, the Company is reducing
research and development infrastructure by closing a facility outside
the U.S., reprioritizing research and development projects to focus on
the core business and consolidating manufacturing operations to drive
operating leverage. Within Spinal, the Company intends to reorganize and
consolidate certain activities where Medtronic’s existing infrastructure,
resources and systems can be leveraged to obtain greater operational
synergies. The global realignment initiative is also designed to further
consolidate manufacturing of CardioVascular products, streamline
distribution of products in select businesses and to reduce general and
administrative costs in the Company’s corporate functions.
The asset write-downs were recorded within cost of products sold in
the consolidated statement of earnings. The employee termination
costs of $27 consist of severance and the associated costs of continued
medical benefits, and outplacement services.
This global realignment initiative will result in charges being
recognized in both the fourth quarter of fiscal year 2008 and the first
quarter of fiscal year 2009, and the Company expects that when
complete, will eliminate approximately 1,100 positions. Restructuring
charges were recognized in the fourth quarter of fiscal year 2008 for
standard severance benefits to be provided to impacted employees. In
the first quarter of fiscal year 2009 the Company will recognize additional
restructuring charges associated with (i) enhanced severance benefits
for positions identified in the fourth quarter of fiscal year 2008, and
(ii) standard and enhanced severance benefits provided for positions
that were identified in the first quarter of fiscal year 2009. These
incremental costs were not accrued in fiscal year 2008 because either the
enhanced benefits had not yet been communicated to the impacted
employees or the positions for elimination had not yet been identified.
Of the 1,100 positions that will be eliminated as part of this initiative,
560 positions were identified for elimination in the fourth quarter of
fiscal year 2008 and will be achieved through voluntary and involuntary
separation. Of these 560 positions identified, the majority will be
eliminated in fiscal year 2009.
A summary of the activity related to the fiscal year 2008 global
realignment initiative is presented below:
Global Realignment Initiative
Employee
Termination
Costs
Asset
Write-downs Total
Balance at April 27, 2007 $ — $ — $ —
Restructuring charges 27 4 31
Payments/write-downs (2) (4) (6)
Balance at April 25, 2008
$ 25
$ —
$ 25
Fiscal Year 2007 Initiative
In fiscal year 2007, the Company recorded a $36 restructuring charge,
which consisted of employee termination costs of $28 and asset
write-downs of $8. These initiatives were designed to drive
manufacturing efficiencies in the Company’s CardioVascular business,
downsize the Physio-Control business due to the Company’s voluntary
suspension of U.S. shipments and rebalance resources within the CRDM
business in response to market dynamics. The employee termination
costs consist of severance and the associated costs of continued
medical benefits, and outplacement services. The asset write-downs
consist of a $5 charge for inventory write-downs and a $3 charge for
non-inventory asset write-downs. The inventory and non-inventory
asset write-downs were recorded within cost of products sold in the
consolidated statement of earnings.
As a continuation of the fiscal year 2007 initiatives, in the first quarter of
fiscal year 2008 the Company incurred $14 of incremental restructuring
charges associated with compensation provided to employees whose
employment terminated with the Company in the first quarter of fiscal
year 2008. These incremental costs were not accrued in fiscal year 2007
because these benefits had not yet been communicated to the
impacted employees. Included in the total $14 restructuring charge is
$4 of incremental defined benefit pension and post-retirement related
expense for those employees who accepted early retirement packages.
These costs are not included in the table summarizing restructuring
costs below because they are associated with costs that are accounted
for under the pension and postretirement rules. For further discussion
on the incremental defined benefit pension and post-retirement related
expense, see Note 13.
When the restructuring initiative began in fiscal year 2007, the
Company identified approximately 900 positions for elimination which
were achieved through early retirement packages offered to employees,
voluntary separation and involuntary separation, as necessary. As of
April 25, 2008, the initiatives begun in the fourth quarter of fiscal year
2007 were substantially complete.
61Medtronic, Inc.