Medtronic 2009 Annual Report Download - page 36

32 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
In fiscal year 2007, we concluded two intangible assets were
fully impaired due to inadequate clinical results and the resulting
delays in product development. As a result, we recorded a $98
million special charge relating to the impairments of intangible
assets stemming from the July 1, 2005 acquisition of Transneuronix,
Inc. (TNI) and the November 1, 2004 acquisition of Angiolink
Corporation (Angiolink). TNI focused on the development of
an implantable gastric stimulator to treat obesity. Angiolink
focused on the development of wound closure devices for
vascular procedures.
See Note 2 to the consolidated financial statements for further
discussion of special charges.
Restructuring
Fiscal Year 2009 Initiative In the fourth quarter of fiscal year 2009,
we recorded a $34 million restructuring charge, which consisted
of employee termination costs of $29 million and asset write-
downs of $5 million. As part of our “One Medtronic” strategy, we
continue to pursue opportunities to streamline the organization
and standardize or centralize certain functional activities which
are not unique to individual businesses. In connection with these
efforts to create “One Medtronic,” this initiative is designed to
streamline operations, by further consolidating manufacturing
and eliminating certain non-core product lines, and to further
align resources around our higher growth opportunities. This
initiative impacts most businesses and certain corporate functions.
Of the $5 million of asset write-downs, $3 million relates to
inventory write-offs and production-related asset impairments
and therefore was recorded within cost of products sold in the
consolidated statement of earnings. The employee termination
costs of $29 million consist of severance and the associated costs
of continued medical benefits and outplacement services.
The fiscal year 2009 initiative will result in charges being
recognized in both the fourth quarter of fiscal year 2009 and the
first quarter of fiscal year 2010, and we expect that when complete,
will eliminate approximately 1,500–1,800 positions. We anticipate
that the additional expense that we will recognize in the first
quarter of fiscal year 2010 related to this initiative will be in the
range of $60 million to $80 million.
Of the 1,500–1,800 positions that will be eliminated as part of
this initiative, approximately 975 were identified for elimination in
the fourth quarter of fiscal year 2009 and will be achieved through
early retirement packages offered to employees, voluntary
separation and involuntary separation. Of these 975 positions,
approximately 280 positions have been eliminated as of April
24, 2009. The restructuring initiatives are scheduled to be
substantially complete by the end of fiscal year 2010, and are
expected to produce annualized operating savings in the range of
$80 million to $90 million related to the 975 positions currently
identified. These savings will arise mostly from reduced
compensation expense.
Global Realignment Initiative In the fourth quarter of fiscal year
2008, as part of a global realignment initiative, we recorded a
$31 million restructuring charge, which consisted of employee
termination costs of $27 million and asset write-downs of $4
million. The asset write-downs were recorded within cost of
products sold in the consolidated statement of earnings. The
global realignment initiative focused on shifting resources to
those areas where we have the greatest opportunities for growth
and streamlining operations to drive operating leverage. The
global realignment initiative impacted most businesses and
certain corporate functions.
As a continuation of the global realignment initiative that
began in fiscal year 2008, in the first quarter of fiscal year 2009
we incurred $96 million of incremental restructuring charges,
which consisted of employee termination costs of $91 million and
asset write-downs of $5 million. The majority of the expense
recognized in the first quarter of fiscal year 2009 was related to
the execution of our global realignment initiative outside the U.S.
This included the realignment and elimination of personnel
throughout Europe and the Emerging Markets and the closure of
an existing facility in the Netherlands that has been integrated
into the U.S. operations. The remainder of the expense was
associated with enhanced severance benefits provided to
employees identified in the fourth quarter of fiscal year 2008.
These incremental costs were not accrued in fiscal year 2008
because the enhanced benefits had not yet been communicated
to the impacted employees.
In the fourth quarter of fiscal year 2009, we recorded a $7
million reversal of excess reserves related to the global realignment
initiative. This reversal is primarily a result of favorable severance
negotiations with certain employee populations outside the U.S.
as well as a higher than expected percentage of employees
identified for elimination finding positions elsewhere within
the Company.
As of the end of the first quarter of fiscal year 2009, the
Company had identified approximately 900 positions for
elimination which were to be achieved through both voluntary