Medtronic 2010 Annual Report Download - page 66

62Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
million. Of the $10 million of asset write-downs, $7 million related
to inventory write-offs and production-related asset impairments
and therefore was recorded within cost of products sold in the
consolidated statement of earnings. Included in the $62 million
restructuring charge was $9 million of incremental defined benefit
pension and post-retirement related expenses 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 post-retirement rules. For further discussion
on the incremental defined benefit pension and post-retirement
related expenses, see Note 15.
In the fourth quarter of fiscal year 2010, the Company recorded
a $12 million reversal of excess restructuring reserves related to
the fiscal year 2009 initiative. This reversal was primarily a result
of a higher than expected percentage of employees identified for
elimination finding positions elsewhere within the Company.
In connection with the fiscal year 2009 initiative, as of the end
of the first quarter of fiscal year 2010, the Company had identified
approximately 1,500 positions for elimination to be achieved
through early retirement packages offered to employees, voluntary
separation and involuntary separation. Of the 1,500 positions
identified, approximately 1,400 positions have been eliminated
as of April 30, 2010. The fiscal year 2009 initiative is scheduled
to be substantially complete by the end of the first quarter of
fiscal year 2011.
A summary of the activity related to the fiscal year 2009
initiative is presented below:
Fiscal Year 2009 Initiative
(in millions)
Employee
Termination
Costs
Asset
Write-downs Total
Balance April 25, 2008 $ — $ — $ —
Restructuring charges 29 5 34
Payments/write-downs (1) (5) (6)
Balance April 24, 2009 $ 28 $ — $ 28
Restructuring charges 53 10 63
Reversal of excess accrual (12) — (12)
Payments (64) (10) (74)
Balance April 30, 2010 $ 5 $ — $ 5
Global Realignment Initiative
In the fourth quarter of fiscal year 2008, the Company began a
global realignment initiative which focused 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 impacted most
businesses and certain corporate functions. Within the Company’s
Cardiac Rhythm Disease Management operating segment, the
Company reduced 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 the Company’s Spinal operating segment, the
Company reorganized and consolidated certain activities where
Medtronic’s existing infrastructure, resources and systems could
be leveraged to obtain greater operational synergies. The global
realignment initiative was 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.
In the first quarter of fiscal year 2009, as a continuation of the
global realignment initiative, the Company 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 related to the execution of the
Company’s global realignment initiative outside the U.S. This
included the realignment and elimination of certain 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, the Company recorded
a $7 million reversal of excess restructuring reserves related to
the global realignment initiative. This reversal was 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.
In the first quarter of fiscal year 2010, the Company recorded an
$8 million reversal of excess restructuring reserves primarily as a
result of favorable severance negotiations as well as a higher than
expected percentage of employees identified for elimination
finding positions elsewhere in the Company. This $8 million
reversal of excess reserves was partially offset by a $5 million
charge the Company recorded in the first quarter of fiscal year
2010 related to the further write-down of a non-inventory related