Medtronic 2012 Annual Report Download - page 59

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Restructuring Charges
Fiscal Year 2012 Initiative
In the fourth quarter of fiscal year 2012, we recorded a $118 million restructuring charge, which
consisted of employee termination costs of $66 million, asset write-downs of $9 million, contract termination
costs of $30 million, and other related costs of $13 million. The fiscal year 2012 initiative was designed to
reduce general, administrative, and indirect distribution costs in certain organizations within the Company
while prioritizing investment in research and development, and sales and marketing in those organizations
within the Company where faster growth is anticipated, such as emerging markets and new technologies.
In connection with the fiscal year 2012 initiative, as of the end of the fourth quarter of fiscal year 2012,
we had identified approximately 1,000 positions for elimination to be achieved through involuntary and
voluntary separation. The fiscal year 2012 initiative is scheduled to be substantially complete by the end of
the fourth quarter of fiscal year 2013 and is expected to produce annualized operating savings of
approximately $100 to $125 million. These savings will arise mostly from reduced compensation expense.
Fiscal Year 2011 Initiative
In the fourth quarter of fiscal year 2011, we recorded a $272 million restructuring charge (including
$2 million of restructuring charges related to the Physio-Control business presented as divestiture-related
costs within discontinued operations), which consisted of employee termination costs of $177 million, asset
write-downs of $24 million, contract termination fees of $45 million, and other related costs of $26 million.
The fiscal year 2011 initiative was designed to restructure the business to align its cost structure to current
market conditions and continue to position us for long-term sustainable growth in emerging markets and
new technologies. Included in the $177 million of employee termination costs were severance and the
associated costs of continued medical benefits and outplacement services, as well as $15 million of
incremental defined benefit pension and post-retirement related expenses for employees that accepted
voluntary early retirement packages. For further discussion on the incremental defined benefit pension and
post-retirement related expenses, see Note 15 to the consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data” in this Annual Report on Form 10-K. Of the $24 million of asset
write-downs, $11 million related to inventory write-offs of discontinued product lines and production-related
asset impairments, and therefore, was recorded within cost of products sold in the consolidated statement
of earnings. Additionally, included in the other related costs was a $19 million intangible asset impairment
related to the discontinuance of a product line within the CardioVascular business.
In the fourth quarter of fiscal year 2012, the Company recorded a $31 million reversal of excess
restructuring reserves related to the fiscal year 2011 initiative. This reversal was primarily a result of certain
employees identified for elimination finding positions elsewhere within the Company, favorable severance
negotiations outside the U.S., and more favorable than expected outcomes in the sub-leasing of previously
vacated properties.
In connection with the fiscal year 2011 initiative, as of the end of the fourth quarter of fiscal year 2011,
we had identified approximately 2,100 net positions (including 55 net positions at Physio-Control) for
elimination which were achieved through voluntary early retirement packages, voluntary separation, and
involuntary separation. As of April 27, 2012, the fiscal year 2011 initiative was substantially complete and is
expected to produce annualized operating savings of approximately $225 to $250 million. These savings will
arise mostly from reduced compensation expense.
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 a continuation of the fiscal year 2009 initiative, in the first quarter of fiscal year 2010, we incurred
$72 million of incremental restructuring charges, which consisted of employee termination costs of
$62 million and asset write-downs of $10 million. Included in the $62 million of employee termination costs
was $9 million of incremental defined benefit pension and post-retirement related expenses for those
employees who accepted early retirement packages. For further discussion on the incremental defined
benefit pension and post-retirement related expenses, see Note 15 to the consolidated financial statements
42