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63
Medtronic, Inc.
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
and involuntary separation. Of the 900 positions identified,
approximately 740 have been eliminated as of April 24, 2009. The
restructuring initiatives are scheduled to be substantially complete
by the end of the first quarter of fiscal year 2010.
A summary of the activity related to the global realignment
initiative is presented below:
Global Realignment Initiative
(in millions)
Employee
Termination
Costs
Asset
Write-downs Total
Balance April 27, 2007 $ — $— $—
Restructuring charges 27 4 31
Payments/write-downs (2) (4) (6)
Balance April 25, 2008 $ 25 $— $ 25
Restructuring charges 91 5 96
Reversal of excess accrual (7) — (7)
Payments/write-downs (89) (5) (94)
Currency adjustment, net (5) — (5)
Bal an ce Apr il 24 , 2 00 9 $ 15 $— $15
Fiscal Year 2007 Initiative
In the fourth quarter of fiscal year 2007, the Company recorded a
$36 million restructuring charge, which consisted of employee
termination costs of $28 million and asset write-downs of $8
million. 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 consisted of a $5 million charge for inventory write-
downs and a $3 million 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 initiative, in the first
quarter of fiscal year 2008 the Company incurred $14 million 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 million restructuring charge is $4 million
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 14.
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.
A summary of the activity related to the fiscal year 2007
initiative is presented below:
Fiscal Year 2007 Initiative
(in millions)
Employee
Termination
Costs
Asset
Write-downs Total
Balance April 28, 2006 $ — $— $ —
Restructuring charges 28 8 36
Payments/write-downs (5) (8) (13)
Balance April 27, 2007 $ 23 $— $ 23
Restructuring charges 10 — 10
Payments (33) — (33)
Balance April 25, 2008 $ — $— $ —
4. Acquisitions and IPR&D Charges
When the Company acquires another company or a group of
assets, the purchase price is allocated, as applicable, between
IPR&D, other identifiable intangible assets, net tangible assets and
goodwill as required by U.S. GAAP. Goodwill represents the excess
of the aggregate purchase price over the fair value of net assets,
including IPR&D, of acquired businesses. The values assigned
to IPR&D and other identifiable intangible assets are based on
valuations that have been prepared using methodologies and
valuation techniques consistent with those used by independent
appraisers. These techniques include estimating the future cash
flows of each project or technology and discounting the net
cash flows back to their present values utilizing an appropriate
risk-adjusted rate of return (discount rate). The discount rate used
is determined at the time of the acquisition in accordance with
accepted valuation methods. For IPR&D, these methodologies