Medtronic 2008 Annual Report Download - page 35

compensation expense of $104 million drove 0.9 of a percentage point
of the overall increase. The remaining increase in selling, general and
administrative expense for fiscal year 2007 was due to expenses
associated with our previously communicated investment in our
marketing campaign for CRDM, the expansion of our sales forces across
all businesses, especially in the CardioVascular business, and costs
associated with our global information technology system
implementation. These increases were offset by our continual cost
control measures across all of our businesses and attempts to leverage
the general and administrative expense categories.
Special, Restructuring, Certain Litigation and IPR&D Charges and Certain
Tax Adjustments We believe that in order to properly understand our
short-term and long-term financial trends, investors may find it useful
to consider the impact of special, restructuring, certain litigation and
IPR&D charges and certain tax adjustments. Special (such as asset
impairment charges), restructuring, certain litigation and IPR&D charges
and certain tax adjustments recorded during the previous three fiscal
years are as follows:
Fiscal Year
(dollars in millions) 2008 2007 2006
Special charges:
Asset impairment charges $ 78 $ 98 $ —
Medtronic Foundation donation ——100
Total special charges 78 98 100
Restructuring charges 45 36 —
Certain litigation charges 366 40 —
IPR&D charges 390 —364
Total special, restructuring, certain litigation
and IPR&D charges 879 174 464
Tax impact of special, restructuring, certain
litigation and IPR&D charges and certain
tax adjustments (137)(179)(328)
Total special, restructuring, certain litigation and
IPR&D charges and certain tax adjustments,
net of tax
$ 742
$ (5)
$ 136
Special Charges In fiscal year 2008, we recorded a special charge related
to the impairment of intangible assets associated with our benign
prostatic hyperplasia, or enlarged prostate, product line purchased in
fiscal year 2002. The development of the market, relative to our original
assumptions, has changed as a result of the broad acceptance of a new
line of drugs to treat the symptoms of an enlarged prostate. After
analyzing the estimated future cash flows utilizing this technology,
based on the market development, we determined that the carrying
value of these intangible assets was impaired and a write-down of
$78 million was necessary. See Note 2 to the consolidated financial
statements for further discussion of this special charge.
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 related 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 this special charge.
In fiscal year 2006, we recorded a $100 million charitable donation to
The Medtronic Foundation, which is a related party non-profit
organization. The donation to The Medtronic Foundation was paid in
the second quarter of fiscal year 2006. See Note 2 to the consolidated
financial statements for further discussion of this special charge.
Restructuring Charges
Global Realignment Initiative In 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. This initiative began in the fourth quarter of
fiscal year 2008 and focuses 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
impacts most businesses and certain corporate functions. Within CRDM,
we are 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, we intend 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 our 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 million consist of severance and the associated costs of
continued medical benefits, and outplacement services.
31Medtronic, Inc.