Medtronic 2009 Annual Report Download - page 66

62 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
3. Restructuring Charges
Fiscal Year 2009 Initiative
In the fourth quarter of fiscal year 2009, the Company 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 the Company’s “One Medtronic” strategy,
the Company continues 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 the Company’s
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 the Company expects
that when complete, will eliminate approximately 1,500–1,800
positions.
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.
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
Global Realignment Initiative
In fiscal year 2008, as part of a global realignment initiative,
the Company 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 the Company has the greatest opportunities
for growth and streamlining operations to drive operating
leverage. The global realignment initiative impacts most
businesses and certain corporate functions. Within the Company’s
Cardiac Rhythm Disease Management (CRDM) business, 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 Spinal, 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. 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.
As a continuation of the global realignment initiative that
began in fiscal year 2008, in the first quarter of fiscal year 2009
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 was
related to the execution of the Company’s 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, the Company recorded
a $7 million reversal of excess reserves related to the global
realignment initiative. This reversal is primarily a result of favorable