Medtronic 2010 Annual Report Download - page 36

32Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
complete by the end of the first quarter of fiscal year 2011 and
is expected to produce annualized operating savings of
approximately $125 million. These savings will arise mostly from
reduced compensation expense.
Global Realignment Initiative In the fourth quarter of fiscal year
2008, we began a global realignment initiative which focused on
shifting resources to those areas where we had 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 CRDM operating segment, we 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 our Spinal operating segment,
we 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 our corporate functions.
In the first quarter of fiscal year 2009, as a continuation of the
global realignment initiative, we 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 our 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, we 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, we 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 we
recorded in the first quarter of fiscal year 2010 related to the
further write-down of a non-inventory related asset resulting
from the continued decline in the international real estate market.
In connection with the global realignment initiative, as of the
end of the first quarter of fiscal year 2009, we had identified
approximately 900 positions for elimination which were achieved
through both voluntary and involuntary separation. As of October
30, 2009 the restructuring initiatives were substantially complete
and are expected to produce annualized operating savings of
approximately $96 million. These savings will arise mostly from
reduced compensation expense.
For additional information, see Note 4 to the consolidated
financial statements.
Certain Litigation Charges, Net We classify material litigation
reserves and gains recognized as certain litigation charges, net.
During fiscal year 2010, we recorded certain litigation charges,
net totaling $374 million related to settlements with Abbott
Laboratories (Abbott) and W.L. Gore & Associates (Gore). The
Abbott settlement accounted for $444 million in litigation charges
and the Gore settlement accounted for a $70 million certain
litigation gain. The Abbott settlement related to the global
resolution of all outstanding intellectual property litigation. The
terms of the agreement stipulate that neither party will sue each
other in the field of coronary stent and stent delivery systems for
a period of at least 10 years, subject to certain conditions. Both
parties also agreed to a cross-license of the disputed patents
within the defined field. The $444 million settlement amount
included a $400 million payment made to Abbott and a $42
million success payment made to evYsio Medical Devices, LLC
(evYsio). In addition, a $2 million payment was made to evYsio in
connection with an amendment to the parties’ existing agreement
in order to expand the scope of the definition of the license field
from evYsio. The settlement was paid in the second quarter of
fiscal year 2010. The Gore settlement related to the resolution of
outstanding patent litigation related to selected patents in
Medtronic’s Jervis and Wiktor patent families. The terms of the
agreement stipulate that neither party will sue each other in the
defined field of use, subject to certain conditions. We granted
Gore a worldwide, irrevocable, non-exclusive license in the