Medtronic 2011 Annual Report Download - page 34

30 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Special Charges, Restructuring Charges, Certain Litigation Charges,
Net, Acquisition-Related Items, 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 charges, restructuring charges,
certain litigation charges, net, acquisition-related items, and
certain tax adjustments. Special charges (such as contributions to
The Medtronic Foundation), restructuring charges, certain
litigation charges, net, acquisition-related items, and certain tax
adjustments recorded during the previous three fiscal years were
as follows:
Fiscal Year
(in millions) 2011 2010 2009
Special charges:
Medtronic Foundation contribution $ — $ — $ 100
Total special charges — — 100
Restructuring charges 272 57 123
Certain litigation charges, net 245 374 714
Acquisition-related items 14 23 621
Total special charges, restructuring charges,
certain litigation charges, net, and
acquisition-related items 454 1,558
Net tax impact of special charges,
restructuring charges, certain litigation
charges, net, acquisition-related items,
and certain tax adjustments (99) (80) (444)
Total special charges, restructuring charges,
certain litigation charges, net, acquisition-
related items, and certain tax adjustments,
net of tax $ 432 $ 374 $ 1 ,114
Special Charges In fiscal years 2011 and 2010, there were no
special charges. In fiscal year 2009, consistent with our ongoing
commitment to improving the health of people and communities
throughout the world, we recorded a $100 million contribution to
The Medtronic Foundation, which is a related party non-profit
organization. The contribution to The Medtronic Foundation was
paid in the fourth quarter of fiscal year 2009.
Restructuring Charges
Fiscal Year 2011 Initiative In the fourth quarter of fiscal year 2011,
we recorded a $272 million restructuring charge, 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. To reshape the business for growth, we
scaled back our infrastructure in slower growing areas while
continuing to invest in geographies, businesses, and products
where faster growth is anticipated, such as emerging markets and
new technologies. This initiative impacted most businesses
and certain corporate functions. 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 14 to the consolidated financial statements.
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 is a $19
million intangible asset impairment related to the discontinuance
of a product line within the CardioVascular business.
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 positions for elimination to be achieved
through voluntary early retirement packages offered to
employees, voluntary separation, and involuntary separation.
Of the 2,100 positions identified, approximately 120 positions
have been eliminated as of April 29, 2011. The fiscal year 2011
initiative is scheduled to be substantially complete by the end of
the fourth quarter of fiscal year 2012 and is expected to produce
annualized operating savings of approximately $225 million
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. The fiscal year 2009 initiative focused on
streamlining the organization and standardizing or centralizing
certain functional activities which were not unique to individual
businesses. This initiative was designed to streamline operations,
by further consolidating manufacturing and eliminating certain
non-core product lines, and to further align resources around
our higher growth opportunities. This initiative impacted most
businesses and certain corporate functions. Of the $5 million of
asset write-downs, $3 million related 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 consisted