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Agreements) that grant Schering-Plough the exclusive right to dis-
tribute the drugs REMICADE® and SIMPONI™ worldwide, except
within the United States, Japan, Taiwan, Indonesia, and the People’s
Republic of China (including Hong Kong) (the “Territory”). COBI
distributes REMICADE® and SIMPONI™, the next generation
treatment, within the United States. In the arbitration, COBI
seeks a declaration that the agreement and merger between
Merck & Co., Inc. (Merck) and Schering-Plough constitutes a
change of control under the terms of the Distribution Agreements
that permits COBI to terminate the Agreements. The termination
of the Distribution Agreements would return to COBI the right
to distribute REMICADE® and SIMPONI™ within the Territory.
Schering-Plough has filed a response to COBI’s arbitration demand
that denies that it has undergone a change of control. The arbitra-
tors have been selected and the matter will be proceeding to
arbitration in late September 2010.
In December 2009, the State of Israel (Sheba Medical Center)
filed a lawsuit against three Omrix entities. In the lawsuit, the State
claimed that an employee of a government-owned hospital was the
inventor on several patents related to fibrin glue technology, that he
developed while he was a government employee. The State claims
that he had no right to transfer any intellectual property to Omrix
because it belongs to the State. The State is seeking damages plus
royalty on QUIXIL™ and EVICEL™ or, alternatively, transfer of the
patents to the State.
In recent years the Company has received numerous requests
from a variety of United States Congressional Committees to pro-
duce information relevant to ongoing congressional inquiries. It is
the Company’s policy to cooperate with these inquiries by produc-
ing the requested information.
With respect to all the above matters, the Company and its
subsidiaries are vigorously contesting the allegations asserted
against them and otherwise pursuing defenses to maximize the
prospect of success. The Company and its subsidiaries involved in
these matters continually evaluate their strategies in managing
these matters and, where appropriate, pursue settlements and other
resolutions where those are in the best interest of the Company.
The Company is also involved in a number of other patent,
trademark and other lawsuits incidental to its business. The ulti-
mate legal and financial liability of the Company in respect to all
claims, lawsuits and proceedings referred to above cannot be esti-
mated with any certainty. However, in the Company’s opinion, based
on its examination of these matters, its experience to date and dis-
cussions with counsel, the ultimate outcome of legal proceedings,
net of liabilities accrued in the Company’s balance sheet, is not
expected to have a material adverse effect on the Company’s finan-
cial condition, although the resolution in any reporting period of one
or more of these matters could have a significant impact on the
Company’s results of operations and cash flows for that period.
22. Restructuring
In the fourth quarter of 2009, the Company announced global
restructuring initiatives designed to strengthen the Company’s posi-
tion as one of the world’s leading global health care companies. This
program will allow the Company to invest in new growth platforms;
ensure the successful launch of its many new products and contin-
ued growth of its core businesses; and provide flexibility to adjust to
the changed and evolving global environment.
During the fiscal fourth quarter of 2009, the Company
recorded $1.2 billion in related pre-tax charges of which, approxi-
mately $830 million of the pre-tax restructuring charges are
expected to require cash payments. The $1.2 billion of restructuring
charges consists of severance costs of $748 million, asset write-offs
of $362 million and $76 million related to leasehold and contract
obligations. The $362 million of asset write-offs relate to inventory
of $113 million (recorded in cost of products sold), property, plant
and equipment of $107 million, intangible assets of $81 million and
other assets of $61 million. Additionally, as part of this program the
Company plans to eliminate approximately 7,500 positions of which
approximately 700 have been eliminated since the restructuring
was announced.
The following table summarizes the severance charges and the
associated spending for the fiscal year ended 2009:
Asset
(Dollars in Millions) Severance Write-Offs Other Total
2009 restructuring charge $748 362 76 1,186
Current year activity (62) (149) (28) (239)
Reserve balance,
January 3, 2010* $686 213 48 947
* Cash outlays for severance are expected to be substantially paid out over the next 12 to 18
months in accordance with the Company’s plans and local laws.
For additional information on the restructuring as it relates to the
segments, see Note 18.
In the third quarter of 2007, the Company announced restruc-
turing initiatives in an effort to improve its overall cost structure.
This action was taken to offset the anticipated negative impacts
associated with generic competition in the Pharmaceutical segment
and challenges in the drug-eluting stent market. The Company’s
Pharmaceuticals segment has reduced its cost base by consolidat-
ing certain operations, while continuing to invest in recently
launched products and its late-stage pipeline of new products. The
Cordis franchise has moved to a more integrated business model to
address the market changes underway with drug-eluting stents and
to better serve the broad spectrum of its patients’ cardiovascular
needs, while reducing its cost base. The Company accelerated steps
to standardize and streamline certain aspects of its enterprise-wide
functions such as human resources, finance and information tech-
nology to support growth across the business, while also leveraging
its scale more effectively in areas such as procurement to benefit its
operating companies. Additionally, as part of this program the
Company eliminated approximately 4,600 positions.
The Company recorded $745 million in related pre-tax charges
during the fiscal third quarter of 2007, of which, approximately $500
million of the pre-tax restructuring charges required cash payments.
The $745 million of restructuring charges consists of severance costs
of $450 million, asset write-offs of $272 million and $23 million
related to leasehold obligations. The $272 million of asset write-offs
relate to property, plant and equipment of $166 million, intangible
assets of $48 million and other assets of $58 million. The restructur-
ing initiative announced in 2007 has been completed.
23. Subsequent Events
On January 20, 2010, the Company completed the acquisition of
Acclarent Inc. for a net purchase price of approximately $785 mil-
lion. Acclarent Inc. is a medical technology company dedicated to
designing, developing and commercializing devices that address
conditions affecting the ear, nose and throat.
The Company has performed an evaluation of subsequent
events through March 1, 2010, the date the Company issued these
financial statements.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 63