Medtronic 2009 Annual Report Download - page 35

31
Medtronic, Inc.
a reclassification of certain expenses to selling, general and
administrative of $46 million for the fiscal year that would have
otherwise been included in research and development in the
prior years.
Research and development spending was $1.275 billion in fiscal
year 2008, representing 9.4 percent of net sales, a decrease of 0.7
of a percentage point from fiscal year 2007. While our fiscal year
2008 research and development spending increased over the
prior fiscal year, our restructuring initiatives and our efforts to
prioritize projects with the greatest potential for future growth
impacted the fiscal year 2008 rate of spending.
We remain committed to developing technological
enhancements and new indications for existing products, and less
invasive and new technologies to address unmet medical needs.
That commitment leads to our initiation and participation in many
clinical trials each fiscal year. Furthermore, we expect our
development activities to help reduce patient care costs and the
length of hospital stays in the future. In addition to our investment
in research and development, we continue to access new
technologies in areas served by our existing businesses, as well as
in new areas, through acquisitions, licensing agreements, alliances
and certain strategic equity investments.
Selling, General and Administrative Fiscal year 2009 selling,
general and administrative expense as a percentage of net sales
increased by 0.5 of a percentage point from fiscal 2008 to 35.3
percent. For fiscal year 2009, the reclassification of certain
expenses from research and development had a negative impact
of 0.3 of a percentage point on selling, general and administrative
expense. In addition, foreign exchange had a negative impact of
0.2 of a percentage point on fiscal year 2009 selling, general and
administrative expense. We continue to drive our initiatives to
leverage our cost structure in order to help reduce selling, general
and administrative expense.
Fiscal year 2008 selling, general and administrative expense as
a percentage of net sales increased by 1.0 percentage point from
fiscal year 2007 to 34.8 percent. The increase in selling, general
and administrative expense for fiscal year 2008 was predominantly
driven by the acquisition of Kyphon, which increased selling,
general and administrative expense by 0.6 of a percentage point.
The remainder of the increase was due to expenses associated
with our previously communicated investment in selling and
marketing activities related to the U.S. launches of the PRESTIGE
Cervical Disc System and Endeavor, and the continued
implementation of our global information technology system,
which included the full conversion of our U.S. distribution systems
in the second quarter of fiscal year 2008. 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 or contributions to
The Medtronic Foundation), restructuring, certain litigation and
IPR&D charges and certain tax adjustments recorded during the
previous three fiscal years were as follows:
Fiscal Year
(dollars in millions) 2009 2008 2007
Special charges:
Asset impairment charges $ — $ 78 $ 98
Medtronic Foundation contribution 100 ——
Total special charges 100 78 98
Restructuring charges 123 45 36
Certain litigation charges 714 366 40
IPR&D charges 621 390 —
Total special, restructuring, certain
litigation and IPR&D charges 1,558 879 174
Net tax impact of special, restructuring,
certain litigation and IPR&D charges
and certain tax adjustments (444) (137) (179)
Total special, restructuring, certain
litigation and IPR&D charges and
certain tax adjustments, net of tax $ 1,114 $ 742 $ (5)
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.
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.