EYE » Topics » Note 4: Product Rationalization and Business Repositioning

This excerpt taken from the EYE 10-Q filed May 9, 2007.

Note 3: Product Rationalization and Business Repositioning

On October 31, 2005, the Company’s Board of Directors approved a product rationalization and repositioning plan covering the discontinuation of non-strategic cataract surgical and eye care products and the elimination or redeployment of resources that support these product lines. The plan also included organizational changes and potential reductions in force in manufacturing, sales and marketing associated with these product lines, as well as organizational changes in research and development and other corporate functions designed to align the organization with our strategy and strategic business unit organization.

The plan further called for increasing the Company’s investment in key growth opportunities, specifically the Company’s refractive implant product line and international laser vision correction business, and accelerating the implementation of productivity initiatives. Following an analysis of its IOL manufacturing capabilities in the second quarter of 2006, the Company decided to consolidate certain operations. In addition, the Company expanded the scope of its eye care rationalization initiatives in order to maximize manufacturing capacity and seize growth opportunities. The plan was completed in the fourth quarter of 2006. Total cumulative charges of $105.0 million were incurred through December 31, 2006.

In the three months ended March 31, 2006, we incurred $32.4 million of pre-tax charges, which included $3.2 million for inventory and manufacturing related charges included in cost of sales and $29.2 million included in operating expenses.

 

7


Charges included in operating expenses comprised productivity and brand repositioning costs of $26.2 million, severance, relocation and other one-time termination benefits of $1.6 million and asset write-downs of $1.4 million. Business repositioning charges and related activity in the accrual balances during the three months ended March 30, 2007 were as follows (in thousands):

 

Business Repositioning Costs:

   Balance at
December 31,
2006
   Costs
Incurred
   Cash
Payments
    Non-Cash
Adjustments
   Balance at
March 30,
2007

Severance, relocation and related costs

   $ 11,399    $ —      $ (2,322 )   $ —      $ 9,077

Contractual obligations

     248      —        (94 )     —        154

Productivity initiatives and brand repositioning costs

     1,188      —        (128 )     —        1,060
                                   
   $ 12,835    $ —      $ (2,544 )   $ —      $ 10,291
                                   
This excerpt taken from the EYE 8-K filed Jun 6, 2006.

Note 4: Product Rationalization and Business Repositioning

On October 31, 2005, the Company’s Board of Directors approved a product rationalization and repositioning plan covering the discontinuation of non-strategic cataract surgical and eye care products and the elimination or redeployment of resources that support these product lines. The plan also includes organizational changes and potential reductions in force in manufacturing, sales and marketing associated with these product lines, as well as organizational changes in research and development and other corporate functions designed to align the organization with our strategy and strategic business unit organization.

The plan further calls for increasing the Company’s investment in key growth opportunities, specifically the Company’s refractive implant product line and international laser vision correction business, and accelerating the implementation of productivity initiatives.

Certain foreign jurisdictions have laws and regulations which require consultations and negotiations with works councils, labor organizations and local authorities. The outcome of these discussions will determine, in part, the restructuring steps to be implemented and the associated cost. Therefore, the final costs of the business repositioning plan may be significantly different from the Company’s initial estimates.

 

31


The Company incurred $42.3 million in pre-tax charges during the fourth quarter of 2005 as follows (in thousands):

 

Business Repositioning Costs Reported In:

  

Costs

Incurred

  

Cash

Payments

   

Non-Cash

Adjustments

   

Balance at

December 31,

2005

Cost of sales - Inventory provisions

   $ 12,585    $ —       $ (12,585 )   $ —  

Operating Expenses - Severance, relocation and related costs

     14,020      (5,241 )     —         8,779

Asset write-downs

     9,172      —         (9,172 )     —  

Contractual obligations

     2,641      —         —         2,641

Productivity initiatives and brand repositioning costs

     3,847      (2,964 )     —         883
                             
     29,680      (8,205 )     (9,172 )     12,303
                             
   $ 42,265    $ (8,205 )   $ (21,757 )   $ 12,303
                             

Severance, relocation and related costs were incurred for worldwide workforce reductions due to the Company’s discontinuing certain non-core products and infrastructure and process improvements associated with the Company’s productivity initiatives. The majority of the workforce reductions occurred in Japan, the United States and Europe across all business functions. Asset write-downs resulted from the impairment and disposal of long-lived assets from the reduction in expected future cash flows from certain discontinued non-core products and reconfiguration and streamlining of certain facilities. The fair values of impaired assets were based on probability weighted expected cash flows as determined in accordance with SFAS No. 144.

EXCERPTS ON THIS PAGE:

10-Q
May 9, 2007
8-K
Jun 6, 2006
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