Restructuring and Divestiture Actions

9 Months Ended

Jun. 23, 2012

Restructuring and Divestiture Actions

(14) Restructuring and Divestiture Actions

At the end of the second quarter of fiscal 2012, the Company decided to cease manufacturing, marketing and selling its Adiana system, which is a product line within the Company’s GYN Surgical reporting segment, determining that the product was not financially viable and would not become so in the foreseeable future. As a result, in the second quarter of fiscal 2012, the Company recorded a charge of $18.3 million of which $17.9 million was recorded within cost of product sales and $0.4 million was recorded in restructuring. The amount recorded in cost of product sales comprised impairment charges of $9.2 million to record inventory at its net realizable value and $6.1 million to write down certain manufacturing equipment and equipment placed at customer sites to its fair value that had no further utility, and $2.6 million for outstanding contractual purchase orders of raw materials and components related to the Adiana system that will not be utilized. In connection with this action, the Company terminated certain manufacturing and other personnel primarily at its Costa Rica location, resulting in severance charges of $0.2 million, and other contractual charges of $0.2 million. In the third quarter of fiscal 2012, the Company recorded additional charges of $1.7 million related to this action resulting from changes in certain estimates. The Company recorded $1.5 million in cost of product sales comprised of impairment charges of $1.1 million for the write-off of inventory and additional equipment, and $0.4 million for purchase orders and other contractual obligations, and $0.2 million recorded in restructuring for certain contractual obligations partially offset by lower severance incurred. All identified employees were terminated and paid as of June 23, 2012.

The following table displays the charges and adjustments related to this action as of June 23, 2012:

Statement of Operations	Second Quarter		Third Quarter			Total
Non-cash impairment charge	$	15,316	$	1,119		$	16,435
Purchase orders and other contractual obligations		2,761		646			3,407
Severance		207		(69	)		138
Total	$	18,284	$	1,696		$	19,980

The following is a rollforward of the charges and amounts paid and accrued as of June 23, 2012:

Total charges recorded	$	19,980
Non-cash impairment charges		(16,435	)
Severance payments		(138	)
Purchase orders and other contractual obligations payments		(1,166	)
Balance at June 23, 2012	$	2,241

During the second quarter of fiscal 2012, the Company abandoned certain lease space and recorded charges of $0.4 million to terminate the leases and write-off related leasehold improvements that have no further utility. The obligation to the landlord was paid in the third quarter of fiscal 2012.

During the third quarter of fiscal 2012, the Company finalized its decision to consolidate its Selenium panel coating process and transfer the production line to its Newark, Delaware facility in the United States from its Hitec-Imaging German subsidiary. The transfer is expected to be completed in the second half of fiscal 2013. In connection with this consolidation plan, the Company expects to terminate certain employees, primarily manufacturing personnel. Severance charges will be recorded pursuant to ASC 420, Exit or Disposal Cost Obligations, because the severance benefits qualify as one-time employee termination benefits, which are currently being negotiated between the Company and the local works council on behalf of the employees. Since the benefit amount is not fixed nor has any severance benefit been communicated to the affected employees, no charge has been recorded as of June 23, 2012. Employees must continue to be employed by the Company until their employment is involuntarily terminated in order to receive the severance benefit. As such, the severance benefit will be recognized ratably over the required service period.