|MEDTRONIC PLC filed this Form 10-Q on 09/01/2017|
Research and Development & Selling, General, and Administrative Expense
The following is a summary of research and development and selling, general, and administrative expenses as a percent of net sales:
Research and Development Expense We remain committed to accelerating the development of meaningful innovations to deliver better patient outcomes at appropriate costs, that lead to enhanced quality of life, and may be validated by clinical and economic evidence. We are also focused on expanding access to quality healthcare.
Research and development expense for the three months ended July 28, 2017 and July 29, 2016 was $548 million and $556 million, respectively. Research and development expense decreased as a percentage of sales due to the timing of project work and clinical trials.
Selling, General, and Administrative Expense Our goal is to continue to leverage selling, general, and administrative expense initiatives and to continue to realize cost synergies expected from our acquisitions. Selling, general, and administrative expense primarily consists of salaries and wages, as well as other administrative costs, such as professional fees and marketing expenses.
Selling, general, and administrative expense for the three months ended July 28, 2017 and July 29, 2016 was $2.5 billion and $2.4 billion, respectively. Selling, general, and administrative expense decreased as a percentage of net sales for the three months ended July 28, 2017 as compared to the corresponding period in the prior fiscal year due to cost savings associated with selling, general, and administrative expense initiatives. We continue to execute on our cost synergies from the Covidien acquisition, strategic sourcing initiatives, global footprint optimization, and the expansion of share services and centers of excellence.
Other Costs and Expenses
Restructuring Charges We incur restructuring charges in connection with our cost-reduction and productivity initiatives or with acquisitions when we implement plans to restructure and integrate the acquired operations.
We began our restructuring program related to the acquisition of Covidien, the cost synergies initiative, in the fourth quarter of fiscal year 2015. We anticipate approximately $850 million in cost synergies to be achieved as a result of the Covidien acquisition through fiscal year 2018, including administrative office optimization, manufacturing and supply chain infrastructure, and certain general and administrative savings. Restructuring charges are primarily related to employee termination costs and costs related to manufacturing and facility closures. Although costs associated with the cost synergies initiative restructuring program are expected be finalized in fiscal year 2018, this initiative has created a catalyst for potential additional operating margin expansion programs. We are committed to areas of improvement that will deliver sustained productivity, including manufacturing consolidation, supply chain and sourcing, customer-facing operations, and enabling functions, such as human resources, finance, and legal operations.
Our restructuring reserve balances at July 28, 2017 and April 28, 2017 were $257 million and $291 million, respectively. During the three months ended July 28, 2017, we recognized restructuring charges of $19 million, which were partially offset by accrual adjustments of $5 million. Accrual adjustments relate to certain employees identified for termination finding other positions within the Company, cancellations of employee terminations, and employee termination costs being less than initially estimated. For the three months ended July 28, 2017, restructuring charges included $5 million recognized within cost of products sold and $1 million recognized within selling, general and administrative expense.