Medtronic 2013 Annual Report Download - page 130

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Table of Contents
transaction was recorded as a capital lease and is included in the table above. Payments for the remaining balance of the sale-
leaseback agreement are due monthly for the first five years, and then annually, for the remaining five years. The lease provides
for an early buyout option whereby the Company, at its option, could repurchase the equipment at a pre-determined fair market
value in calendar year 2017.
16. Discontinued Operations
Beginning in the third quarter of fiscal year 2012, the results of operations, assets, and liabilities of the Physio-Control business,
which were previously presented as a component of the Cardiac and Vascular Group operating segment, are classified as
discontinued operations.
On January 30, 2012, the Company completed the sale of the Physio-Control business to Bain Capital Partners, LLC. The Company
sold $164 million in net assets and received $386 million in net cash. Additionally, the Company entered into a Transition Services
Agreement (TSA) with Physio-Control in which the Company provided transition services for Physio-Control through fiscal year
2013 as it established standalone processes separate from Medtronic. The TSArequired the Company to continue to provide certain
back-office support functions to Physio-Control in the areas of finance, facilities, human resources, customer service, IT, quality
and regulatory, and operations. The Company was compensated for the services specified in the TSA. The Company recorded the
income earned from the TSA in other expense, net in the consolidated statements of earnings.
The following is a summary of the operating results of Physio-Control for discontinued operations for fiscal years 2012 and 2011:
Fiscal Year
(in millions) 2012 2011
Discontinued operations:
Net sales $ 323 $ 425
Earnings from operations of Physio-Control $ 48 $ 64
Physio-Control divestiture-related costs (42) (2)
Gain on sale of Physio-Control 218 —
Income tax expense (22) (21)
Earnings from discontinued operations $ 202 $ 41
In the third quarter of fiscal year 2012, the Company recorded an $84 million deferred income tax benefit in discontinued operations.
In accordance with authoritative guidance, the Company was required to establish a deferred tax asset on the difference between
its tax basis and book basis in the shares of Physio-Control, up to the expected amount of gain. In the fourth quarter of fiscal year
2012 the deferred income tax benefit was reversed upon the finalization of the sale. In the fourth quarter of fiscal year 2012, the
Company recognized a pre-tax gain on sale of $218 million, which included a reversal of the portion of the Company’s currency
translation adjustment related to Physio-Control. Additionally, during fiscal year 2012, the Company recorded $42 million of
Physio-Control divestiture-related costs in discontinued operations. The Company reclassified $12 million of Physio-Control
divestiture-related costs previously recorded in acquisition-related items within continuing operations on the consolidated
statements of earnings in the first and second quarters of fiscal year 2012 to discontinued operations.
17. Contingencies
The Company is involved in a number of legal actions. The outcomes of these legal actions are not within the Company's complete
control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief
(including injunctions barring the sale of products that are the subject of the lawsuit), that could require significant expenditures
or result in lost revenues. In accordance with U.S. GAAP, the Company records a liability in the consolidated financial statements
for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable
estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum
amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the
estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required
to estimate the amount and timing of a loss to be recorded. Estimates of probable losses resulting from litigation and governmental
proceedings involving the Company are inherently difficult to predict, particularly when the matters are in early procedural stages,
with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve
penalties, fines or punitive damages; or could result in a change in business practice. While it is not possible to predict the outcome
for most of the matters discussed, the Company believes it is possible that costs associated with them could have a material adverse
impact on the Company's consolidated earnings, financial position, or cash flows.
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