Medtronic 2015 Annual Report Download - page 63

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Costs and Expenses
The following is a summary of major costs and expenses as a percent of net sales:
Fiscal Year
2015 2014 2013
Cost of products sold 31.1% 25.5% 24.9%
Research and development expense 8.1 8.7 9.4
Selling, general, and administrative expense 34.1 34.4 34.3
Special (gains) charges, net (0.2) 0.2 —
Restructuring charges, net 1.2 0.5 1.0
Certain litigation charges, net 0.2 4.5 1.5
Acquisition-related items 2.7 0.7 (0.3)
Amortization of intangible assets 3.6 2.1 2.0
Other expense, net 0.6 1.1 0.7
Interest expense, net 1.4 0.6 0.9
Cost of Products Sold Cost of products sold was $6.309 billion in fiscal year 2015, representing 31.1 percent of net sales,
reflecting an increase of 5.6 of a percentage points from fiscal year 2014. The increase is primarily related to the acquisition of
Covidien during the fourth quarter of fiscal year 2015 and the related inventory fair value adjustment amortization, which
totaled $623 million, and Covidien’s lower average margin for its products. Additionally, the increase was also attributable to a
technology upgrade commitment, which totaled $74 million, related to a CRHF global comprehensive program for home based
monitors due to industry conversion from analog to digital technology, and a $15 million restructuring charge for inventory
write-offs of discontinued product lines. We anticipate an additional $208 million of inventory fair value adjustment
amortization in the first quarter of fiscal year 2016.
Cost of products sold was $4.333 billion in fiscal year 2014, representing 25.5 percent of net sales, reflecting an increase of 0.6
of a percentage point from fiscal year 2013. Cost of products sold as a percent of net sales was negatively impacted primarily by
unfavorable foreign currency, additional spending to address quality issues in the Neuromodulation business and Diabetes
Group, and $10 million of expense recorded within cost of products sold during fiscal year 2014 related to the fiscal year 2014
restructuring initiative for inventory write-offs of discontinued product lines.
Research and Development During fiscal year 2015, we continued to invest in new technologies to drive future growth.
Research and development expense for fiscal year 2015 was $1.640 billion, representing 8.1 percent of net sales, a decrease of
0.6 of a percentage point from fiscal year 2014. Due to the acquisition of Covidien, the Company expects research and
development as a percentage of net sales to range between 7 and 8 percent in fiscal year 2016.
Research and development expense for fiscal year 2014 was $1.477 billion, representing 8.7 percent of net sales, a decrease of
0.7 of a percentage point from fiscal year 2013. The decrease for fiscal year 2014 was driven by a shift in research and
development resources to investment in product support to enhance our quality systems in the Neuromodulation business and
Diabetes Group.
We remain committed to developing technological enhancements and new indications for existing products, and less invasive
and new technologies for new and emerging markets to address unmet medical needs. That commitment leads to our initiation
and participation in many clinical trials each fiscal year as the demand for clinical and economic evidence remains high.
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 2015 selling, general, and administrative expense was $6.904 billion,
representing 34.1 percent of net sales, reflecting a decrease of 0.3 of a percentage point from fiscal year 2014. This decrease was
primarily driven by several initiatives focused on leveraging our expenses.
Fiscal year 2014 selling, general, and, administrative expense was $5.847 billion, representing 34.4 percent of net sales,
reflecting an increase of 0.1 of a percentage point from fiscal year 2013. This increase was primarily driven by unfavorable
foreign currency translation.
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