Medtronic 2013 Annual Report Download - page 59

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Table of Contents
Fiscal Year 2011 Initiative
In the fourth quarter of fiscal year 2011, we recorded a $272 million restructuring charge (including $2 million of restructuring
charges related to the Physio-Control business presented as divestiture-related costs within discontinued operations), which
consisted of employee termination costs of $177 million, asset write-downs of $24 million, contract termination fees of $45 million,
and other related costs of $26 million. The fiscal year 2011 initiative was designed to restructure the business to align its cost
structure to current market conditions and continue to position us for long-term sustainable growth in emerging markets and new
technologies. Included in the $177 million of employee termination costs were severance and the associated costs of continued
medical benefits and outplacement services, as well as $15 million of incremental defined benefit pension and post-retirement
related expenses for employees that accepted voluntary early retirement packages. For further discussion on the incremental defined
benefit pension and post-retirement related expenses, see Note 14 to the consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data” in this Annual Report on Form 10-K. Of the $24 million of asset write-downs, $11 million
related to inventory write-offs of discontinued product lines and production-related asset impairments, and therefore, was recorded
within cost of products sold in the consolidated statements of earnings. Additionally, included in the other related costs was a $19
million intangible asset impairment related to the discontinuance of a product line within the Structural Heart business.
As of the end of the fourth quarter of fiscal year 2011, we identified approximately 2,100 net positions (including 55 net positions
at Physio-Control) for elimination which were achieved through voluntary early retirement packages, voluntary separation, and
involuntary separation. As of April 27, 2012, the fiscal year 2011 initiative was substantially complete and is expected to produce
annualized operating savings of approximately $225 to $250 million. These savings will arise mostly from reduced compensation
expense.
In the fourth quarter of fiscal year 2012, the Company recorded a $31 million reversal of excess restructuring reserves related to
the fiscal year 2011 initiative. This reversal was primarily a result of certain employees identified for elimination finding positions
elsewhere within the Company, favorable severance negotiations outside the U.S., and more favorable than expected outcomes
in the sub-leasing of previously vacated properties.
For additional information, see Note 3 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary
Data” in this Annual Report on Form 10-K.
Certain Litigation Charges, Net We classify material litigation reserves and gains recognized as certain litigation charges, net.
During fiscal year 2013, we recorded certain litigation charges, net of $245 million related to probable and reasonably estimated
damages resulting from patent litigation with Edwards Lifesciences, Inc. See Note 17 to the consolidated financial statements in
“Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information.
During fiscal year 2012, we recorded certain litigation charges, net of $90 million related to the agreement to settle the federal
securities class action initiated in December 2008 by the Minneapolis Firefighters’ Relief Association. During the fourth quarter
of fiscal year 2012, Medtronic settled all of these class claims for $85 million and incurred $5 million in additional litigation fees.
During fiscal year 2011, we recorded certain litigation charges, net of $245 million related primarily to a $221 million settlement
involving the Sprint Fidelis family of defibrillation leads and charges for certain Other Matters litigation. The Sprint Fidelis
settlement related to the resolution of certain outstanding product liability litigation related to the Sprint Fidelis family of
defibrillation leads that were subject to a field action announced October 15, 2007. During the third quarter of fiscal year 2012,
we paid out the settlement for both the Sprint Fidelis settlement and for certain Other Matters litigation. See Note 17 to the
consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-
K for additional information.
Acquisition-Related Items During fiscal year 2013, we recorded net income from acquisition-related items of $49 million,
including income of $62 million related to the change in fair value of contingent milestone payments associated with acquisitions
subsequent to April 29, 2009. The change in fair value of contingent milestone payments is primarily related to adjustments in
Ardian contingent commercial milestone payments, which are based on annual revenue growth through fiscal year 2015, due to
slower commercial ramp in Europe. Additionally, during fiscal year 2013, we recorded transaction costs of $13 million in connection
with the acquisition of Kanghui, an IPR&D impairment charge of $5 million related to a technology recently acquired by the
Structural Heart business, and $5 million of transaction costs related to the divestiture of the Physio-Control business, and recognized
$10 million of income related to the reversal of an acquired contingent liability from ATS Medical.
During fiscal year 2012, we recorded net charges from acquisition-related items of $12 million. In connection with the acquisitions
of Salient and PEAK, we recognized gains of $32 million and $6 million, respectively, on our previously-held investments. In
connection with these acquisitions, we began to assess and formulate a plan for the elimination of duplicative positions and the
termination of certain contractual obligations. As a result, we incurred approximately $5 million of certain acquisition-related
costs, which included legal fees, severance costs, change in control costs, and contract termination costs. Additionally, we recorded
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