PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT (IPR&D) AND SPECIAL CHARGES

IPR&D Charges

During the second quarter of 2011, the Company recorded IPR&D charges of $4 million in conjunction with the purchase of intellectual property in its CRM segment since the related technological feasibility had not yet been reached and such technology had no future alternative use.

Special Charges

The Company recognizes certain transactions and events as special charges in its consolidated financial statements. These charges (such as restructuring charges, impairment charges and certain settlement or litigation charges) result from facts and circumstances that vary in frequency and impact on the Company's results of operations. In order to enhance segment comparability and reflect management's focus on the ongoing operations of the Company, special charges are not reflected in the individual reportable segments operating results.

2012 Business Realignment Plan

During the third quarter of 2012, the Company incurred charges of $74 million resulting from the realignment of its product divisions into two new operating units: the Cardiovascular and Ablation Technologies Division (combining its Cardiovascular Division and Atrial Fibrillation Division) and the Implantable Electronic Systems Division (combining its Cardiac Rhythm Management Division and Neuromodulation Division). In addition, the Company is centralizing certain support functions, including information technology, human resources, legal, business development and certain marketing functions. The organizational changes are part of a comprehensive plan to accelerate the Company's growth, reduce costs, leverage economies of scale and increase investment in product development. Of the $74 million recorded as special charges, the Company recognized $52 million of severance costs and other termination benefits after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. The Company also recognized $22 million of accelerated depreciation charges and other costs primarily associated with information technology assets no longer expected to be utilized or with a limited remaining useful life. The 2012 business realignment plan is expected to reduce the Company's global workforce by approximately 5% and result in total charges of $150 million to $200 million.

A summary of the activity related to the 2012 business realignment plan accrual is as follows (in millions):



	Employee Termination Costs			Inventory Charges			Fixed Asset Charges			Other Restructuring Costs			Total
Balance at June 30, 2011	$	—		$	—		$	—		$	—		$	—
Cost of sales special charges	1			2			—			—			3
Special charges	51			—			18			2			71
Non-cash charges used	—			(2		)	(18		)	—			(20		)
Cash payments	(16		)	—			—			(1		)	(17		)
Foreign exchange rate impact	1			—			—			—			1
Balance at September 29, 2012	$	37		$	—		$	—		$	1		$	38

2011 Restructuring Plan

During 2011, the Company incurred charges totaling $163 million related to restructuring actions to realign certain activities in the Company's CRM business and sales and selling support organizations. Of the $163 million in special charges, $48 million was recognized in cost of sales. The restructuring actions included phasing out CRM manufacturing and R&D operations in Sweden, reductions in the Company's workforce and rationalizing product lines. In connection with the staged phase-out of CRM manufacturing and R&D operations in Sweden, the Company began recognizing severance costs and other termination benefits during 2011 for over 650 employees in accordance with ASC Topic 420, Exit or Disposal Cost Obligations whereby certain employee termination costs are recognized over the employees’ remaining future service period. Additionally, during 2011, the Company recognized certain severance costs for 550 employees after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. The total charge for employee termination costs recognized during 2011 was $82 million. Additionally, the Company recognized $20 million of inventory obsolescence charges primarily associated with the rationalization of product lines across our business. The Company also recorded $26 million of impairment and accelerated depreciation charges, of which $12 million related to an impairment charge to write-down the Company's CRM manufacturing facility in Sweden to its fair value. Additionally, the Company recognized $35 million of other restructuring charges primarily associated with CRM restructuring actions ($13 million of pension settlement charges associated with the termination of Sweden's defined benefit pension plan and $4 million of idle facility costs related to transitioning manufacturing operations out of Sweden) as well as $7 million of contract termination costs and $11 million of other costs.

During the first nine months of 2012, the Company incurred additional charges totaling $95 million related to the restructuring actions initiated during 2011. Of the $95 million in special charges, $42 million was recognized in cost of sales. The Company recognized severance costs and other termination benefits of $36 million during the first nine months of 2012 for an additional 100 employees after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. Of the $36 million recognized, $7 million was recognized during the third quarter of 2012. The Company also recognized $12 million of inventory obsolescence charges during the first half of 2012 primarily related with the rationalization of product lines in our CRM and NMD businesses. Additionally, the Company recognized $47 million of other restructuring charges which included $33 million of restructuring related charges associated with the Company's CRM business and sales and selling support organizations (of which $11 million related to idle facility costs in Sweden). The remaining charges included $8 million of contract termination costs and $6 million of other costs. Of the $47 million in other restructuring charges, $13 million was recognized in the third quarter of 2012 (of which $4 million related to idle facility costs in Sweden).

A summary of the activity related to the 2011 restructuring plan accrual is as follows (in millions):



	Employee Termination Costs			Inventory Charges			Fixed Asset Charges			Other Restructuring Costs			Total
Balance at January 1, 2011	$	—		$	—		$	—		$	—		$	—
Cost of sales special charges	9			20			9			10			48
Special charges	73			—			17			25			115
Non-cash charges used	—			(20		)	(26		)	(1		)	(47		)
Cash payments	(27		)	—			—			(15		)	(42		)
Foreign exchange rate impact	(1		)	—			—			—			(1		)
Balance at December 31, 2011	$	54		$	—		$	—		$	19		$	73
Cost of sales special charges	5			9			—			9			23
Special charges	11			—			—			8			19
Non-cash charges used	—			(9		)	—			—			(9		)
Cash payments	(20		)	—			—			(15		)	(35		)
Foreign exchange rate impact	1			—			—			—			1
Balance at March 31, 2012	51			—			—			21			72
Cost of sales special charges	5			3			—			7			15
Special charges	8			—			—			10			18
Non-cash charges used	—			(3		)	—			(4		)	(7		)
Cash payments	(14		)	—			—			(14		)	(28		)
Foreign exchange rate impact	(2		)	—			—			(1		)	(3		)
Balance at June 30, 2012	48			—			—			19			67
Cost of sales special charges	—			—			—			4			4
Special charges	7			—			—			9			16
Non-cash charges used	—			—			—			—			—
Cash payments	(15		)	—			—			(9		)	(24		)
Foreign exchange rate impact	2			—			—			—			2
Balance at September 29, 2012	$	42		$	—		$	—		$	23		$	65

Other Special Charges

Intangible asset impairment charges: During the first nine months of 2012, the Company recognized a $23 million impairment charge for certain developed technology intangible assets in its NMD division as the Company's updated expectations for the future undiscounted cash flows did not exceed the carrying value of the related assets. Additionally, during the second quarter of 2012, the Company determined that certain intangible assets in the Company's Atrial Fibrillation (AF) and Cardiovascular (CV) businesses were considered impaired as their future expected undiscounted cash flows did not exceed the carrying value of the related assets. As a result, the Company recognized a $5 million impairment charge to write-down the intangible assets to their fair value.

Settlement charge: During the first nine months of 2012, the Company agreed to settle a dispute on licensed technology for the Company's Angio-Seal™ vascular closure devices. In connection with this settlement, which resolved all disputed claims and included a fully-paid perpetual license, the Company recognized a $28 million settlement expense which it classified as a special charge and also recognized a $12 million licensed technology intangible asset to be amortized over the technology's remaining patent life.