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

IPR&D Charges

During 2011, the Company recorded IPR&D charges of $4 million in conjunction the purchase of intellectual property in its CRM operating segment. During 2010, the Company recorded IPR&D charges of $12 million in conjunction with the purchase of cardiovascular-related intellectual property. As the related technological feasibility had not yet been reached and such technology had no future alternative use, these intellectual property asset purchases were expensed as IPR&D.

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 2012, the Company incurred charges of $185 million resulting from the realignment of its product divisions into two new operating divisions: the Cardiovascular and Ablation Technologies Division (CATD) (combining the Company's legacy CV and AF product divisions) and the Implantable Electronic Systems Division (IESD) (combining the Company's legacy CRM and NMD product divisions). In addition, the Company centralized 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. In connection with the realignment, the Company recognized $109 million of severance costs and other termination benefits after management determined that such severance and benefit costs were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. The 2012 business realignment plan reduced the Company's workforce by approximately 5%. The Company also recognized $17 million of inventory write-offs associated with discontinued CATD product lines and $41 million of accelerated depreciation charges and fixed asset write-offs, primarily associated with information technology assets no longer expected to be utilized or with a limited remaining useful life. Additionally, the Company recognized $18 million of other restructuring costs which included $7 million of contract termination costs and $11 million of other costs.

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 December 31, 2011	$	—		$	—		$	—		$	—		$	—
Cost of sales special charges	5			17			—			2			24
Special charges	104			—			41			16			161
Non-cash charges used	—			(17		)	(41		)	(3		)	(61		)
Cash payments	(52		)	—			—			(7		)	(59		)
Foreign exchange rate impact	1			—			—			—			1
Balance at December 29, 2012	$	58		$	—		$	—		$	8		$	66

2011 Restructuring Plan

During 2011, the Company incurred charges totaling $162 million related to restructuring actions to realign certain activities in the Company's CRM business and sales and selling support organizations. 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 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 benefit costs 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 its 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 $34 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 $10 million of other costs.

During 2012, the Company incurred additional charges totaling $102 million related to the restructuring actions initiated during 2011. The Company recognized severance costs and other termination benefits of $38 million for an additional 100 employees after management determined that such severance and benefit costs were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. The Company also recognized $13 million of inventory obsolescence charges primarily related with the rationalization of product lines in its CRM and NMD businesses. Additionally, the Company recognized $51 million of other restructuring charges which included $37 million of restructuring related charges associated with the Company's CRM business and sales and selling support organizations (of which $13 million primarily related to idle facility costs in Sweden). The remaining charges included $8 million of contract termination costs and $6 million of other costs.

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			9			47
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			—			—			18			72
Cost of sales special charges	11			13			—			20			44
Special charges	27			—			—			31			58
Non-cash charges used	—			(13		)	—			(4		)	(17		)
Cash payments	(68		)	—			—			(47		)	(115		)
Foreign exchange rate impact	1			—			—			(1		)	—
Balance at December 29, 2012	$	25		$	—		$	—		$	17		$	42

Other Special Charges

Inventory charges: During 2010, the Company recorded $28 million of inventory obsolescence charges to cost of sales primarily related to excess legacy ICD inventory that was not expected to be sold due to the Company's launch of its Unify^TM CRT-D and Fortify^TM ICD devices. The Company's market demand for these devices resulted in a more rapid adoption than expected or historically experienced from other ICD product launches.

Intangible asset impairment charges: During 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 cash flows of the related product lines decreased, ultimately resulting in the related assets' fair value falling below carrying value. Additionally, the Company discontinued certain AF and CV product lines and recognized $8 million of impairment charges to fully impair the related developed technology intangible assets. The Company also recognized $2 million of intangible asset impairments associated with customer relationship intangible assets acquired in connection with legacy acquisitions of businesses involved in the distribution of the Company's products. Due to the changing dynamics of the U.S. healthcare market, specifically as it relates to hospital purchasing practices, the Company determined that these intangible assets had no future discrete cash flows and were fully impaired.

During 2011, the Company recorded $52 million of intangible asset impairment charges, of which $49 million related to customer relationship intangible assets acquired in connection with legacy acquisitions of businesses involved in the distribution of the Company's products. As discussed previously, due to the changing dynamics of the U.S. healthcare market, specifically as it relates to hospital purchasing practices, the Company determined that these intangible assets had no future discrete cash flows and recognized a $49 million impairment charge.

Settlement charges: During 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.

Litigation charges: During 2012, the Company recognized $16 million of litigation charges for future probable and estimable legal costs related to outstanding matters associated with the Company's IESD field actions. During 2011, the Company recognized a $4 million legal settlement charge after reaching an agreement with the Office of Inspector General of the Department of Health and Human Services to settle a previously disclosed investigation initiated in December 2008 related to allegations that the Company failed to properly apply certain warranty credits. During 2010, the Company recognized a $17 million legal settlement charge after reaching an agreement with the Boston U.S. DOJ to settle a previously disclosed investigation initiated in 2005 related to an industry-wide review of post-market clinical studies and registries.

Field action charges: During 2012, the Company recognized special charges of $27 million, of which $25 million was charged to cost of sales, for costs primarily related to the 2012 field action associated with certain neuromodulation implantable pulse generator charging systems.