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.

Manufacturing and Supply Chain Optimization Plan

During the third quarter of 2014, the Company initiated the Manufacturing and Supply Chain Optimization Plan to leverage economies of scale, streamline distribution methods, drive process improvements through global synergies, balance plant utilization levels, centralize certain vendor relationships and reduce overall costs. The Company expects to incur additional costs over the next several quarters. During the third quarter of 2014, the Company incurred charges of $7 million primarily related to severance and other termination benefits. We are currently not able to reasonably estimate the total amount expected to be incurred in connection with the plan.

A summary of the activity related to the Manufacturing and Supply Chain Optimization Plan accrual is as follows (in millions):



	Employee Termination Costs			Inventory Charges		Fixed Asset Charges			Other Restructuring Costs		Total
Balance at June 28, 2014	$	—		$	—	$	—		$	—	$	—
Cost of sales special charges	1			—		—			—		1
Special charges	5			—		1			—		6
Non-cash charges used	—			—		(1		)	—		(1		)
Cash payments	(2		)	—		—			—		(2		)
Balance at September 27, 2014	$	4		$	—	$	—		$	—	$	4

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 Implantable Electronic Systems Division (combining its legacy Cardiac Rhythm Management and Neuromodulation product divisions) and the Cardiovascular and Ablation Technologies Division (combining its legacy Cardiovascular and Atrial Fibrillation 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.

During 2013, the Company incurred additional charges totaling $220 million related to the realignment plan initiated during 2012. Of the $220 million incurred, the Company recognized severance costs and other termination benefits, after management determined that such severance and benefit costs were probable and estimable, inventory write-offs primarily associated with discontinued product lines, fixed asset write-offs related to information technology assets no longer expected to be utilized as well as other restructuring costs. The other restructuring costs included a distributor and other contract termination costs, office consolidation costs, termination of a research agreement and other costs, all as part of the Company's continued integration efforts.

During the first quarter of 2014, the Company announced additional organizational changes including the combination of its Implantable Electronic Systems Division and Cardiovascular and Ablation Technologies Division, resulting in an integrated research and development organization and a consolidation of manufacturing and supply chain operations worldwide. The integration has been conducted in a phased approach during 2014. In connection with these actions, the Company incurred $34 million of special charges associated with the 2012 Business Realignment Plan. These charges primarily included severance and other termination benefits as well as other restructuring costs primarily associated with distributor and other contract termination costs, and international sales office consolidation costs.

During the second quarter of 2014, the Company incurred $60 million of additional charges associated with the continued organizational changes announced in the first quarter of 2014. These charges primarily related to costs associated with the termination of a clinical trial, costs associated with the planned exit of a facility in Europe and distributor and other contract termination costs.

During the third quarter of 2014, the Company incurred additional charges of $9 million related to the 2012 Business Realignment Plan. These charges primarily included continued costs associated with the planned exit of a facility in Europe, fixed asset write-offs for projects abandoned under the new realigned structure and contract termination costs. The 2012 Business Realignment Plan is expected to be completed in 2015.

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 29, 2012	$	58		$	—		$	—		$	8		$	66
Cost of sales special charges	—			30			—			5			35
Special charges	75			—			13			97			185
Non-cash charges used	—			(30		)	(13		)	(4		)	(47		)
Cash payments	(79		)	—			—			(73		)	(152		)
Balance at December 28, 2013	54			—			—			33			87
Cost of sales special charges	—			1			—			—			1
Special charges	12			—			1			20			33
Non-cash charges used	—			(1		)	(1		)	—			(2		)
Cash payments	(22		)	—			—			(29		)	(51		)
Balance at March 29, 2014	44			—			—			24			68
Cost of sales special charges	7			7			12			—			26
Special charges	23			—			2			9			34
Non-cash charges used	—			(7		)	(14		)	—			(21		)
Cash payments	(14		)	—			—			(12		)	(26		)
Balance at June 28, 2014	60			—			—			21			81
Special charges	1			—			4			4			9
Non-cash charges used	—			—			(4		)	—			(4		)
Cash payments	(22		)	—			—			(6		)	(28		)
Foreign exchange rate impact	(1		)	—			—			(1		)	(2		)
Balance at September 27, 2014	$	38		$	—		$	—		$	18		$	56

2011 Restructuring Plan

During 2011, the Company announced a restructuring plan to streamline certain activities in the Company's legacy cardiac rhythm management business and sales and selling support organizations. Specifically, the restructuring actions included phasing out cardiac rhythm management manufacturing and research and development operations in Sweden, reductions in the Company's workforce and rationalizing product lines. As of December 28, 2013, the Company had a remaining accrual balance consisting of employee termination and other restructuring costs associated with its 2011 Restructuring Plan of $15 million. During the first nine months of 2014 no additional charges were recognized and $13 million was paid resulting in a remaining accrual balance of $2 million as of September 27, 2014 that is expected to be paid during the fourth quarter 2014. Going forward, no additional charges are expected as the 2011 Restructuring Plan is now complete.

Other Special Charges

Intangible asset impairment charges - During the third quarter of 2014, the Company recognized intangible asset impairment charges where the fair values of an indefinite-lived IPR&D asset and the related indefinite-lived tradename asset were less than their carry values resulting in impairment charges of $17 million and $8 million, respectively (see Note 12).

During the second quarter of 2013, the Company recognized $13 million of impairments primarily associated with customer relationship intangible assets recognized in connection with legacy acquisitions 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.

Settlement charges and favorable judgment - During the third quarter of 2014, the Company recognized a $2 million legal settlement charge. During the second quarter of 2014, the Company recognized a $27 million gain related to a favorable judgment and resolution in a patent infringement case. Additionally, during the second quarter of 2013, the Company agreed to settle a dispute on licensed technology, which resolved all disputed claims, and recognized a $22 million settlement expense.

Litigation charges - During both the third and second quarters of 2014, the Company recognized $3 million and $18 million, respectively, of litigation charges for expected future probable and estimable legal costs associated with outstanding legal matters related to the Company's field actions. Charges in excess of the amounts accrued are reasonably possible and depend on a number of factors, such as the type of claims received and the cost to defend.

Field action charges - During the third quarter of 2014, the Company initiated an advisory letter to physicians for patients implanted with certain ICDs that were identified as having a potential battery anomaly. As a result, the Company recognized special charges of $23 million, which was recorded to cost of sales, primarily for scrapped inventory as well as additional warranty and patient monitoring costs.