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 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. During 2014, the Company incurred charges of $32 million related to severance and other termination benefits, fixed assets associated with information technology assets no longer expected to be utilized and distributor and other contract termination costs. The Company currently expects to incur approximately $45 million to complete the plan during 2015, but may incur additional charges in future periods.

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 as of December 28, 2013	$	—		$	—	$	—		$	—		$	—
Cost of sales special charges	7			—		—			—			7
Special charges	12			—		5			8			25
Non-cash charges used	—			—		(5		)	—			(5		)
Cash payments	(5		)	—		—			(2		)	(7		)
Balance as of January 3, 2015	$	14		$	—	$	—		$	6		$	20

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. In connection with the realignment, 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 associated with discontinued cardiovascular product lines and incremental 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.

During 2013, the Company incurred additional charges totaling $220 million related to the 2012 Business 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. Of the $102 million in other restructuring costs, $64 million was associated with distributor and other contract termination costs and office consolidation costs, including a $23 million charge related to the termination of a research agreement, and $38 million was associated with other costs, all as part of the Company's continued integration efforts.

During 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 R&D organization and a consolidation of manufacturing and supply chain operations worldwide. The integration was conducted in a phased approach during 2014. In connection with these actions, the Company incurred $108 million of special charges associated with the 2012 Business Realignment Plan. These charges primarily included severance and other termination benefits and $36 million of other restructuring costs, including $22 million of distributor and other contract termination costs, $10 million associated with the discontinuation of a clinical trial and $4 million related to a planned exit of a facility in Europe. Additionally, the Company recognized inventory and fixed asset write-offs related to a discontinued clinical trial and fixed asset write-offs associated with projects abandoned under the new realigned structure. The Company currently expects to incur approximately $6 million to complete the plan during 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 as of 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 as of 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 as of December 28, 2013	54			—			—			33			87
Cost of sales special charges	8			8			13			1			30
Special charges	36			—			7			35			78
Non-cash charges used	—			(8		)	(20		)	—			(28		)
Cash payments	(69		)	—			—			(56		)	(125		)
Foreign exchange rate impact	(3		)	—			—			(1		)	(4		)
Balance as of January 3, 2015	$	26		$	—		$	—		$	12		$	38

2011 Restructuring Plan

During 2011, the Company incurred special charges related to restructuring actions to realign certain activities in the Company's legacy Cardiac Rhythm Management business and sales and selling support organizations. The restructuring actions included phasing out Cardiac Rhythm Management 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 the 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, 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. During 2012, the Company incurred additional charges totaling $102 million related to the restructuring actions initiated during 2011. The charges primarily related to other restructuring charges of $51 million, which included $37 million of restructuring related charges associated with the Company's legacy Cardiac Rhythm Management 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. Additionally, the Company incurred costs related to severance and other termination benefits primarily associated with the phase out of operations in Sweden and inventory obsolescence charges primarily related with the rationalization of product lines. During 2013, the Company recognized additional charges totaling $24 million related to the 2011 Restructuring Plan. The charges primarily related to other restructuring costs, including idle facility costs in Sweden and other contract termination costs, severance costs and other termination benefits as well as fixed asset write-offs. During 2014, no additional charges were recognized and no additional charges are expected going forward as the 2011 Restructuring Plan is now complete.

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 as of 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 as of December 29, 2012	25			—			—			17			42
Special charges	5			—			1			18			24
Non-cash charges used	—			—			(1		)	—			(1		)
Cash payments	(21		)	—			—			(29		)	(50		)
Balance as of December 28, 2013	9			—			—			6			15
Cash payments	(9		)	—			—			(4		)	(13		)
Balance as of January 3, 2015	$	—		$	—		$	—		$	2		$	2

Other Special Charges

Intangible asset impairment charges: During 2014, 2013 and 2012, the Company recognized intangible asset impairment charges where the fair values of certain intangible assets were less than their carrying values. During 2014, the Company recognized impairment charges of $50 million and $8 million to write-down certain indefinite-lived IPR&D assets and an indefinite-lived tradename asset, respectively, to fair value. During 2013, the Company recognized impairment charges of $15 million and $14 million to write-down an indefinite-lived IPR&D asset and an indefinite-lived tradename asset, respectively, to fair value. During 2012, the Company recognized $31 million of impairment charges for certain developed technology intangible assets. The Company also recognized $13 million and $2 million of impairment charges during 2013 and 2012, respectively, associated with customer relationship intangible assets recognized in connection with legacy acquisitions involved in the distribution of the Company's products. See Note 11 for further discussion of these intangible asset impairment charges.

Legal settlements: During 2014, the Company recognized a $48 million gain related to a favorable judgment and resolution in a patent infringement case. Partially offsetting this gain, the Company recognized $37 million of legal settlement expense for three unrelated legal settlements (see Note 5). During 2013, the Company agreed to settle a dispute on licensed technology associated with certain product lines. In connection with the settlement, which resolved all disputed claims, the Company recognized a $22 million charge. 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 legal settlement, which resolved all disputed claims and included a fully-paid perpetual license, the Company recognized a $28 million settlement expense and a $12 million licensed technology intangible asset to be amortized over the technology's remaining patent life.

Product field action costs and litigation costs: During 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 charges of $23 million in cost of sales special charges, primarily for scrapped inventory as well as additional warranty and patient monitoring costs. During 2014, the Company also recognized a $4 million benefit in cost of sales special charges due to lower than expected costs related to the voluntary product field action initiated in late 2012 associated with certain neuromodulation implantable pulse generator charging systems. During 2013, the Company recognized charges of $10 million in cost of sales special charges for additional costs related to the 2012 neuromodulation voluntary product field action. During 2012, the Company recognized charges of $27 million, of which $25 million was charged to cost of sales special charges, for costs primarily related to the 2012 neuromodulation voluntary product field action.

During 2014, 2013 and 2012, the Company recognized $31 million, $28 million and $16 million, respectively, of litigation charges for expected future probable and estimable legal costs associated with outstanding legal matters related to the Company's product 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.