SPECIAL CHARGES

The Company recognizes certain transactions and events as special charges in its Condensed Consolidated Financial Statements. These charges (such as restructuring charges, impairment charges, certain legal settlements or product field action costs and litigation costs) result from facts and circumstances that vary in frequency and impact on the Company's results of operations.

2016 Initiatives

During the fourth quarter of 2015, the Company initiated restructuring activities to drive cross-functional synergies (the 2016 Initiatives). The 2016 Initiatives include enhancing focus on programs that will strengthen its strategic objectives, driving productivity enhancements and incurring costs to fully integrate its recent acquisitions. During 2015, the Company incurred charges of $34 million primarily related to severance and other termination benefits.

During the first quarter of 2016, the Company incurred additional charges of $24 million related to severance and other termination benefits, contract termination costs and fixed asset write-offs, primarily associated with the closure of legacy Thoratec Corporation (Thoratec) facilities as the Company continues to integrate the acquisition. The Company currently expects to incur approximately $30 million to $35 million during the remainder of 2016 to complete the plan, but may incur additional charges in future periods.

A summary of the activity related to the 2016 Initiatives accrual is as follows (in millions):



	Employee Termination Costs			Inventory Charges			Fixed Asset Charges			Other Restructuring Costs			Total
Balance at January 3, 2015	$	—		$	—		$	—		$	—		$	—
Cost of sales special charges	9			1			1			1			12
Special charges	22			—			—			—			22
Non-cash charges used	—			(1		)	(1		)	—			(2		)
Cash payments	(2		)	—			—			(1		)	(3		)
Balance at January 2, 2016	29			—			—			—			29
Cost of sales special charges	—			2			1			1			4
Special charges	11			—			4			5			20
Non-cash charges used	—			(2		)	(5		)	—			(7		)
Cash payments	(32		)	—			—			(5		)	(37		)
Balance at April 2, 2016	$	8		$	—		$	—		$	1		$	9

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 2015, the Company incurred charges of $78 million primarily related to severance and other termination benefits, contract termination costs and fixed asset write-offs. These costs included charges associated with the elimination of certain operational, quality and hardware development activities at a research and development facility, continued exit costs related to a facility closure in the United States and software development assets no longer expected to be utilized.

During the first quarter of 2016, the Company incurred additional charges of $1 million primarily related to continued exit costs associated with a facility closure in the United States. Material charges are not expected in future periods as the Manufacturing and Supply Chain Optimization Plan is now complete.

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 January 3, 2015	$	14		$	—		$	—		$	6		$	20
Cost of sales special charges	4			3			15			7			29
Special charges	20			—			—			29			49
Non-cash charges used	—			(3		)	(15		)	—			(18		)
Cash payments	(27		)	—			—			(35		)	(62		)
Balance at January 2, 2016	11			—			—			6			17
Cost of sales special charges	—			—			—			1			1
Cash payments	(3		)	—			—			(6		)	(9		)
Balance at April 2, 2016	$	8		$	—		$	—		$	1		$	9

2012 Business Realignment Plan

During 2012, the Company realigned 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 have been part of a comprehensive plan to accelerate the Company's growth, reduce costs, leverage economies of scale and increase investment in product development. 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 research and development (R&D) organization and a consolidation of manufacturing and supply chain operations worldwide.

During 2015, the Company incurred additional charges of $14 million primarily related to severance and other termination benefits and other restructuring costs, including contract termination costs, asset relocation expenses and other exit costs predominately associated with the facility closure in Europe.

During the first quarter of 2016, the Company reassessed the remaining accrual balance and determined that some of the previously recorded accrual balances were no longer necessary. No additional charges are expected in future periods as the 2012 Business Realignment Plan is now complete.

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 January 3, 2015	$	26		$	—		$	—		$	12		$	38
Cost of sales special charges	2			3			—			—			5
Special charges	2			—			2			5			9
Non-cash charges used	—			(3		)	(2		)	—			(5		)
Cash payments	(25		)	—			—			(10		)	(35		)
Foreign exchange rate impact	(2		)	—			—			—			(2		)
Balance at January 2, 2016	3			—			—			7			10
Cost of sales special charges	—			(1		)	—			(1		)	(2		)
Non-cash charges used	—			1			—			—			1
Balance at April 2, 2016	$	3		$	—		$	—		$	6		$	9

Other Special Charges

Legal settlements: During the first quarter of 2016, the Company recognized $19 million of legal settlement gains related to two separate legal cases. These gains were partially offset by a $2 million contingent loss related to a litigation matter that the Company now believes is probable and estimable.

During the first quarter of 2015, the Company recognized $10 million in insurance recoveries as a special benefit in connection with the March 2010 Securities Class Action Litigation.

Product field action costs and litigation costs: During the first quarter of 2016 and 2015, the Company recognized approximately $3 million and $5 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. Partially offsetting the first quarter 2015 special charge, the Company recognized a $2 million benefit in cost of sales special charges for salvaged inventory components related to an advisory action initiated in 2014.

Other restructuring-related charges: The Company also recognized other restructuring-related charges of $2 million during the first quarter of 2016.