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60 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
The following tables illustrate the impact of the adoption of the
new convertible debt guidance on certain financial statement line
items in the consolidated statement of cash flows for fiscal years
2010, 2009 and 2008:
Fiscal Year 2010
Previous Effect of As
(in millions) Method Change Reported
Operating Activities:
Net earnings $3,203 $(104) $3,099
Amortization of discount on
senior convertible notes — 167 167
Deferred income taxes 207 (63) 144
Net cash provided by
operating activities $4,131 $ — $4,131
Fiscal Year 2009
As Originally Effect of As
(in millions) Reported Change Adjusted
Operating Activities:
Net earnings $ 2,169 $ (99) $ 2,070
Amortization of discount on
senior convertible notes — 154 154
Deferred income taxes (116) (55) (171)
Net cash provided by
operating activities $ 3,878 $ — $ 3,878
Fiscal Year 2008
As Originally Effect of As
(in millions) Reported Change Adjusted
Operating Activities:
Net earnings $ 2,231 $ (93) $ 2,138
Amortization of discount on
senior convertible notes — 145 145
Deferred income taxes (49) (52) (101)
Net cash provided by
operating activities $ 3,489 $ — $ 3,489
3. Special Charges and Certain Litigation
Charges, Net
Special Charges
In fiscal year 2010, there were no special charges.
In fiscal year 2009, consistent with the Company’s commitment
to improving the health of people and communities throughout
the world, the Company recorded a $100 million contribution to
The Medtronic Foundation, which is a related party non-profit
organization. The contribution to The Medtronic Foundation was
paid in the fourth quarter of fiscal year 2009.
In fiscal year 2008, the Company recorded a special charge of
$78 million related to the impairment of intangible assets
associated with its benign prostatic hyperplasia, or enlarged
prostate, product line purchased in fiscal year 2002. The
development of the market, relative to the Company’s original
assumptions, had changed as a result of the broad acceptance of
a new line of drugs to treat the symptoms of an enlarged prostate.
After analyzing the estimated future cash flows utilizing this
technology, based on the market development, the Company
determined that the carrying value of these intangible assets was
impaired and a write-down was necessary.
Certain Litigation Charges, Net
The Company classifies material litigation reserves and gains
recognized as certain litigation charges, net. In fiscal year 2010,
the Company incurred two certain litigation charges, net totaling
$374 million related to settlements with Abbott Laboratories
(Abbott) and W.L. Gore & Associates (Gore). The Abbott settlement
accounted for $444 million in litigation charges and the Gore
settlement accounted for a $70 million certain litigation gain. The
Abbott settlement related to the global resolution of all
outstanding intellectual property litigation. The terms of the
Abbott agreement stipulate that neither party will sue each other
in the field of coronary stent and stent delivery systems for a
period of at least 10 years, subject to certain conditions. Both
parties also agreed to a cross-license of the disputed patents
within the defined field. The $444 million settlement amount
included a $400 million payment made to Abbott and a $42
million success payment made to evYsio Medical Devices, LLC
(evYsio). In addition, a $2 million payment was made to evYsio in
connection with an amendment to the parties’ existing agreement
in order to expand the scope of the definition of the license field
from evYsio. The Company paid the settlement in the second
quarter of fiscal year 2010. The Gore settlement related to the
resolution of outstanding patent litigation related to selected
patents in Medtronic’s Jervis and Wiktor patent families. The
terms of the agreement stipulate that neither party will sue each
other in the defined field of use, subject to certain conditions.
The Company granted Gore a worldwide, irrevocable, non-
exclusive license in the defined field of use. In addition and
subject to certain conditions, Gore will pay the Company quarterly
payments that began in January 2010 through the fiscal quarter
ending October 2018.
In fiscal year 2009 the Company incurred four certain litigation
charges, net totaling $714 million. The first charge in fiscal year
2009 in the amount of $178 million related to litigation with
DePuy Spine (formerly DePuy/AcroMed), a subsidiary of Johnson
& Johnson (J&J), and Biedermann Motech GmbH (collectively,
DePuy) regarding patent infringement claims stemming from the
Vertex line of multiaxial screws. On June 1, 2009, the U.S. Court of