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75732me_10K.indd 42 6/25/13 6:39 PM
Table of Contents
• Continued contributions from Salient and PEAK to our Surgical Technologies business. Salient and PEAK
were acquired in August 2011. Salient develops and markets devices for haemostatic sealing of soft tissue and
bone incorporating advanced energy technology. PEAK develops and markets tissue dissection devices
incorporating advanced energy technology. We believe these acquisitions have increased our competitive
position in this market.
• Continued acceptance of the Surgical Technologies StealthStation S7 and O-Arm Imaging Systems, especially
with Synergy Spine 2.0 and the O-Arm 3.1.4.
Costs and Expenses
The following is a summary of major costs and expenses as a percent of net sales:
Fiscal Year
2013 2012 2011
Cost of products sold 24.9% 24.0% 23.9%
Research and development expense 9.4 9.2 9.5
Selling, general, and administrative expense 34.3 34.7 35.0
Restructuring charges, net 1.0 0.5 1.7
Certain litigation charges, net 1.5 0.6 1.6
Acquisition-related items (0.3) 0.1 0.1
Amortization of intangible assets 2.0 2.1 2.2
Other expense, net 0.7 2.2 0.7
Interest expense, net 0.9 0.9 1.8
Cost of Products Sold Cost of products sold was $4.126 billion in fiscal year 2013, representing 24.9 percent of net sales,
reflecting an increase of 0.9 of a percentage point from fiscal year 2012. Cost of products sold as a percent of net sales was
negatively impacted primarily by unfavorable foreign currency, and to a lesser extent, shifts in product mix and $10 million of
expense recorded within cost of products sold during fiscal year 2013 related to the fiscal year 2013 restructuring initiative for
inventory write-offs of discontinued product lines and production-related asset impairments. We continue to focus on mitigating
pricing pressure through our five-year, $1.2 billion cost of products sold reduction program.
Cost of products sold was $3.889 billion in fiscal year 2012, representing 24.0 percent of net sales, reflecting an increase of 0.1
of a percentage point from fiscal year 2011. Cost of products sold as a percent of net sales was negatively impacted primarily by
shifts in product mix, partially offset by favorable foreign currency translation. In fiscal year 2012, we completed our initial $1
billion cost of products sold reduction program.
Research and Development During fiscal year 2013, we continued to invest in new technologies and evidence creation to drive
future growth. R&D spending was $1.557 billion in fiscal year 2013, representing 9.4 percent of net sales, an increase of 0.2 of a
percentage point from fiscal year 2012. During fiscal year 2013, we continued to invest in new technologies and evidence creation
to drive future growth.
R&D expense was $1.490 billion in fiscal year 2012, representing 9.2 percent of net sales, a decrease of 0.3 of a percentage point
from fiscal year 2011.
We remain committed to developing technological enhancements and new indications for existing products, and less invasive and
new technologies for new and emerging markets to address unmet medical needs. That commitment leads to our initiation and
participation in many clinical trials each fiscal year as the demand for clinical and economic evidence remains high. Furthermore,
we expect our development activities to help reduce patient care costs and the length of hospital stays in the future. In addition to
our investment in research and development, we continue to access new technologies in areas served by our existing businesses,
as well as in new areas, through acquisitions, licensing agreements, alliances, and certain strategic equity investments.
Selling, General, and Administrative Fiscal year 2013 selling, general, and administrative expense was $5.698 billion, which
as a percent of net sales decreased by 0.4 of a percentage point from fiscal year 2012 to 34.3 percent. Fiscal year 2012 selling,
general, and administrative expense was $5.623 billion, which as a percent of net sales decreased by 0.3 of a percentage point
from fiscal year 2011 to 34.7 percent.
Selling, general, and administrative expense was positively impacted by our continued focus on several initiatives to leverage our
expenses while continuing to invest in new product launches and investing in our sales force in faster growing businesses, products,
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