Medtronic 2012 Annual Report Download - page 89

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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 the 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 began paying the Company quarterly payments in January 2010 that
will continue through the fiscal quarter ending October 2018.
3. Discontinued Operations
On November 16, 2011, the Company and Bain Capital Partners, LLC (Bain Capital) entered into a
definitive agreement for Bain Capital to acquire Physio-Control and related entities, excluding certain assets
and liabilities, for cash in a transaction valued at approximately $405 million excluding potential earn-outs
and any working capital adjustments.
Beginning in the third quarter of fiscal year 2012, the assets and liabilities of this business met the
accounting criteria to be classified as held for sale and have been aggregated and reported on separate lines
in the consolidated balance sheets for all periods presented. The Company also classified the results of
operations of the Physio-Control business, which were previously presented as a component of the Cardiac
and Vascular Group operating segment, as discontinued operations in the consolidated statements of
earnings for all periods presented.
On January 30, 2012, the Company completed the sale of the Physio-Control business to Bain Capital.
The Company sold $164 million in net assets and received $386 million in net cash, excluding potential earn-
outs. The earn-outs are based upon fiscal year 2012 and 2013 Physio-Control performance in accordance
with the agreement. The amount of cash received was less than the original transaction value of
approximately $405 million due to an estimated working capital adjustment of $19 million that occurred at
the time of closing. This amount may be adjusted based on the final closing balance sheet in accordance
with the agreement. The assets and liabilities sold were comprised of Physio-Control’s U.S. and international
assets and liabilities, excluding international accounts receivable and accounts payable, and certain
compensation related liabilities assumed by Bain Capital. Additionally, the Company entered into a
Transition Services Agreement (TSA) with Physio-Control in which the Company will provide transition
services to ensure continuity of business for Physio-Control as it establishes stand-alone processes separate
from Medtronic. The TSA requires the Company to continue to provide certain back-office support
functions to Physio-Control in the areas of finance, facilities, human resources, customer service, IT, quality
and regulatory, and operations. The timeframe for these services ranges from three to 12 months following
the closing date. The Company is compensated for the services specified in the TSA. The Company will
record the income earned from the TSA in other expense, net in the consolidated statements of earnings.
The following is a summary of the operating results of Physio-Control for discontinued operations for
fiscal years 2012, 2011, and 2010:
Fiscal Year
____________________________________________
(in millions) 2012 2011 2010
____________ __________ __________ __________
Discontinued operations:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 323 $ 425 $ 425
__________ __________ __________
__________ __________ __________
Earnings from operations of Physio-Control . . . . . . . . . . $ 48 $ 64 $ 25
Physio-Control divestiture-related costs . . . . . . . . . . . . . . (42) (2) –
Gain on sale of Physio Control . . . . . . . . . . . . . . . . . . . . . 218 ––
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (21) (9)
__________ __________ __________
Earnings from discontinued operations . . . . . . . . . . . . $ 202 $ 41 $ 16
__________ __________ __________
__________ __________ __________
During the three and nine months ended January 27, 2012, the Company recorded an $84 million
deferred income tax benefit in discontinued operations. In accordance with authoritative guidance, the
Company is required to establish a deferred tax asset on the difference between its tax basis and book basis
in the shares of Physio-Control, up to the expected amount of gain. In the fourth quarter of fiscal year 2012,
72
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)