SEC Filings

10-Q
MEDTRONIC PLC filed this Form 10-Q on 12/04/2017
Entire Document
 
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)


The Company assesses definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable, the Company calculates the excess of an intangible asset's carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. The Company did not recognize any definite-lived intangible asset impairments during the three or six months ended October 27, 2017 or October 28, 2016.
The Company assesses indefinite-lived intangibles for impairment annually in the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. The Company did not recognize any significant indefinite-lived intangibles impairments during the three or six months ended October 27, 2017 or October 28, 2016. Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of such clinical trials, delays or failures to obtain required market clearances or other failures to achieve a commercially viable product, and as a result, may recognize impairment losses in the future.
Amortization Expense
Intangible asset amortization expense for the three and six months ended October 27, 2017 was $460 million and $914 million, respectively, as compared to $500 million and $987 million for the three and six months ended October 28, 2016, respectively. Estimated aggregate amortization expense by fiscal year based on the carrying value of definite-lived intangible assets at October 27, 2017, excluding any possible future amortization associated with acquired IPR&D which has not yet met technological feasibility, is as follows:
(in millions)
Amortization Expense
Remaining 2018
$
871

2019
1,672

2020
1,622

2021
1,601

2022
1,561

2023
1,490

12. Income Taxes
The Company’s effective tax rate for the three and six months ended October 27, 2017 was (16.5) percent and (3.4) percent, respectively, as compared to 8.3 percent and 7.3 percent for the three and six months ended October 28, 2016, respectively. The decrease in the effective tax rate for the three and six months ended October 27, 2017 was primarily due to the impacts from the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, the utilization of non-U.S. special deductions, and the tax effect from the intercompany sales of certain intellectual property.
In August 2017, the Company received a tax ruling confirming the treatment of various intercompany transactions which have the effect of utilizing the $12.0 billion of non-U.S. special deductions previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended April 28, 2017.  The ruling allowed the Company to offset a portion of the gain on the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, as well as recognize a net income tax benefit associated with an intercompany sale of intellectual property and the associated elimination of a deferred tax liability.
During the six months ended October 27, 2017, the Company recognized a $344 million net benefit comprised of a $398 million net tax benefit associated with the intercompany sales of certain intellectual property and a $54 million net tax charge primarily associated with the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. Inclusive of the tax adjustments recorded during the fourth quarter of fiscal year 2017 and the six months ended October 27, 2017, the tax adjustment related to the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses was a net income tax charge of $175 million. These net benefits were recorded within income tax (benefit) provision in the consolidated statement of income for the six months ended October 27, 2017.

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