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)


During the six months ended October 28, 2016, the Company recognized a net tax benefit of $31 million. A $431 million tax benefit was recognized as the result of the resolution of Covidien's previously disclosed Tyco International plc intercompany debt issues with the U.S. Tax Court and the Appeals Division of the U.S. Internal Revenue Service (IRS). This benefit was partially offset by a $371 million charge associated with the expected resolution with the IRS for the Ardian, CoreValve, Inc. and Ablation Frontiers, Inc. acquisition-related issues and the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico for certain businesses. This resolution did not include the businesses that are the subject of the Medtronic, Inc. U.S. Tax Court case for fiscal years 2005 and 2006. In addition, the Company recognized a $29 million charge in connection with the redemption of an intercompany minority interest. These net benefits were recorded within income tax (benefit) provision in the consolidated statement of income for the six months ended October 28, 2016.
During the six months ended October 27, 2017, the Company's gross unrecognized tax benefits decreased from $1.9 billion to $1.8 billion. In addition, accrued gross interest and penalties were $394 million at October 27, 2017. If all of the Company’s unrecognized tax benefits were recognized, approximately $1.7 billion would impact the Company’s effective tax rate. At October 27, 2017, the Company had $16 million of gross unrecognized tax benefits recorded as a current liability within accrued income taxes with the balance recorded as a noncurrent liability within accrued income taxes on the consolidated balance sheet. At April 28, 2017, the total balance of the Company's gross unrecognized tax benefits was recorded as a noncurrent liability within accrued income taxes on the consolidated balance sheet. The Company recognizes interest and penalties related to income tax matters within income tax (benefit) provision in the consolidated statements of income and records the liability within either current or noncurrent accrued income taxes on the consolidated balance sheet.
See Note 17 to the consolidated financial statements for additional information regarding the status of current tax audits and proceedings.
13. Earnings Per Share
Earnings per share is calculated using the two-class method, as the Company's A Preferred Shares are considered participating securities. Accordingly, earnings are allocated to both ordinary shares and participating securities in determining earnings per ordinary share. Due to the limited number of A Preferred Shares outstanding, this allocation had no effect on ordinary earnings per share; therefore, it is not presented below. Basic earnings per share is computed based on the weighted average number of ordinary shares outstanding. Diluted earnings per share is computed based on the weighted average number of ordinary shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive ordinary shares been issued, and reduced by the number of shares the Company could have repurchased with the proceeds from issuance of the potentially dilutive shares. Potentially dilutive ordinary shares include stock options and other stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.
The table below sets forth the computation of basic and diluted earnings per share:
 
Three months ended
 
Six months ended
(in millions, except per share data)
October 27, 2017
 
October 28, 2016
 
October 27, 2017
 
October 28, 2016
Numerator:
 

 
 

 
 

 
 

Net income attributable to ordinary shareholders
$
2,017

 
$
1,115

 
$
3,033

 
$
2,044

Denominator:
 

 
 

 
 

 
 

Basic – weighted average shares outstanding
1,355.1

 
1,380.0

 
1,358.5

 
1,386.5

Effect of dilutive securities:
 

 
 

 
 

 
 

Employee stock options
7.7

 
9.3

 
8.5

 
9.9

Employee restricted stock units
3.0

 
3.2

 
3.5

 
3.6

Other

 

 
0.3

 
0.2

Diluted – weighted average shares outstanding
1,365.8

 
1,392.5

 
1,370.8

 
1,400.2

 
 

 
 

 
 

 
 

Basic earnings per share
$
1.49

 
$
0.81

 
$
2.23

 
$
1.47

Diluted earnings per share
$
1.48

 
$
0.80

 
$
2.21

 
$
1.46

The calculation of weighted average diluted shares outstanding excludes options to purchase approximately 12 million and 8 million ordinary shares for the three and six months ended October 27, 2017, respectively, and 5 million and 4 million ordinary shares for the three and six months ended October 28, 2016, respectively, because their effect would be anti-dilutive on the Company’s earnings per share.

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