SEC Filings

10-Q
MEDTRONIC PLC filed this Form 10-Q on 12/04/2017
Entire Document
 


Diluted EPS and Non-GAAP diluted EPS for the three months ended October 27, 2017 were $1.48 and $1.07, respectively. Diluted EPS and Non-GAAP diluted EPS for the six months ended October 27, 2017 were $2.21 and $2.19, respectively. For the three and six months ended October 27, 2017, diluted EPS and Non-GAAP diluted EPS were unfavorably affected by the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group, which had a significant impact on revenue and expenses in the current periods as compared to the corresponding periods in the prior fiscal year. Further, diluted EPS and Non-GAAP diluted EPS were unfavorably impacted by Hurricane Maria, which significantly affected our manufacturing operations in Puerto Rico. In addition to the $.02 non-GAAP adjustment, we estimate that Hurricane Maria had an approximate $0.03 unfavorable impact for the three months ended October 27, 2017, which was driven by the $55 million to $65 million unfavorable impact to net sales.
For the three and six months ended October 27, 2017, diluted EPS was favorably affected by a $697 million gain on the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group. Diluted EPS was also favorably impacted by certain tax adjustments for the three and six months ended October 27, 2017 of $404 million and $344 million, respectively. These adjustments primarily related to a net tax benefit associated with the intercompany sales of certain intellectual property and a net tax charge primarily associated with the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.
CRITICAL ACCOUNTING ESTIMATES
We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 28, 2017.
The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Our critical accounting estimates include the following:
Revenue Recognition Rebates are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, we consider the lag time between the point of sale and the payment of the rebate claim, contractual commitments, including stated rebate rates, and other relevant information. We adjust reserves to reflect differences between estimated and actual experience and recognize such adjustment as a reduction of sales in the period of adjustment. Adjustments to recorded reserves have not been significant. Price adjustment rebates charged against gross sales for the three and six months ended October 27, 2017 were $541 million and $1.3 billion, respectively as compared to $772 million and $1.5 billion for the three and six months ended October 28, 2016, respectively.
Litigation Contingencies We are involved in a number of legal actions involving product liability, intellectual property disputes, shareholder related matters, environmental proceedings, income tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages, as well as other civil or criminal remedies (including injunctions barring the sale of products that are the subject of the proceeding), that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimates of probable losses resulting from litigation and governmental proceedings involving us are inherently difficult to predict, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. Our significant legal proceedings are discussed in Note 17 to the current period's consolidated financial statements. While it is not possible to predict the outcome for most of the matters discussed in Note 17 to the current period's consolidated financial statements, we believe it is possible that costs associated with these matters could have a material adverse impact on our consolidated earnings, financial position, and/or cash flows.
Income Tax Reserves We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We regularly monitor our tax positions and tax liabilities. We reevaluate

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