Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. MEDTRONIC INC (64670) 10-Q published on Feb 27, 2015 at 8:16 am
Reporting Period: Jan 22, 2015
The unaudited pro forma net sales of the combined entity for the three and nine months ended January 23, 2015 are $7.004 billion and $21.065 billion, respectively. The unaudited pro forma net sales of the combined entity are based on the historical financial net sales of Medtronic and Covidien as if the acquisition had been completed as of the beginning of fiscal year 2015. The historical Covidien net sales information for the three months ended January 23, 2015 are based upon the period from September 27, 2014 to December 26, 2014 and the historical Covidien net sales information for the nine months ended January 23, 2015 was based upon the period from March 29, 2014 to December 26, 2014. The unaudited pro forma net sales is not indicative of the results that actually would have been obtained if the acquisitions had occurred as of the beginning of fiscal year 2015 or that may be obtained in the future. Because the initial accounting for the business combination is incomplete at this time, the Company is unable to provide the pro forma net earnings of the combined entity.
The Company assesses the impairment of IPR&D annually in the third quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired. The aggregate carrying amount of IPR&D was $164 million and $119 million as of January 23, 2015 and April 25, 2014, respectively. The majority of IPR&D at January 23, 2015 is related to IN.PACT family of drug coated balloons which became an amortizable intangible asset early in the fourth quarter of fiscal year 2015 upon completion of all regulatory approvals. Similar to the goodwill impairment test, the IPR&D impairment test requires the Company to make several estimates about fair value, most of which are based on projected future cash flows. The Company calculates the excess of IPR&D asset fair values over their carrying values utilizing a discounted future cash flow analysis. During the three and nine months ended January 23, 2015, the Company did not record any material IPR&D impairments. During the three and nine months ended January 24, 2014, the fair value of certain IPR&D assets were deemed to be less than their carrying value, and as a result, the Company incurred a pre-tax impairment loss of $194 million, primarily related to the Ardian acquisition, that was recorded in acquisition-related items in the condensed consolidated statement of earnings. The annual goodwill impairment test performed in the third quarter of fiscal year 2014 included the projected future cash flows of Ardian, which resides in the Coronary reporting unit. See discussion below for additional information on impairments recorded on the Ardian long-lived asset group. 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 record impairment losses in the future. The Company did not record any additional significant impairment of IPR&D during the three or nine months ended January 24, 2014.
The Company’s effective tax rates for the three and nine months ended January 23, 2015 were 18.2 percent and 18.9 percent, respectively, compared to 20.2 percent and 18.8 percent for the three and nine months ended January 24, 2014, respectively. The changes in the Company’s effective tax rate for the three and nine months ended January 23, 2015 were primarily due to the extension of the U.S. federal research and development tax credit for calendar year 2014, the tax impact of special (gains) charges, acquisition-related items, the impact from the additional interest expense incurred during the quarter to fund the cash consideration portion of the Covidien acquisition, changes to uncertain tax position reserves, the tax impact of foreign dividend distributions recorded during the three months ended January 23, 2015 and the impact from year-over-year changes in operational results by tax jurisdiction. During the three months ended January 23, 2015, the Company recorded a $30 million net benefit associated with the extension of the U.S. federal research and development tax credit for calendar year 2014, the finalization of certain income tax returns, and the tax impact of foreign dividend distributions. These tax adjustments are operational in nature and are recorded in the provision for income taxes on the consolidated statement of earnings.
The stipulation of settlement will be subject to customary conditions, including court approval. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the United States District Court for the District of Massachusetts will consider the fairness, reasonableness, and adequacy of the settlement. If the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought by Covidien shareholders challenging any aspect of the Transactions, the negotiation or consideration of the Transactions, the Transaction Agreement, and any disclosure made in connection therewith, including in the Definitive Joint Proxy Statement/Prospectus, except that the released claims will not include the claims currently asserted in In re Medtronic, Inc. Stockholder Litigation, 27-CV-14-11452, in the District Court, Fourth Judicial District of Hennepin Count, Minnesota or the claims currently asserted in In re Medtronic, Inc. Derivative Litigation, 14-cv-3540, in the United States District Court for the District of Minnesota. In addition, in connection with the settlement, the parties contemplate that the parties shall negotiate in good faith regarding the amount of attorneys’ fees and expenses that shall be paid to plaintiffs’ counsel in connection with the actions. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the United States District Court for the District of Massachusetts will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated.
On December 10, 2014, we issued seven tranches of the 2015 Senior Notes with an aggregate face value of $17.000 billion. The first tranche consisted of $1.000 billion of 1.500 percent Senior Notes due 2018. The second tranche consisted of $2.500 billion of 2.500 percent Senior Notes due 2020. The third tranche consisted of $500 million of floating rate Senior Notes due 2020 (the 2020 floating rate notes). The 2020 floating rate notes bear interest at the three-month London InterBank Offered Rate (LIBOR) plus 80 basis points. The fourth tranche consisted of 2.500 billion of 3.150 percent Senior Notes due 2022. The fifth tranche consisted of $4.000 billion of 3.500 percent Senior Notes due 2025. The sixth tranche consisted of $2.500 billion of 4.375 percent Senior Notes due 2035. The seventh tranche consisted of $4.000 billion of 4.625 percent Senior Notes due 2045. Interest on the 2020 floating rate notes is payable quarterly and interest on each series of the fixed rate notes is payable semi-annually. In addition, on January 26, 2015, we borrowed $3.000 billion for a term of three years under the Term Loan Credit Agreement. We used these combined proceeds to fund the approximately $16 billion cash consideration portion of the January 26, 2015 estimated $50 billion acquisition of Covidien, to pay certain transaction and financing expenses, and for working capital and general corporate purposes, which may include repayment of indebtedness. For more information on our financing arrangements, see Note 8 to the current period’s condensed consolidated financial statements.