Medtronic 2015 Annual Report Download - page 65

See Note 2 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual
Report on Form 10-K for further discussion on IPR&D charges.
Certain Tax Adjustments In fiscal year 2015, we recorded certain tax adjustments of $349 million, of which $329 million
related to the expected resolution of the Kyphon Inc. (Kyphon) acquisition-related issues with the U.S. Internal Revenue Service
(IRS). We are currently working with the IRS on a closing agreement to resolve all outstanding Kyphon related issues. In
addition, certain tax adjustments includes $20 million related to a taxable gain associated with the Covidien acquisition. The
$349 million certain tax adjustment was recorded in the provision for income taxes in the consolidated statement of income for
fiscal year 2015.
In fiscal year 2014, we recorded a $63 million certain tax benefit associated with the resolution of certain issues in the fourth
quarter of fiscal year 2014 with the IRS relating to their review of our fiscal year 2009 through 2011 domestic income tax
returns. The $63 million certain tax benefit was recorded in the provision for income taxes in the consolidated statement of
income for fiscal year 2014.
In fiscal year 2013, there were no certain tax adjustments.
See the “Income Taxes” section of this management’s discussion and analysis for further discussion of the certain tax
adjustments.
Amortization of Intangible Assets Amortization of intangible assets includes the amortization expense of our definite-lived
intangible assets consisting of purchased patents, trademarks, tradenames, purchased technology, and other intangible assets. In
fiscal year 2015, amortization expense was $733 million as compared to $349 million in fiscal year 2014. The $384 million
increase in amortization expense in fiscal year 2015 was primarily due to the fourth quarter fiscal year 2015 acquisition of
Covidien, which added $379 million in amortization expense and fiscal year 2014 acquisitions of TYRX, Corventis, Inc. and
Visualase, Inc., partially offset by reduced ongoing amortization expense from certain intangible assets that became fully
amortized.
In fiscal year 2014, amortization expense was $349 million, an increase of $18 million from $331 million in fiscal year 2013.
The increase was primarily due to the third quarter fiscal year 2013 acquisition of Kanghui and the second quarter fiscal year
2014 acquisition of Cardiocom, partially offset by reduced ongoing amortization expense from certain intangible assets that
became fully amortized.
Other Expense, Net Other expense, net includes royalty income and expense, realized equity security gains and losses,
realized foreign currency transaction and derivative gains and losses, impairment charges on equity securities, the Puerto Rico
excise tax, and the U.S. medical device excise tax. In fiscal year 2015, other expense, net was $118 million, a decrease of $63
million from $181 million in the prior fiscal year. The decrease was primarily due to an increase in net realized foreign currency
gains partially offset by increased royalties in our Structural Heart business and increased U.S. medical device excise tax, which
for fiscal year 2015 was $135 million compared to $112 million in the prior fiscal year. Total net realized foreign currency gains
recorded in other expense, net were $196 million in fiscal year 2015 compared to gains of $43 million in the prior fiscal year.
In fiscal year 2014, other expense, net was $181 million, an increase of $73 million from $108 million in the prior fiscal year.
The increase was primarily due to the full year impact of the U.S. medical device excise tax that went into effect January 1,
2013, partially offset by net realized foreign currency gains. In addition, the increase in fiscal year 2014 was partially offset by
income from a license related to our Aortic & Peripheral Vascular business. The U.S. medical device excise tax in fiscal year
2014 was $112 million compared to $21 million in the prior fiscal year. Total net realized foreign currency gains recorded in
other expense, net were $43 million in fiscal year 2014, compared to gains of $27 million in the prior fiscal year.
Interest Expense, Net Interest expense, net includes interest earned on our cash, cash equivalents and investments, interest
incurred on our outstanding borrowings, amortization of debt issuance costs and debt discounts, the net realized and unrealized
gain or loss on trading securities, ineffectiveness on interest rate derivative instruments, and the net realized gain or loss on the
sale or impairment of available-for-sale debt securities. In fiscal year 2015, interest expense, net was $280 million, as compared
to $108 million in fiscal year 2014. For fiscal year 2015, the increase in interest expense, net was primarily due to the impact of
the incremental interest expense resulting from the incurrence of $17 billion of debt to fund the Covidien acquisition and the $3
billion term loan funded in January 2015. The $17 billion debt resulted in $77 million of incremental interest expense in the
third quarter prior to the close of the Covidien transaction. The Company treats this interest expenses as a Non-GAAP
Adjustment. See the table included in the “Executive Level Overview” section of this management’s discussion and analysis.
The increase in interest expense, net during fiscal year 2015 was partially offset by increased interest income earned on higher
investment balances, as compared to fiscal year 2014.
55