Medtronic 2016 Annual Report Download - page 56

Table of Contents
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During fiscal year 2014, we recorded certain litigation charges, net of $770 million, which primarily included the global patent
settlement agreement with Edwards Lifesciences Corporation of $589 million, and accounting charges for probable and reasonably
estimable INFUSE product liability litigation of $140 million.
Acquisition-Related Items During fiscal year 2016, we recorded charges from acquisition-related items of $283 million, primarily
related to costs incurred in connection with the Covidien acquisition. The charges incurred in connection with the Covidien
acquisition include $219 million of professional services and integration costs and $58 million of accelerated or incremental stock
compensation expense.
During fiscal year 2015, we recorded charges from acquisition-related items of $550 million, primarily related to costs incurred
in connection with the Covidien acquisition. The charges incurred in connection with the Covidien acquisition include $275 million
of professional services and integration costs, $189 million of accelerated or incremental stock compensation expense, and $69
million of incremental officer and director excise tax.
During fiscal year 2014, we recorded net charges from acquisition-related items of $117 million, primarily including IPR&D and
long-lived asset impairment charges of $236 million related to the Ardian, Inc. acquisition recorded in the third quarter of fiscal
year 2014. The impairment charges were partially offset by income of $138 million related to the change in fair value of contingent
consideration associated with acquisitions subsequent to April 29, 2009.
Acquisition-related items will affect the comparability of our operating results between periods, and we consider this a Non-GAAP
Adjustment. Refer to the "Executive Level Overview" section of this Management's Discussion and Analysis. 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.
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.
Amortization of intangible assets will affect the comparability of our operating results between periods, therefore we consider this
a Non-GAAP Adjustment, refer to the "Executive Level Overview" section of this Management's Discussion and Analysis for
further details related to this expense.
In fiscal year 2016, amortization expense was $1.9 billion as compared to $733 million in fiscal year 2015. The $1.2 billion increase
in amortization expense in fiscal year 2016 was primarily due to realizing a full year impact of amortization of intangibles acquired
with Covidien in the fourth quarter of fiscal year 2015.
In fiscal year 2015, amortization expense was $733 million, an increase of $384 million from $349 million in fiscal year 2014.
The increase 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.
Other Expense, Net Other expense, net includes royalty income and expense, realized equity security gains and losses, realized
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 2016, other expense, net was $107 million, a decrease of $11 million from $118
million in the prior fiscal year. The largest contributor to the change in other expense, net was an increase in net realized currency
gains, which were partially offset by increased royalty expense within Minimally Invasive Therapies Group, and a write-off of a
minority investment in the current year. Total net realized currency gains recorded in other expense, net were $314 million in fiscal
year 2016 compared to gains of $196 million in the prior fiscal year. Looking ahead, we expect other expense, net will be impacted
as a result of the suspension of the U.S. medical device excise tax for two years beginning January 1, 2016 and ending December
31, 2017.
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 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 currency gains recorded in other expense, net were $196 million in fiscal year
2016 compared to gains of $43 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 2016, interest expense, net was $955 million, as compared
to $280 million in fiscal year 2015. The increase in interest expense, net for fiscal year 2016 was largely driven by an increase in
total short-term and long-term borrowings, primarily resulting from the Covidien acquisition, and a $183 million charge recorded