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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Medtronic PLC | NYSE:MDT | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.49 | 0.62% | 79.74 | 79.85 | 78.95 | 79.42 | 5,023,165 | 01:00:00 |
Ireland | 1-36820 | 98-1183488 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
20 On Hatch, Lower Hatch Street Dublin 2, Ireland | |
(Address of principal executive offices) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
(a) | Financial Statements of Business Acquired |
(b) | Pro Forma Financial Information |
Exhibit No. | Description | |
99.1 | Audited consolidated balance sheets of Covidien as of September 26, 2014 and September 27, 2013 and the related audited consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the fiscal years ended September 26, 2014, September 27, 2013 and September 28, 2012, together with the notes thereto and the auditors’ report thereon (included on pages 58 through 124 of Covidien’s Annual Report on Form 10-K for Covidien’s fiscal year ended September 26, 2014, filed with the SEC on November 24, 2014 (as amended by Covidien’s Annual Report on Form 10-K/A for Covidien’s fiscal year ended September 26, 2014, filed with the SEC on January 22, 2015) and incorporated herein by reference). | |
99.2 | Unaudited consolidated balance sheets of Covidien as of December 26, 2014 and September 26, 2014 and the related unaudited consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the fiscal quarters ended December 26, 2014 and December 27, 2013, together with the notes thereto (included on pages 2 through 28 of Covidien’s Quarterly Report on Form 10-Q for the quarter ended December 26, 2014, filed with the SEC on January 23, 2015 and incorporated herein by reference). | |
99.3* | Unaudited pro forma condensed consolidated balance sheet of the Company as of January 23, 2015 and the unaudited pro forma condensed consolidated statements of income of the Company for the nine months ended January 23, 2015 and the fiscal year ended April 25, 2014 that give effect to the acquisition of Covidien. |
MEDTRONIC PUBLIC LIMITED COMPANY | |||
By | /s/ Gary L. Ellis | ||
Date: March 25, 2015 | Gary L. Ellis | ||
Executive Vice President and Chief Financial Officer |
Exhibit Number | Description | |
99.1 | Audited consolidated balance sheets of Covidien as of September 26, 2014 and September 27, 2013 and the related audited consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the fiscal years ended September 26, 2014, September 27, 2013 and September 28, 2012, together with the notes thereto and the auditors’ report thereon (included on pages 58 through 124 of Covidien’s Annual Report on Form 10-K for Covidien’s fiscal year ended September 26, 2014, filed with the SEC on November 24, 2014 (as amended by Covidien’s Annual Report on Form 10-K/A for Covidien’s fiscal year ended September 26, 2014, filed with the SEC on January 22, 2015) and incorporated herein by reference). | |
99.2 | Unaudited consolidated balance sheets of Covidien as of December 26, 2014 and September 26, 2014 and the related unaudited consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the fiscal quarters ended December 26, 2014 and December 27, 2013, together with the notes thereto (included on pages 2 through 28 of Covidien’s Quarterly Report on Form 10-Q for the quarter ended December 26, 2014, filed with the SEC on January 23, 2015 and incorporated herein by reference). | |
99.3* | Unaudited pro forma condensed consolidated balance sheet of the Company as of January 23, 2015 and the unaudited pro forma condensed consolidated statements of income of the Company for the nine months ended January 23, 2015 and the fiscal year ended April 25, 2014 that give effect to the acquisition of Covidien. |
• | the closing of the Acquisition through the issuance of New Medtronic ordinary shares, with each Covidien shareholder receiving (a) $35.19 in cash per share and (b) 0.956 of a newly issued New Medtronic ordinary share for each Covidien share (the "Scheme Consideration"); |
• | the incurrence of approximately $17.0 billion in debt by Medtronic to finance, together with $3.0 billion in borrowings under the Term Loan Credit Agreement (as defined in Note 1), the cash component of the Scheme Consideration, including the payment of certain transaction and financing expenses and for working capital and general corporate purposes, which may include repayment of indebtedness. |
Unaudited Pro Forma Condensed Combined Balance Sheet | |||||||||||||||||||||||||||||
As of January 23, 2015 | |||||||||||||||||||||||||||||
(in millions) | Historical Medtronic | Historical Covidien(1) | Reclassification Adjustments | Footnote Reference | Acquisition Adjustments | Footnote Reference | Financing Adjustments | Footnote Reference | Pro Forma | ||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 17,231 | $ | 1,818 | $ | — | $ | (16,080 | ) | 5(a), 5(c) | $ | 3,000 | 5(m) | $ | 5,806 | ||||||||||||||
— | (53 | ) | 5(o) | ||||||||||||||||||||||||||
— | (110 | ) | 5(i) | ||||||||||||||||||||||||||
Investments | 13,917 | — | — | — | — | 13,917 | |||||||||||||||||||||||
Accounts receivable, net | 3,568 | 1,451 | — | — | — | 5,019 | |||||||||||||||||||||||
Inventories | 1,875 | 1,422 | — | 858 | 5(q) | — | 4,155 | ||||||||||||||||||||||
Prepaid expenses and other current assets | 1,570 | 896 | 13 | 7(a) | — | — | 2,479 | ||||||||||||||||||||||
Total current assets | 38,161 | 5,587 | 13 | (15,385 | ) | 3,000 | 31,376 | ||||||||||||||||||||||
Property, plant, and equipment, net | 2,326 | 1,984 | — | 766 | 5(f) | — | 5,076 | ||||||||||||||||||||||
Goodwill | 10,950 | 8,823 | — | 21,928 | 5(h) | — | 41,701 | ||||||||||||||||||||||
Other intangible assets, net | 2,339 | 3,209 | — | 22,551 | 5(e) | — | 28,099 | ||||||||||||||||||||||
Other assets | 1,457 | 1,012 | — | (23 | ) | 5(k) | (4 | ) | 5(l) | 2,572 | |||||||||||||||||||
130 | 5(g) | — | |||||||||||||||||||||||||||
Total assets | $ | 55,233 | $ | 20,615 | $ | 13 | $ | 29,967 | $ | 2,996 | $ | 108,824 | |||||||||||||||||
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||||||||
Short-term borrowings | $ | 2,185 | $ | 1,010 | $ | — | $ | — | $ | — | $ | 3,195 | |||||||||||||||||
Accrued expenses | 3,428 | 1,905 | 13 | 7(a) | 97 | 5(n) | — | 5,653 | |||||||||||||||||||||
— | 210 | 5(g) | — | ||||||||||||||||||||||||||
Total current liabilities | 5,613 | 2,915 | 13 | 307 | — | 8,848 | |||||||||||||||||||||||
Long-term debt | 26,641 | 4,051 | — | 421 | 5(p) | 3,000 | 5(m) | 34,113 | |||||||||||||||||||||
Other long-term liabilities | 2,806 | 3,215 | — | 5,713 | 5(g) | — | 11,734 | ||||||||||||||||||||||
Total liabilities | 35,060 | 10,181 | 13 | 6,441 | 3,000 | 54,695 | |||||||||||||||||||||||
Commitments and contingencies | |||||||||||||||||||||||||||||
Redeemable noncontrolling interest | — | 62 | — | — | — | 62 | |||||||||||||||||||||||
Shareholders’ equity: | |||||||||||||||||||||||||||||
Preferred stock | — | — | — | — | — | — | |||||||||||||||||||||||
Common stock | 99 | — | — | (99 | ) | 5(j) | — | — | |||||||||||||||||||||
Ordinary shares | — | 91 | — | (91 | ) | 5(j) | — | — | |||||||||||||||||||||
Ordinary shares held in treasury at cost | — | (164 | ) | — | 164 | 5(j) | — | — | |||||||||||||||||||||
Retained earnings | 20,735 | 10,414 | — | (10,414 | ) | 5(j) | (4 | ) | 5(l) | 54,728 | |||||||||||||||||||
— | 429 | 5(d) | — | ||||||||||||||||||||||||||
— | (97 | ) | 5(n) | — | |||||||||||||||||||||||||
— | (53 | ) | 5(o) | — | |||||||||||||||||||||||||
— | 33,435 | 5(b) | — | ||||||||||||||||||||||||||
— | 184 | 5(c) | — | ||||||||||||||||||||||||||
— | 99 | 5(j) | — | ||||||||||||||||||||||||||
Accumulated other comprehensive (loss) income | (661 | ) | 31 | — | (31 | ) | 5(j) | — | (661 | ) | |||||||||||||||||||
Total shareholders’ equity | 20,173 | 10,372 | — | 23,526 | (4 | ) | 54,067 | ||||||||||||||||||||||
Total liabilities, redeemable noncontrolling interest and shareholders’ equity | $ | 55,233 | $ | 20,615 | $ | 13 | $ | 29,967 | $ | 2,996 | $ | 108,824 |
Unaudited Pro Forma Condensed Combined Statement of Earnings | |||||||||||||||||||||||||||||
For the Nine Months Ended January 23, 2015 | |||||||||||||||||||||||||||||
(In millions except per share data) | Historical Medtronic | Historical Covidien (Note 4) | Reclassification Adjustments | Footnote Reference | Acquisition Adjustments | Footnote Reference | Financing Adjustments | Footnote Reference | Pro Forma | ||||||||||||||||||||
Net sales | $ | 12,957 | $ | 8,108 | $ | — | $ | — | $ | — | $ | 21,065 | |||||||||||||||||
Cost of products sold | 3,375 | 3,218 | (126 | ) | 7(c) | 22 | 6(e) | — | 6,327 | ||||||||||||||||||||
(4 | ) | 7(d) | — | — | |||||||||||||||||||||||||
7 | 7(e) | — | — | ||||||||||||||||||||||||||
(126 | ) | 7(f) | — | — | |||||||||||||||||||||||||
(39 | ) | 7(h) | — | — | |||||||||||||||||||||||||
Selling, general, and administrative expense | 4,909 | 2,870 | (48 | ) | 7(b) | 1,301 | 6(d) | — | 8,892 | ||||||||||||||||||||
126 | 7(c) | 19 | 6(e) | — | |||||||||||||||||||||||||
1 | 7(d) | (221 | ) | 6(g) | — | ||||||||||||||||||||||||
(10 | ) | 7(e) | — | — | |||||||||||||||||||||||||
126 | 7(f) | — | — | ||||||||||||||||||||||||||
(181 | ) | 7(g) | — | — | |||||||||||||||||||||||||
Research and development expense | 1,112 | 419 | 3 | 7(e) | — | — | 1,534 | ||||||||||||||||||||||
Certain litigation charges, net | — | — | 181 | 7(g) | — | — | 181 | ||||||||||||||||||||||
Restructuring charges, net | 30 | 70 | — | — | — | 100 | |||||||||||||||||||||||
Interest expense, net | 94 | 135 | — | (3 | ) | 6(c) | 390 | 6(a) | 569 | ||||||||||||||||||||
— | — | (47 | ) | 6(b) | |||||||||||||||||||||||||
Other expense, net | 138 | 104 | 48 | 7(b) | — | — | 332 | ||||||||||||||||||||||
3 | 7(d) | — | — | ||||||||||||||||||||||||||
39 | 7(h) | — | — | ||||||||||||||||||||||||||
Earnings from continuing operations before income taxes | 3,299 | 1,292 | — | (1,118 | ) | (343 | ) | 3,130 | |||||||||||||||||||||
Provision for income taxes | 623 | (42 | ) | — | (308 | ) | 6(f) | (126 | ) | 6(f) | 147 | ||||||||||||||||||
Earnings from continuing operations | $ | 2,676 | $ | 1,334 | $ | — | $ | (810 | ) | $ | (217 | ) | $ | 2,983 | |||||||||||||||
Earnings from continuing operations per share | |||||||||||||||||||||||||||||
Basic | $ | 2.71 | $ | 2.10 | |||||||||||||||||||||||||
Diluted | $ | 2.68 | $ | 2.07 | |||||||||||||||||||||||||
Weighted average shares outstanding | |||||||||||||||||||||||||||||
Basic | 986.6 | 1,423.4 | |||||||||||||||||||||||||||
Diluted | 998.5 | 1,438.7 |
Unaudited Pro Forma Condensed Combined Statement of Earnings | |||||||||||||||||||||||||||||
For the Fiscal Year Ended April 25, 2014 | |||||||||||||||||||||||||||||
(In millions except per share data) | Historical Medtronic | Historical Covidien (Note 4) | Reclassification Adjustments | Footnote Reference | Acquisition Adjustments | Footnote Reference | Financing Adjustments | Footnote Reference | Pro Forma | ||||||||||||||||||||
Net sales | $ | 17,005 | $ | 10,375 | $ | — | $ | — | $ | — | $ | 27,380 | |||||||||||||||||
Cost of products sold | 4,333 | 4,274 | (156 | ) | 7(c) | 29 | 6(e) | — | 8,190 | ||||||||||||||||||||
(79 | ) | 7(d) | — | — | |||||||||||||||||||||||||
10 | 7(e) | — | — | ||||||||||||||||||||||||||
(171 | ) | 7(f) | — | — | |||||||||||||||||||||||||
(50 | ) | 7(h) | — | — | |||||||||||||||||||||||||
Selling, general, and administrative expense | 6,353 | 3,434 | (59 | ) | 7(b) | 1,770 | 6(d) | — | 11,760 | ||||||||||||||||||||
156 | 7(c) | 26 | 6(e) | — | |||||||||||||||||||||||||
(2 | ) | 7(d) | — | — | |||||||||||||||||||||||||
(14 | ) | 7(e) | — | — | |||||||||||||||||||||||||
171 | 7(f) | — | — | ||||||||||||||||||||||||||
(65 | ) | 7(g) | — | — | |||||||||||||||||||||||||
(10 | ) | 7(i) | |||||||||||||||||||||||||||
Research and development expense | 1,477 | 535 | 4 | 7(e) | — | — | 2,016 | ||||||||||||||||||||||
Certain litigation charges, net | 770 | — | 65 | 7(g) | — | — | 835 | ||||||||||||||||||||||
Restructuring charges, net | 78 | 116 | — | — | — | 194 | |||||||||||||||||||||||
Interest expense, net | 108 | 194 | — | (4 | ) | 6(c) | 625 | 6(a) | 854 | ||||||||||||||||||||
— | — | (69 | ) | 6(b) | |||||||||||||||||||||||||
Other expense (income), net | 181 | (282 | ) | 59 | 7(b) | — | — | 99 | |||||||||||||||||||||
81 | 7(d) | — | — | ||||||||||||||||||||||||||
10 | 7(i) | ||||||||||||||||||||||||||||
50 | 7(h) | — | — | ||||||||||||||||||||||||||
Earnings from continuing operations before income taxes | 3,705 | 2,104 | — | (1,821 | ) | (556 | ) | 3,432 | |||||||||||||||||||||
Provision for income taxes | 640 | 501 | — | (446 | ) | 6(f) | (205 | ) | 6(f) | 490 | |||||||||||||||||||
Earnings from continuing operations | $ | 3,065 | $ | 1,603 | $ | — | $ | (1,375 | ) | $ | (351 | ) | $ | 2,942 | |||||||||||||||
Earnings from continuing operations per share | |||||||||||||||||||||||||||||
Basic | $ | 3.06 | $ | 2.04 | |||||||||||||||||||||||||
Diluted | $ | 3.02 | $ | 2.02 | |||||||||||||||||||||||||
Weighted average shares outstanding | |||||||||||||||||||||||||||||
Basic | 1,002.1 | 1,438.9 | |||||||||||||||||||||||||||
Diluted | 1,013.6 | 1,453.0 |
• | On November 7, 2014, Medtronic entered into the 364-day senior unsecured bridge credit agreement (the "Bridge Credit Agreement"), among Medtronic, New Medtronic, Medtronic Global Holdings S.C.A., an entity organized under the laws of Luxembourg (“Medtronic Luxco”), the lenders from time to time party thereto and Bank of America, N.A., as administrative agent. Under the Bridge Credit Agreement, the lenders party thereto had committed to provide Medtronic with unsecured bridge financing in an aggregate principal amount of up to $11.3 billion. The $11.3 billion available under the Bridge Credit Agreement was not drawn by Medtronic and the Bridge Credit Agreement was subsequently terminated on December 10, 2014. |
• | On November 7, 2014, Medtronic also entered into the three-year senior unsecured term loan credit agreement (the "Term Loan Credit Agreement") among Medtronic, New Medtronic, Medtronic Luxco, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent. Under the Term Loan Credit Agreement, the lenders party thereto committed to provide Medtronic with unsecured term loan financing in an aggregate principal amount of up to $5.0 billion. On January 26, 2015, Medtronic borrowed $3.0 billion under the Term Loan Credit Agreement for a term of three years. Medtronic used the proceeds from borrowings under the Senior Notes (as defined below) and the Term Loan Credit Agreement to finance, in part, the cash component of the Scheme Consideration, including the payment of certain transaction and financing expenses and for working capital and general corporate purposes, which may include repayment of indebtedness. |
• | New Medtronic and Medtronic Luxco have guaranteed the obligations of Medtronic under the Senior Notes (as defined below) and the Term Loan Credit Agreement. |
• | On December 10, 2014, Medtronic issued $17.0 billion unsecured senior notes consisting of $500 million of floating rate senior notes due 2020, $1.0 billion of 1.500% senior notes due 2018, $2.5 billion of 2.500% senior notes due 2020, $2.5 billion of 3.150% senior notes due 2022, $4.0 billion of 3.500% senior notes due 2025, $2.5 billion of 4.375% senior notes due 2035, and $4.0 billion of 4.625% senior notes due 2045 (collectively, the “Senior Notes”). On January 26, 2015, New Medtronic and Medtronic Luxco each provided a full and unconditional guarantee of Medtronic’s obligations under the Senior Notes, as well as under certain of Medtronic and Covidien’s other outstanding indebtedness. |
Unaudited | ||||||||||||||||
As reported by Covidien | ||||||||||||||||
(In millions) | Fiscal Year Ended September 26, 2014 | Less: Six Months Ended March 28, 2014 | Add: Three Months Ended December 26, 2014 | Nine Months Ended December 26, 2014 | ||||||||||||
Net sales | $ | 10,659 | $ | 5,237 | $ | 2,686 | $ | 8,108 | ||||||||
Cost of products sold | 4,332 | 2,156 | 1,042 | 3,218 | ||||||||||||
Selling, general, and administrative expenses | 3,751 | 1,746 | 865 | 2,870 | ||||||||||||
Research and development expenses | 546 | 260 | 133 | 419 | ||||||||||||
Restructuring charges, net | 145 | 73 | (2 | ) | 70 | |||||||||||
Interest expense, net | 189 | 99 | 45 | 135 | ||||||||||||
Other (income) expense, net | (127 | ) | (211 | ) | 20 | 104 | ||||||||||
Income from continuing operations before income taxes | 1,823 | 1,114 | 583 | 1,292 | ||||||||||||
Income tax expense | 161 | 275 | 72 | (42 | ) | |||||||||||
Net income | $ | 1,662 | $ | 839 | $ | 511 | $ | 1,334 |
Unaudited | ||||||||||||||||
As reported by Covidien | ||||||||||||||||
(In millions) | Fiscal Year Ended September 27, 2013 | Less: Six Months Ended March 29, 2013 | Add: Six Months Ended March 28, 2014 | Twelve Months Ended March 28, 2014 | ||||||||||||
Net sales | $ | 10,235 | $ | 5,097 | $ | 5,237 | $ | 10,375 | ||||||||
Cost of products sold | 4,150 | 2,032 | 2,156 | 4,274 | ||||||||||||
Selling, general, and administrative expenses | 3,340 | 1,652 | 1,746 | 3,434 | ||||||||||||
Research and development expenses | 508 | 233 | 260 | 535 | ||||||||||||
Restructuring charges, net | 105 | 62 | 73 | 116 | ||||||||||||
Interest expense, net | 192 | 97 | 99 | 194 | ||||||||||||
Other income, net | (89 | ) | (18 | ) | (211 | ) | (282 | ) | ||||||||
Income from continuing operations before income taxes | 2,029 | 1,039 | 1,114 | 2,104 | ||||||||||||
Income tax expense | 429 | 203 | 275 | 501 | ||||||||||||
Income from continuing operations | $ | 1,600 | $ | 836 | $ | 839 | $ | 1,603 |
(in millions, except per share data) | Note | Amount | |||
Calculation of consideration estimated to be transferred | |||||
Cash consideration paid to Covidien shareholders ($35.19 per share) | 5(a) | $ | 15,994 | ||
Cash consideration paid for vested Covidien share awards ($35.19 per share) | 5(c) | 86 | |||
Total cash consideration | 16,080 | ||||
Fair value of ordinary shares issued to Covidien shareholders | 5(b) | 33,435 | |||
Fair value of ordinary shares issued to Covidien share award holders | 5(c) | 180 | |||
Fair value of share awards issued to Covidien share award holders | 5(c) | 4 | |||
Fair value of stock options issued to Covidien stock option holders | 5(d) | 429 | |||
Fair value of total consideration | $ | 50,128 | |||
Recognized amounts of identifiable assets acquired and liabilities assumed | |||||
Net book value of assets acquired as of December 26, 2014 | 10,372 | ||||
Less transaction costs incurred by Covidien | 5(i) | (110 | ) | ||
Less write-off of pre-existing Covidien goodwill and intangible assets | (12,032 | ) | |||
Adjusted net book value of liabilities assumed | (1,770 | ) | |||
Identifiable intangible assets at fair value | 5(e) | 25,760 | |||
Increase property, plant, and equipment to fair value | 5(f) | 766 | |||
Increase inventory to fair value | 5(q) | 858 | |||
Increase debt assumed to fair value | 5(p) | (421 | ) | ||
Other fair value adjustments, net | 5(k) | (23 | ) | ||
Deferred tax impact of fair value adjustments | 5(g) | (5,793 | ) | ||
Goodwill | $ | 30,751 |
(a) | Represents cash consideration to be transferred of $35.19 per outstanding Covidien share based on 454,507,238 Covidien shares outstanding as of January 26, 2015. |
(b) | The acquisition date fair value of New Medtronic ordinary shares issued to Covidien shareholders, excluding Covidien share award holders, was estimated based on 454,507,238 of Covidien’s shares outstanding as of January 26, 2015, multiplied by the exchange ratio of 0.956, and Medtronic’s closing share price as of January 23, 2015 of $76.95 per share. Refer to the calculation below: |
(in millions, except share and per share data) | |||
Total Covidien shares outstanding (at Transaction close) | 454,507,238 | ||
Conversion factor | 0.956 | ||
Shares of New Medtronic to be issued (par value $0.0001) | 434,508,920 | ||
Value per share of Medtronic as of January 23, 2015 | $ | 76.95 | |
Fair value of New Medtronic stock issued in respect of outstanding Covidien shares | $ | 33,435 |
(c) | Each Covidien share unit (other than a Covidien option) granted prior to June 15, 2014 that was outstanding immediately prior to the completion of the Transactions became fully vested, and was converted into the right to receive the Scheme Consideration. As of January 26, 2015, there were 2,444,431 Covidien share awards outstanding that were granted prior to June 15, 2014, including |
(d) | Each stock option to purchase Covidien ordinary shares that was outstanding and unexercised immediately prior to completion of the Transactions was converted into an option to acquire a certain number of New Medtronic ordinary shares at a certain exercise price per share. These New Medtronic ordinary shares are subject to the same vesting and other terms and conditions and as applied to such outstanding Covidien option as defined in the Transaction Agreement. As of January 26, 2015, there were 11,640,782 Covidien options outstanding. The fair value of the options to acquire New Medtronic shares is $679 million based on Medtronic’s closing share price as of January 23, 2015 of $76.95 per share. For pro forma purposes, $429 million of the fair value of the options is considered pre-combination services and is allocated to consideration transferred to acquire Covidien. The remaining $250 million will be expensed in the post-combination period. |
(e) | For purposes of the unaudited pro forma condensed combined financial statements, the general categories of the acquired identifiable intangible assets are the following: |
(in millions) | Amount | ||
Identifiable intangible assets | |||
Acquired identifiable definite-lived intangible assets | $ | 23,780 | |
Acquired indefinite-lived trade names | 1,680 | ||
Purchased IPR&D | 300 | ||
Estimated fair value of identified intangible assets | 25,760 | ||
Pre-existing Covidien intangible assets | (3,209 | ) | |
Pro forma adjustment for estimated fair value of identifiable intangible assets | $ | 22,551 |
(f) | To record a pro forma adjustment for an estimated $766 million increase to Covidien’s property, plant, and equipment to present property, plant, and equipment at fair value. |
(g) | Reflects the adjustment to deferred income tax assets and liabilities resulting from pro forma fair value adjustments for the assets and liabilities acquired. This estimate of deferred taxes was determined based on the excess book basis over the tax basis of the fair value pro forma adjustments attributable to the assets and liabilities acquired. The statutory tax rate was applied, as appropriate, to each adjustment based on the jurisdiction in which the adjustment will occur. In situations where jurisdictional detail was not available, a weighted average rate of 24.5 percent was applied to the adjustment. This estimated rate represents an adjusted overall effective tax rate for the on-going operations of Covidien. For further information, see Note 6(f). The deferred tax assets recorded on the unaudited pro forma condensed combined balance sheet have not been assessed for the need of a valuation allowance. This estimate of deferred income tax assets and liabilities is preliminary and is subject to change based upon management’s final determination of the fair value of assets acquired and liabilities assumed by jurisdiction. |
(in millions) | As of January 23, 2015 | ||
Adjustments to non-current deferred tax asset: | |||
Debt assumed - Note 5(p) | $ | 123 | |
Other - Note 5(k) | 7 | ||
$ | 130 | ||
Adjustments to current deferred tax liability: | |||
Inventory - Note 5(q) | 210 | ||
Adjustments to non-current deferred tax liability: | |||
Identifiable intangible assets - Note 5(e) | 5,525 | ||
Property, plant, and equipment - Note 5(f) | 188 | ||
$ | 5,713 | ||
Deferred tax impact of fair value adjustments | $ | 5,793 |
(h) | To adjust goodwill: |
(in millions) | |||
Goodwill | $ | 30,751 | |
Pre-existing Covidien goodwill | (8,823 | ) | |
Pro forma adjustment | $ | 21,928 |
(i) | Represents $110 million of net transaction costs incurred by Covidien from December 27, 2014 through the acquisition date, which reduce net assets acquired. |
(j) | Represents the elimination of Covidien’s historical ordinary shares, ordinary shares held in treasury at cost, additional paid-in capital, accumulated other comprehensive income, and retained earnings. Also represents the conversion of Medtronic's common stock to New Medtronic ordinary shares, par value $0.0001. |
(k) | Covidien's historical balance sheet includes $23 million of deferred financing costs. Deferred financing costs of Covidien are eliminated as assumed debt is recorded at fair value. |
(l) | On January 26, 2015, Medtronic amended and restated its existing $2.250 billion syndicated credit facility and entered into a $3.500 billion five-year revolving credit facility. On January 26, 2015, Covidien terminated its $1.500 billion unsecured senior revolving credit facility. There were no amounts outstanding on Medtronic’s $2.250 billion syndicated credit facility or Covidien’s $1.500 billion unsecured senior revolving credit facility as of January 23, 2015 and December 26, 2014, respectively. Medtronic’s $2.250 billion credit facility and Covidien's $1.500 billion unsecured credit facility have been treated as extinguished for purposes of these unaudited pro forma condensed combined financial statements, resulting in the combined write-off of $4 million capitalized debt issuance costs. |
(m) | Represents $3.0 billion of financing drawn by Medtronic for a term of three years under the Term Loan Credit Agreement. The $3.0 billion in borrowings under the Term Loan Credit Agreement together with the incurrence of approximately $17.0 billion in debt by Medtronic was used to finance the cash component of the Scheme Consideration, including the payment of certain transaction and financing expenses and for working capital and general corporate purposes, which may include repayment of indebtedness. |
(n) | To record a pro forma adjustment for the estimated nonrecurring cost of $97 million related to the payment to Medtronic’s directors and executive officers relating to their excise taxes. |
(o) | The unaudited pro forma condensed combined balance sheet reflects the $53 million of incremental acquisition-related transaction costs (excluding fees and expenses relating to financing and integration) as a reduction of cash with a corresponding decrease to retained earnings. |
(p) | To record a $421 million premium on Covidien’s existing debt to present debt assumed by New Medtronic in the acquisition at fair value. |
(q) | To increase Covidien's inventory to fair value, resulting in an estimated pro forma adjustment of $858 million. |
(a) | To record pro forma incremental interest expense, net of $390 million and interest expense, net of $625 million for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively. These amounts include incremental interest expense of $383 million and interest expense of $612 million for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively, from debt financing obtained by Medtronic and incremental debt issuance cost amortization expense of $7 million and debt issuance cost amortization expense $13 million for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively, from this debt financing. Prior to the transaction closing, Medtronic obtained $17.000 billion of debt financing across a range of maturities and a weighted average contractual interest rate of 3.60 percent. |
(b) | To recognize accretion of the pro forma debt premium of $47 million and $69 million for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively, from New Medtronic’s assumption of Covidien’s existing long-term debt. In anticipation of recording the assumed debt at fair value, a $421 million pro forma debt premium was recorded to recognize the long-term debt at fair value. |
(c) | To eliminate deferred financing cost amortization expense of $3 million and $4 million for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively. Deferred financing costs of Covidien are eliminated as assumed debt is measured and recorded at fair value. |
(d) | To record estimated pro forma amortization expense on the definite-lived intangible assets pro forma adjustment discussed in Note 5(e) of $1.301 billion and $1.770 billion for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively. |
Estimated Amortization | |||||||||||||
(in millions, except estimated useful life) | Estimated Fair Value | Weighted Average Estimated Useful Life | Fiscal Year Ended April 25, 2014 | Nine Months Ended January 23, 2015 | |||||||||
Acquired definite-lived intangible assets | $ | 23,780 | 12 | $ | 1,990 | $ | 1,493 | ||||||
Covidien historical amortization | (220 | ) | (192 | ) | |||||||||
Pro forma amortization expense | $ | 1,770 | $ | 1,301 |
(e) | To record estimated pro forma depreciation expense on the property, plant, and equipment pro forma adjustment discussed in Note 5(f) of $41 million and $55 million for the nine months ended January 23, 2015 and fiscal year ended April 25, 2014, respectively. The estimated pro forma depreciation expense adjustments are based on the increase in fair value above net book value calculated over an approximate estimated weighted average useful life of 14 years. |
(f) | The statutory tax rate was applied, as appropriate, to each adjustment based on the jurisdiction in which the adjustment was expected to occur. In situations where jurisdictional detail was not available, a weighted average rate of 24.5 percent was applied to the adjustment. This estimated rate represents an adjusted overall effective tax rate for the on-going operations of Covidien. |
Nine Months Ended January 23, 2015 | |||||||||||
(in millions) | Acquisition Adjustment | Financing Adjustment | Total Adjustment | ||||||||
Amortization of intangible assets - Note 6(d) | $ | (319 | ) | $ | — | $ | (319 | ) | |||
Interest expense related to financing - Note 6(a) | — | (140 | ) | (140 | ) | ||||||
Depreciation of property, plant, and equipment - Note 6(e) | (10 | ) | — | (10 | ) | ||||||
Accretion of premium on debt assumed - Note 6(b) | — | 14 | 14 | ||||||||
Acquisition-related transaction costs - Note 6(g) | 20 | — | 20 | ||||||||
Other - Note 6(c) | 1 | — | 1 | ||||||||
Pro forma adjustments to provision for income taxes | $ | (308 | ) | $ | (126 | ) | $ | (434 | ) |
Fiscal Year Ended April 25, 2014 | |||||||||||
(in millions) | Acquisition Adjustment | Financing Adjustment | Total Adjustment | ||||||||
Amortization of intangible assets - Note 6(d) | $ | (434 | ) | $ | — | $ | (434 | ) | |||
Interest expense related to financing - Note 6(a) | — | (225 | ) | (225 | ) | ||||||
Depreciation of property, plant, and equipment - Note 6(e) | (13 | ) | — | (13 | ) | ||||||
Accretion of premium on debt assumed - Note 6(b) | — | 20 | 20 | ||||||||
Other - Note 6(c) | 1 | — | 1 | ||||||||
Pro forma adjustments to provision for income taxes | $ | (446 | ) | $ | (205 | ) | $ | (651 | ) |
(g) | Acquisition-related transaction costs have been expensed in Medtronic's and Covidien's historical consolidated financial statements. As acquisition-related transaction costs are non-recurring items, they have not been reflected in the pro forma statements of earnings. A pro forma adjustment totaling $221 million has been reflected in the pro forma statements of earnings to remove acquisition-related transaction costs of $176 million that was expensed by Medtronic during the nine months ended January 23, 2015 and $45 million that was expensed by Covidien during the nine months ended December 26, 2014. |
(a) | To present Covidien’s derivatives that are subject to master netting agreements and allow for the right of offset by the counterparty on a gross basis. |
(b) | To reclassify Covidien’s medical device excise tax from selling, general, and administrative expense to other income, net. |
(c) | To reclassify Covidien’s amortization of definite-lived intangible assets from cost of products sold to selling, general, and administrative expense. |
(d) | To reclassify Covidien’s net gains and losses on foreign currency contracts from cost of products sold and selling, general, and administrative expense to other income, net. |
(e) | To reclassify certain of Covidien’s stock-based compensation expense from selling, general, and administrative expense to cost of products sold and research and development expense. |
(f) | To reclassify certain of Covidien’s shipping and handling costs from cost of products sold to selling, general, and administrative expense. |
(g) | To reclassify Covidien’s litigation and environmental charges from selling, general, and administrative expense to certain litigation charges, net. The litigation charge resulted from an increase to Covidien's estimated indemnification obligation for certain pelvic mesh product liability cases. The environmental charge related to probable and reasonably estimated incremental costs to remediate a site in Orrington, Maine following a court decision affirming a compliance order issued by the Maine Board of Environmental Protection. |
(h) | To reclassify Covidien’s royalty expense from cost of products sold to other income, net. |
(i) | To reclassify Covidien's gain on a previously-held investment associated with Covidien's acquisition of CV Ingenuity from other income, net to selling, general, and administrative expense. |
(in millions, except share and per share data) | Nine months ended January 23, 2015 | Year ended April 25, 2014 | |||||
Pro forma earnings from continuing operations | $ | 2,983 | $ | 2,942 | |||
Basic - weighted average shares outstanding | 1,423,408,369 | 1,438,920,163 | |||||
Dilutive effect of Medtronic stock options, restricted stock units, and other | 11,947,828 | 11,486,617 | |||||
Dilutive effect of Covidien stock options | 3,359,442 | 2,568,947 | |||||
Diluted - weighted average shares outstanding | 1,438,715,639 | 1,452,975,727 | |||||
Pro forma earnings from continuing operations per share: | |||||||
Basic | $ | 2.10 | $ | 2.04 | |||
Diluted | $ | 2.07 | $ | 2.02 |
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