Summary
Medtronic plc announced the completion of an internal restructuring of certain legacy Covidien businesses. This move, effective September 28, 2015, is designed to enhance financial flexibility by making approximately $9.8 billion (net of tax, approximately $9.3 billion) of cash, cash equivalents, and marketable securities, previously held by U.S.-controlled non-U.S. subsidiaries, available for general corporate purposes. This repatriation of funds is expected to provide Medtronic with greater confidence in meeting its financial commitments, including its targets for maintaining an 'A' credit profile, returning capital to shareholders, and pursuing strategic acquisitions.
Key Highlights
- 1Completion of an internal restructuring of certain legacy Covidien businesses.
- 2Approximately $9.8 billion of cash and investments previously held by U.S.-controlled non-U.S. subsidiaries is now available for general corporate purposes.
- 3A one-time charge of approximately $500 million, primarily U.S. income tax expense, will be recognized in Q2 FY2016.
- 4The restructuring enhances Medtronic's financial flexibility and ability to meet financial commitments.
- 5Commitments include targeting an 'A' credit profile and reducing debt to EBITDA by FY2018.
- 6Medtronic reaffirms its commitment to returning a minimum of 50% of free cash flow to shareholders.
- 7Fiscal year 2016 revenue outlook and non-GAAP EPS guidance remain unchanged.
Frequently Asked Questions
The primary financial impact is the availability of approximately $9.8 billion in cash and investments for general corporate purposes, significantly increasing Medtronic's financial flexibility. However, this comes with a one-time charge of approximately $500 million in Q2 FY2016, mainly due to U.S. income tax expense.
The company states that this restructuring provides increased confidence in meeting its financial commitments, which include continuing to target an 'A' credit profile and reducing its debt to EBITDA ratio by the end of fiscal year 2018. This suggests the company believes the restructuring will support, rather than hinder, its credit objectives.
The restructuring is stated to support Medtronic's commitment to returning a minimum of 50 percent of its free cash flow to shareholders through dividends and share repurchases. The increased availability of cash should facilitate continued execution of this policy.
No, Medtronic explicitly stated that this restructuring does not affect its previously issued fiscal year 2016 revenue outlook or non-GAAP earnings per share guidance.