SEC Filings

10-K
INTUITIVE SURGICAL INC filed this Form 10-K on 02/02/2018
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Interest and Other Income, Net
Interest and other income, net, was $41.9 million for the year ended December 31, 2017, compared with $35.6 million for 2016 and $18.5 million for 2015. The increase in interest and other income, net, for the year ended December 31, 2017, was primarily driven by higher interest earned due to higher interest rates. The increase in interest and other income, net, for the year ended December 31, 2016, was primarily driven by higher interest earned on higher cash and investment balances.
Income Tax Expense
Our income tax expense was $436.5 million, $244.9 million, and $169.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. The effective tax rate for 2017 was approximately 39.8% compared with 25.0% for 2016, and 22.4% for 2015. Our effective tax rate for 2017 differs from the U.S. federal statutory rate of 35% primarily due to the effect of the below mentioned one-time discrete items and state income taxes net of federal benefit, partially offset by income earned by certain of our overseas entities being taxed at rates lower than the federal statutory rate and reversal of certain unrecognized tax benefits. Our tax rates for 2016 and 2015 differ from the U.S. federal statutory rate of 35% primarily due to the effect of income earned by certain of our overseas entities being taxed at rates lower than the federal statutory rate and reversal of certain unrecognized tax benefits, partially offset by state income taxes net of federal benefit. 
On December 22, 2017, the U.S. federal government enacted the 2017 Tax Act. The 2017 Tax Act includes a number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. Consistent with guidance issued by the Securities Exchange Commission (“SEC”), which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act, we provisionally recorded an income tax expense of $317.8 million related to the 2017 Tax Act. Based on information available, we reflected a provisional estimate of $270.2 million of income tax expense related to the one-time deemed repatriation toll charge. As a result of the 2017 Tax Act, we can repatriate our cumulative undistributed foreign earnings back to the U.S. when needed with minimal U.S. income tax consequences other than the one-time deemed repatriation toll charge. In addition, we recorded a provisional estimate of $47.6 million income tax expense due to the re-measurement of our net deferred tax assets at a U.S. federal statutory rate of 21%. For the global intangible low-taxed income (“GILTI”) provisions of the 2017 Tax Act, a provisional estimate could not be made as we have not yet completed our assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred.
In accordance with SEC guidance, provisional amounts may be refined as a result of additional guidance from, and interpretations by, U.S. regulatory and standard-setting bodies, and changes in assumptions. In the subsequent period, provisional amounts will be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by the U.S. Department of the Treasury. The effects of the 2017 Tax Act may be subject to changes for items that were previously reported as provisional amounts, as well as any element of the 2017 Tax Act that a provisional estimate could not be made, and such changes could result in a material effect on our future effective tax rate.
Our 2017, 2016, and 2015 tax provision reflected tax benefits of $62.4 million, $15.8 million, and $6.4 million, respectively, associated with the reversal of unrecognized tax benefits and interests resulting from expiration of statutes of limitations in multiple jurisdictions and certain audit settlements. Our 2017 tax provision also reflected excess tax benefits recognized in income tax expense under Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-based Payment Accounting. Our 2015 tax provision also reflected a $29.3 million tax benefit resulting from a U.S. Tax Court opinion involving an independent third party, issued in the third quarter of 2015. Based on the findings of the U.S. Tax Court, we were required to, and did, refund to our foreign subsidiaries the share-based compensation element of certain intercompany charges made in prior periods. Starting from 2015, share-based compensation has been excluded from intercompany charges.
In the first quarter of 2017, we adopted ASU No. 2016-09, which changes how the tax effects of share-based awards are recognized. ASU No. 2016-09 requires excess tax benefits and tax deficiencies associated with employee equity to be recognized in the provision for income taxes as discrete items in the period when the awards vest or are settled, whereas previously such income tax effects were recorded as part of additional paid-in capital. Our provision for income taxes included excess tax benefits associated with employee equity plans of $102.8 million, which reduced our effective tax rate by 9.4 percentage points for the year ended December 31, 2017. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. GAAP. We expect that the adoption of this ASU will result in increased income tax expense volatility.
The tax holiday obtained in 2007 for our business operations in Switzerland ended on December 31, 2017. We received a new tax ruling in Switzerland for new business operations. The new tax ruling is effective for years 2018 through 2022, which will be extended for the next five years thereafter, to the extent certain terms and conditions continue to be met. The new ruling would allow for a reduced cantonal tax rate based on various thresholds of investment, including the ownership, development, and use of non-U.S. intellectual property rights and employment in such jurisdiction. The transfer of ownership of such intellectual

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