Medtronic 2011 Annual Report Download - page 88

84 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
(in millions)
April 2 9,
2011
April 30,
2010
Deferred tax assets:
Inventory (intercompany profit in inventory
and excess of tax over book valuation) $ 366 $ 426
Stock-based compensation 233 214
Accrued liabilities 169 130
Net operating loss and credit carryforwards 149 119
Other 135 118
Federal and state benefit on uncertain tax
positions 133 133
Pension and post-retirement benefits 124 150
Unrealized loss on equity investments 17 16
Warranty reserves 12 11
Allowance for doubtful accounts 11 14
Convertible debt interest 5 14
Unrealized currency loss — 28
Total deferred tax assets
(net of valuation allowance) 1,354 1,373
Deferred tax liabilities:
Intangible assets (691) (652)
Realized loss on derivative financial
instruments (112) (113)
Accumulated depreciation (89) (43)
Other (41) (48)
Unrealized currency gain (26) —
Unrealized gain on available-for-sale securities
and derivative financial instruments (10) (62)
Total deferred tax liabilities (969) (918)
Deferred tax assets, net $ 385 $ 455
The Company’s effective income tax rate varied from the U.S.
Federal statutory tax rate as follows:
Fiscal Year
2011 2010 2009
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate resulting from:
U.S. state taxes, net of Federal tax benefit 0.3 0.5 0.6
Research and development credit (1.2) (0.6) (1.6)
Domestic production activities (0.5) (0.3) (0.5)
International
(19.1)(16.7) (20.7)
Puerto Rico Excise Tax (0.6) — —
Impact of special charges, restructuring
charges, certain litigation charges, net,
and acquisition-related items 2.3 2.0 9.5
Reversal of excess tax accruals (1.7) — (5.4)
Retiree medical subsidy law change — 0.4 —
Other, net 2.3 1.6 (1.7)
Effective tax rate 16.8% 21.9% 15.2%
In fiscal year 2011, the Company recorded a $67 million net tax
benefit associated with the reversal of excess tax accruals. This
reversal related to the settlement of certain issues reached with
the U.S. Internal Revenue Service (IRS) involving the review of the
Company’s fiscal years 1997 through 1999 and fiscal years 2005
and 2006 domestic income tax returns, and the resolution of
various state and foreign audit proceedings covering multiple
years and issues. The $67 million net tax benefit was recorded in
the provision for income taxes in the consolidated statement of
earnings for fiscal year 2011.
In fiscal year 2010, the Company recorded a $15 million tax cost
associated with the U.S. health care reform legislation eliminating
the federal tax benefit for government subsidies of retiree
prescription drug benefits. The $15 million tax cost was recorded
in the provision for income taxes in the consolidated statement of
earnings for fiscal year 2010.
In fiscal year 2009, the Company recorded a $132 million certain
tax benefit associated with the reversal of excess tax accruals. This
reversal related to the settlement of certain issues reached with
the IRS involving the review of the Company’s fiscal year 2005
and fiscal year 2006 domestic income tax returns, the resolution
of various state audit proceedings covering fiscal years 1997
through 2007 and the completion of foreign audits covering
various years. The $132 million certain tax benefit was recorded in
the provision for income taxes in the consolidated statement of
earnings for fiscal year 2009.
The Company has not provided U.S. income tax on
approximately $14.912 billion, $12.373 billion, and $9.738 billion
of undistributed earnings from non-U.S. subsidiaries as of April
29, 2011, April 30, 2010, and April 24, 2009, respectively. These
earnings are intended to be permanently reinvested outside the
U.S. Determination of the amount of unrecognized deferred tax
liability on these undistributed earnings is not practicable.
Currently, the Company’s operations in Puerto Rico, Switzerland,
Ireland, and Singapore have various tax incentive grants. Unless
these grants are extended, they will expire between fiscal years
2012 and 2027.
The Company had $769 million, $538 million, and $431 million
of gross unrecognized tax benefits as of April 29, 2011, April 30,
2010, and April 24, 2009, respectively. A reconciliation of the
beginning and ending amount of unrecognized tax benefits for
fiscal years 2011, 2010, and 2009 is as follows:
Fiscal Years
(in millions) 2011 2010 2009
Gross unrecognized tax benefits at
beginning of fiscal year $538 $431 $ 455
Gross increases:
Prior year tax positions 151 51 3
Current year tax positions 172 74 106
Gross decreases:
Prior year tax positions (57) (14) (116)
Settlements (32) (4) (15)
Statute of limitation lapses (3) — (2)
Gross unrecognized tax benefits at
end of fiscal year $769 $538 $ 431