Medtronic 2009 Annual Report Download - page 87

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Medtronic, Inc.
13. Income Taxes
The provision for income taxes is based on earnings before
income taxes reported for financial statement purposes. The
components of earnings before income taxes are:
Fiscal Year
(in millions) 2009 2008 2007
U.S. $ 1,138 $ 713 $ 1,579
International 1,456 2,172 1,936
Earnings before income taxes $ 2,594 $ 2,885 $ 3,515
The provision for income taxes consists of:
Fiscal Year
(in millions) 2009 2008 2007
Current tax expense:
U.S. $ 264 $ 458 $ 712
International 291 267 239
Total current tax expense 555 725 951
Deferred tax expense (benefit):
U.S. 4(40) (216)
International (134) (31) (22)
Net deferred tax expense (benefit) (130) (71) (238)
Total provision for income taxes $ 425 $ 654 $ 713
Deferred taxes arise because of the different treatment of
transactions for financial statement accounting and income tax
accounting, known as “temporary differences.” The Company
records the tax effect of these temporary differences as “deferred
tax assets” and “deferred tax liabilities.” Deferred tax assets
generally represent items that can be used as a tax deduction or
credit in a tax return in future years for which the Company has
already recorded the tax benefit in the consolidated statements
of earnings. The Company establishes valuation allowances for
deferred tax assets when the amount of expected future taxable
income is not likely to support the use of the deduction or credit.
The Company has established valuation allowances for federal,
state and foreign net operating losses, credit carryforwards,
capital loss carryforwards and deferred tax assets which are
capital in nature in the amount of $234 million and $177 million at
April 24, 2009 and April 25, 2008, respectively. These carryover
attributes expire at various points in time, from within a year to
no expiration date. These valuation allowances would result in a
reduction to the provision for income taxes in the consolidated
statement of earnings, if they are ultimately not required. Deferred
tax liabilities generally represent tax expense recognized in the
consolidated financial statements for which payment has been
deferred or expense has already been taken as a deduction on
the Company’s tax return but has not yet been recognized as an
expense in the consolidated statements of earnings. Deferred tax
assets/(liabilities) are comprised of the following:
(in millions)
April 24,
2009
April 25,
2008
Deferred tax assets:
Inventory (intercompany profit in inventory
and excess of tax over book valuation) $ 315 $ 2 6 5
Convertible debt interest 215 254
Unrealized loss on available for sale securities
and derivative financial instruments —186
Stock-based compensation 185 130
Accrued liabilities 143 128
Federal and state benefit on uncertain
tax positions 111 112
Accrued legal reserves 156 90
Net operating loss and credit carryforwards 136 15
Pension and post-retirement benefits 76 —
Unrealized currency loss 43 6
Allowance for doubtful accounts 12 24
Unrealized loss on equity investments 15 14
Warranty reserves 715
Other 113 98
Total deferred tax assets (net of
valuation allowance) 1,527 1,337
Deferred tax liabilities:
Intangible assets (595) (488)
Realized loss on derivative financial
instruments (113) (103)
Unrealized gain on available for sale securities
and derivative financial instruments (100) —
Accumulated depreciation (28) (8)
Pension and post-retirement benefits —(8)
Other (21) (27)
Total deferred tax liabilities (857) (634)
Deferred tax assets, net $ 670 $ 7 0 3