Medtronic 2010 Annual Report Download - page 91

87
Medtronic, Inc.
expense in the consolidated statements of earnings. Deferred tax
assets/(liabilities) are comprised of the following:
(in millions)
April 30,
2010
April 24,
2009
Deferred tax assets:
Inventory (intercompany profit in inventory
and excess of tax over book valuation) $ 426 $ 315
Stock-based compensation 214 185
Pension and post-retirement benefits 150 76
Federal and state benefit on uncertain
tax positions 133 111
Accrued liabilities 130 143
Net operating loss and credit carryforwards 119 136
Unrealized currency loss 28 43
Unrealized loss on equity investments 16 15
Allowance for doubtful accounts 14 12
Convertible debt interest 14 35
Warranty reserves 11 7
Accrued legal reserves —156
Other 118 113
Total deferred tax assets (net of
valuation allowance) 1,373 1,347
Deferred tax liabilities:
Intangible assets (652) (595)
Realized loss on derivative financial
instruments (113) (113)
Unrealized gain on available for sale securities
and derivative financial instruments (62) (100)
Accumulated depreciation (43) (28)
Other (48) (21)
Total deferred tax liabilities (918) (857)
Deferred tax assets, net $ 455 $ 490
The Company’s effective income tax rate varied from the U.S.
Federal statutory tax rate as follows:
Fiscal Year
2010 2009 2008
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 0.5 0.6 1.1
Research and development credit (0.6) (1.6) (0.7)
Domestic production activities (0.3) (0.5) (0.4)
International (16.7) (20.7) (19.2)
Impact of special charges, restructuring
charges, certain litigation charges, net
and IPR&D and certain acquisition-
related costs 2.0 9.5 6.2
Reversal of excess tax accruals —(5.4) —
Retiree medical subsidy law change 0.4 — —
Other, net 1.6 (1.7) —
Effective tax rate 21.9% 15.2% 22.0%
In fiscal year 2010 the Company recorded a $15 million tax cost
associated with the U.S. healthcare 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 U.S. Internal Revenue Service (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 taxes on certain of
its non-U.S. subsidiaries’ undistributed earnings as such amounts
are permanently reinvested outside the U.S. At April 30, 2010 and
April 24, 2009, such earnings were approximately $12.373 billion
and $9.738 billion, respectively. Currently, the Company’s operations
in Puerto Rico, Switzerland and Ireland have various tax incentive
grants. Unless these grants are extended, they will expire between
fiscal years 2011 and 2027. The expiration of the Ireland tax
incentive grant on December 31, 2010 is not expected to have a
material impact on the Company’s financial results.
The Company had $538 million, $431 million and $455 million
of gross unrecognized tax benefits as of April 30, 2010, April 24,
2009 and April 25, 2008, respectively. A reconciliation of the
beginning and ending amount of unrecognized tax benefits for
fiscal years 2010, 2009 and 2008 is as follows:
Fiscal Years
(in millions) 2010 2009 2008
Gross unrecognized tax benefits at
beginning of fiscal year $ 431 $ 455 $408
Gross increases:
Prior year tax positions 51 3 21
Current year tax positions 74 106 51
Gross decreases:
Prior year tax positions (14) (116) (23)
Settlements (4) (15) (2)
Statute of limitation lapses —(2) —
Gross unrecognized tax benefits at
end of fiscal year $ 538 $ 431 $455