Medtronic 2012 Annual Report Download - page 63

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Income Taxes
Percentage Point
Fiscal Year Increase/(Decrease)
_____________________________________ ____________________________
(dollars in millions) 2012 2011 2010 FY12/11 FY11/10
__________________ ___________ ___________ ___________ ____________ ____________
Provision for income taxes . . . . . . . . . . . . . . . . . . . . $ 730 $ 609 $ 861 N/A N/A
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6% 16.6% 21.8% 1.0 (5.2)
Net tax impact of restructuring charges, net,
certain litigation charges, net, and
acquisition-related items . . . . . . . . . . . . . . . . . . . . (0.5) (0.3) 0.4 (0.2) (0.7)
___________ ___________ ___________ ____________ ____________
Non-GAAP nominal tax rate(1) . . . . . . . . . . . . . . . . 18.1% 16.9% 21.4% 1.2 (4.5)
___________ ___________ ___________ ____________ ____________
___________ ___________ ___________ ____________ ____________
(1) Non-GAAP nominal tax rate is defined as the income tax provision as a percentage of earnings before income taxes, excluding
special charges, restructuring charges, net, certain litigation charges, net, acquisition-related items, and certain tax adjustments.
We believe that the resulting non-GAAP financial measure provides useful information to investors because it excludes the effect
of these discrete items so that investors can compare our recurring results over multiple periods. Investors should consider this
non-GAAP measure in addition to, and not as a substitute for, financial performance measures prepared in accordance with U.S.
GAAP. In addition, this non-GAAP financial measure may not be the same or similar to measures presented by other companies.
The effective tax rate of 17.6 percent increased by 1.0 percentage point from fiscal year 2011 to fiscal year
2012. The increase in our effective tax rate was primarily due to the incremental tax benefits derived in
fiscal year 2011 compared to those recognized during fiscal year 2012. The fiscal year 2011 tax rate included
benefits from the retroactive renewal and extension of the U.S. federal research and development tax credit,
the resolution of U.S. federal, state, and foreign income tax audits, and foreign dividend distributions. The
fiscal year 2012 benefits include an increased U.S. tax credit associated with the Puerto Rico excise tax, the
tax benefit associated with the release of a valuation allowance, and the impact of restructuring charges,
net, certain litigation charges, net, and acquisition-related items. Our non-GAAP nominal tax rate for fiscal
year 2012 was 18.1 percent compared to 16.9 percent in the prior fiscal year. The increase in our non-GAAP
nominal tax rate for fiscal year 2012 as compared to the prior fiscal year was primarily due to the operational
tax benefits described below and the impact of the Puerto Rico excise tax.
During fiscal year 2012, we recorded $70 million in operational tax benefits. This included a $37 million
net benefit associated with the resolution of U.S. federal, state, and foreign income tax audits, finalization
of certain tax returns, and changes to uncertain tax position reserves. In addition, during the fourth quarter
of fiscal year 2012, we entered into a sale-leaseback agreement that was recorded as a capital lease and as
a result of the transaction, we recorded a $33 million benefit associated with the release of a valuation
allowance associated with the usage of a capital loss carryover. This compares to $187 million in operational
tax benefits that were recorded during fiscal year 2011 as discussed below.
The fiscal year 2011 effective tax rate of 16.6 percent decreased by 5.2 percentage points from fiscal year
2010 to fiscal year 2011. The change in our effective tax rate was primarily due to the tax benefits derived
from the resolution of U.S. federal, state, and foreign income tax audits, the retroactive renewal and extension
of the U.S. federal research and development tax credit, finalization of certain tax returns, changes to
uncertain tax position reserves, foreign dividend distributions, the impact of restructuring charges, net,
certain litigation charges, net, acquisition-related items, and the benefit associated with the Puerto Rico
excise tax. Our non-GAAP nominal tax rate for fiscal year 2011 was 16.9 percent compared to 21.4 percent
in the prior fiscal year. The decrease in our non-GAAP nominal tax rate for fiscal year 2011 as compared
to the prior fiscal year was due to the operational tax benefits described below and the impact of tax benefits
derived from our international operations.
During fiscal year 2011, we recorded $187 million in operational tax benefits. This included a $67 million
net benefit associated with the resolution of U.S. federal, state, and foreign income tax audits, finalization
of certain tax returns, and changes to uncertain tax position reserves. As a result of the retroactive renewal
and extension of the U.S. federal research and development tax credit, a $27 million benefit was also
recorded as an operational tax benefit during fiscal year 2011. In addition, we recorded a $59 million benefit
associated with foreign dividend distributions and a $34 million U.S. tax credit associated with the Puerto
Rico excise tax, which substantially offsets the corresponding excise tax recorded within other expense, net
in the consolidated statement of earnings.
Tax audits associated with the allocation of income, and other complex issues, may require an extended
period of time to resolve and may result in income tax adjustments if changes to our allocation are required
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