Medtronic 2015 Annual Report Download - page 121

Medtronic plc
Notes to Consolidated Financial Statements (Continued)
remaining non-US net operating loss carryforwards of $9.736 billion have a valuation allowance recorded against the
carryforwards as management does not believe that it is more likely than not that these net operating losses will be utilized.
At April 24, 2015, the Company had $759 million of U.S. federal net operating loss carryforwards, which will expire during
fiscal 2018 through 2035. For U.S. state purposes, the Company had $1.267 billion of net operating loss carryforwards at
April 24, 2015, which will expire during fiscal 2016 through 2035.
At April 24, 2015, the Company also had $183 million of tax credits available to reduce future income taxes payable, of which
$102 million have no expiration, and the remaining credits begin to expire during fiscal 2016. The Company has recorded a
valuation allowance against a significant portion of these tax credits as management does not believe that it is more likely than
not that they will be utilized.
The Company has established valuation allowances of $5.607 billion and $397 million at April 24, 2015 and April 25, 2014,
respectively, primarily related to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss and credit
carryforwards in various jurisdictions. These valuation allowances would result in a reduction to the provision for income taxes
in the consolidated statements of income, if they are ultimately not required.
At April 24, 2015, the Company had certain potential non-U.S. tax attributes that had not been recorded in the consolidated
financial statements, including $12.587 billion of non-U.S. special deductions with an indefinite carryforward period. The
Company has treated these amounts as special deductions for financial statement purposes since utilization is contingent upon
the annual performance of certain economic factors. The Company intends to recognize the applicable portion of the special
deduction annually at an estimated tax rate of between 1% and 3% when and if these economic factors are met.
The Company’s effective income tax rate from continuing operations varied from the U.S. federal statutory tax rate as follows:
Fiscal Year
2015 2014 2013
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 0.8 0.6 0.5
Research and development credit (0.7) (0.5) (1.1)
Domestic production activities (0.4) (0.4) (0.3)
International (24.3) (17.7) (16.7)
Puerto Rico Excise Tax (1.7) (1.6) (1.3)
Impact of non-recurring adjustments(a) 13.3 5.6 2.0
Reversal of excess tax accruals — (1.9) —
Other, net 1.3 (1.8) 0.3
Effective tax rate 23.3% 17.3% 18.4%
(a) Non-recurring adjustments include the impact of inventory step-up, impact of product technology upgrade commitment,
restructuring charges, net, certain litigation charges, net, acquisition-related items, amortization of intangible assets, and
certain tax adjustments.
During the fourth quarter of fiscal year 2015, a tentative settlement was reached with the IRS for the Kyphon acquisition-related
matters. As a result, the Company recorded a $329 million certain tax adjustment associated with the proposed settlement. In
addition, the certain tax adjustments includes a $20 million charge related to a taxable gain associated with the Covidien
acquisition. The $349 million net tax cost was recorded in the provision for income taxes in the consolidated statement of
income for fiscal year 2015.
In fiscal year 2014, the Company recorded a $71 million net tax benefit associated with the reversal of excess tax accruals. This
net tax benefit included $63 million related to the settlement of certain issues reached with the IRS involving the review of the
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