Medtronic 2009 Annual Report Download - page 39

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Medtronic, Inc.
commercialization include, but are not limited to, delay or failure
to obtain regulatory approvals to conduct clinical trials, delay or
failure to obtain required market clearances and patent litigation.
If commercial viability were not achieved, we would likely look to
other alternatives to provide these therapies.
See the “Acquisitions” section of this management’s discussion
and analysis for detailed discussion of each material acquisition in
fiscal years 2009 and 2008.
Certain Tax Adjustments We classify the material recognition
or derecognition of uncertain tax positions as certain tax
adjustments.
In fiscal year 2009, we recorded a $132 million certain tax
benefit associated with the reversal of excess tax accruals in
connection with the settlement of certain issues reached with the
U.S. Internal Revenue Service (IRS) involving the review of our
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.
There were no certain tax adjustments in fiscal year 2008.
In fiscal year 2007, we recorded a $129 million certain tax
benefit associated with the reversal of excess tax accruals in
connection with the settlement reached with the IRS with respect
to their review of our fiscal years 2003 and 2004 domestic income
tax returns and the resolution of competent authority issues for
fiscal years 1992 through 2000. The $129 million certain tax benefit
was recorded in the provision for income taxes in the consolidated
statement of earnings for fiscal year 2007.
See the “Income Taxes” section of this management’s discussion
and analysis for further discussion of the certain tax adjustments.
Other Expense, Net Other expense, net includes intellectual
property amortization expense, royalty income and expense,
realized equity security gains and losses, realized foreign currency
transaction and derivative gains and losses and impairment
charges on equity securities. In fiscal year 2009, other expense,
net was $396 million, a decrease of $40 million from $436 million
in the prior fiscal year. The decrease of $40 million for fiscal year
2009 was primarily due to the impact of foreign currency gains
and losses. Total foreign currency losses recorded in other
expense, net in fiscal year 2009 were $28 million as compared to
losses of $148 million in the prior fiscal year. Additionally, other
expense, net was partially offset by incremental expense from
royalties on the sales of Endeavor products and $92 million of
amortization on intangible assets related to the Kyphon acquisition
in the current fiscal year compared to $46 million in the prior
fiscal year.
In fiscal year 2008, other expense, net was $436 million, an
increase of $224 million from $212 million in fiscal year 2007. This
change is primarily due to the impact of foreign currency gains
and losses, which resulted in losses in fiscal year 2008 of $148
million versus gains in fiscal year 2007 of $20 million, and $46
million of amortization on intangible assets resulting from the
Kyphon acquisition. Additionally, prior year other expense, net
was offset by $55 million due to the accelerated amortization of
deferred income in connection with a product supply agreement
in the CardioVascular business, where the other party elected not
to exercise its option to extend the agreement.
Interest Expense/(Income), Net Interest expense/(income), net
includes interest earned on our investments, interest paid on our
borrowings, amortization of debt issuance costs and the net
realized gain or loss on the sale or impairment of available-for-
sale (AFS) debt securities. In fiscal year 2009, interest expense/
(income), net was $29 million, as compared to $(109) million in
fiscal year 2008. The change from interest income, net of $109
million in fiscal year 2008 to interest expense, net of $29 million
in fiscal year 2009 is the result of lower average cash and
investment balances during fiscal year 2009 as a result of the
cash utilized to finance the Kyphon acquisition that took place
in the third quarter of fiscal year 2008 and lower interest rates
being earned on our short- and long-term investments during
the twelve months ended April 24, 2009. Interest expense
also decreased in fiscal year 2009 as a result of having lower
interest rates on our outstanding debt in comparison to fiscal
year 2008. See our discussion in the “Liquidity and Capital
Resources” section of this management’s discussion and analysis
for more information regarding our investment portfolio.
In fiscal year 2008, interest income, net was $109 million, a
decrease of $45 million from interest income, net of $154 million
in fiscal year 2007. The decrease in interest income, net in fiscal
year 2008 as compared to fiscal year 2007 was a result of the
impact of the cash utilized to finance the Kyphon acquisition,
increased borrowings outstanding and a decline in interest rates
being received on our short- and long-term investments. The
decrease was partially offset by recognition of $26 million in net
gains on the sale of AFS debt securities.