Medtronic 2011 Annual Report Download - page 38

34 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
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.
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, impairment charges
on equity securities, and the Puerto Rico excise tax. In fiscal year
2011, other expense, net was $459 million, a decrease of $9 million
from $468 million in the prior fiscal year. The decrease was
impacted by foreign currency gains of $61 million in fiscal year
2011 compared to $11 million in the prior fiscal year. Also
contributing to the decrease was higher royalty income and
licensing payments that we received in our CardioVascular
business compared to the prior fiscal year. These decreases
for fiscal year 2011 were partially offset by an increase in the
amortization of intangible assets, primarily related to the
acquisitions of Invatec and ATS Medical, and an increase of $38
million related to a Puerto Rico excise tax for fiscal year 2011,
which was substantially offset by a corresponding tax benefit
which was recorded within provision for income taxes in the
consolidated statement of earnings.
In fiscal year 2010, other expense, net was $468 million, an
increase of $72 million from $396 million in the prior fiscal year.
The increase of $72 million for fiscal year 2010 was primarily due
to an increase in the amortization of intangible assets related to
the acquisitions of Ablation Frontiers and CoreValve, a decrease in
Diabetes royalty income, an increase in royalty expense within
our CardioVascular business, and minority investment write-
downs. This was partially offset by the gain on the sale of our
ophthalmic business and the net impact of foreign currency
gains. Total foreign currency gains recorded in fiscal year 2010
were $11 million compared to $28 million in losses in the prior
fiscal year.
Interest Expense, Net Interest expense, net includes interest
earned on our investments, interest paid on our borrowings,
amortization of debt issuance costs and debt discounts, the
net realized and unrealized gain or loss on trading securities,
changes in the fair value of interest rate derivative instruments,
and the net realized gain or loss on the sale or impairment of
available-for-sale debt securities. In fiscal year 2011, interest
expense, net was $278 million, as compared to $246 million in
fiscal year 2010. The increase of $32 million in fiscal year 2011 is
the result of an increase in interest paid on borrowings due to the
$3.000 billion debt issuance in the fourth quarter of fiscal year
2010, which was offset by lower interest rates on our outstanding
debt in comparison to fiscal year 2010. Interest income decreased
as a result of having lower interest rates being earned on our
short- and long-term investments during fiscal year 2011.
In fiscal year 2010, interest expense, net was $246 million, as
compared to $183 million in fiscal year 2009. The increase in
interest expense, net of $63 million in fiscal year 2010 was the
result of an increase in interest paid on borrowings due to the
$1.250 billion debt issuance in the fourth quarter of fiscal year
2009, which was offset by lower interest rates on our outstanding
debt in comparison to fiscal year 2009. Interest income decreased
as a result of having lower interest rates being earned on our
short- and long-term investments during fiscal year 2010.
See our discussion in the “Liquidity and Capital Resources”
section of this management’s discussion and analysis for more
information regarding our investment portfolio.
Income Taxes
Fiscal Year
Percentage Point
Increase/
(Decrease)
(dollars in millions) 2011 2010 2009 FY11/10 FY10/09
Provision for income
taxes $627 $870 $370 N/A N/A
Effective tax rate 16.8% 21.9% 15.2% (5.1) 6.7
Net tax impact of
special charges,
restructuring
charges, certain
litigation charges,
net, acquisition-
related items,
and certain tax
adjustments (0.3) 0.4 (5.2) (0.7) 5.6
Non-GAAP nominal
tax rate(1)
17.1% 21.5% 20.4% (4.4) 1.1
(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, 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 the 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 as similar measures presented by other companies.