Medtronic 2013 Annual Report Download - page 61

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Table of Contents
offset by realized gains of $51 million on certain available-for-sale marketable equity securities in fiscal year 2012. Also contributing
to the increase in other expense, net, was $100 million related to the Puerto Rico excise tax for fiscal year 2012 compared to $38
million for the prior fiscal year. The Puerto Rico excise tax was substantially offset by a corresponding tax benefit which was
recorded within provision for income taxes in the consolidated statements of earnings.
Interest Expense, Net Interest expense, net includes interest earned on our cash, cash equivalents and investments, interest
incurred on our outstanding borrowings, amortization of debt issuance costs and debt discounts, the net realized and unrealized
gain or loss on trading securities, ineffectiveness on 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 2013, interest expense, net was $151 million, as compared
to $149 million in fiscal year 2012. For fiscal year 2013, interest expense, net remained consistent with fiscal year 2012. Compared
to fiscal year 2012, increased interest income from higher investment balances and increased realized gains on sales of available-
for-sale debt securities were offset by increased interest expense from higher average outstanding long-term debt.
In fiscal year 2012, interest expense, net was $149 million, as compared to $278 million in fiscal year 2011. The decrease of $129
million in fiscal year 2012 was primarily the result of decreased interest expense due to lower interest rates on our outstanding
debt in comparison to fiscal year 2011 and reduced debt discount amortization due to repayment of $2.200 billion of Senior
Convertible Notes in April 2011. Additionally, interest income increased due to higher investment balances in comparison to fiscal
year 2011.
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
Percentage Point
Fiscal Year Increase (Decrease)
(dollars in millions) 2013 2012 2011 FY13/12 FY12/11
Provision for income taxes $ 784 $ 730 $ 609 N/A N/A
Effective tax rate 18.4% 17.6% 16.6% 0.8 1.0
Net tax impact of restructuring charges, net,
certain litigation charges, net, and acquisition-
related items (0.5) 0.5 0.3 (1.0) 0.2
Non-GAAP nominal tax rate(1) 17.9% 18.1% 16.9% (0.2) 1.2
(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.
Our effective tax rate from continuing operations of 18.4 percent increased by 0.8 of a percentage point from fiscal year 2012 to
fiscal year 2013. The increase in our effective tax rate was due to the net tax impact of restructuring charges, net, acquisition-
related items, certain litigation charges, net, and the impact of operational tax benefits described below. Our non-GAAP nominal
tax rate for fiscal year 2013 was 17.9 percent compared to 18.1 percent in the prior fiscal year. The decrease in our non-GAAP
nominal tax rate for fiscal year 2013 as compared to the prior fiscal year was primarily due to the impact of operational tax benefits.
During fiscal year 2013, we recorded $72 million in operational tax benefits. This included a $30 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 $12 million benefit was also recorded as an operational tax benefit during fiscal year 2013. In addition, we recorded a $24 million
benefit associated with foreign dividend distributions and a $6 million benefit associated with the release of a valuation allowance
associated with the usage of a capital loss carryover.
The fiscal year 2012 effective tax rate from continuing operations of 17.6 percent increased by 1.0 percentage point from the prior
fiscal year. 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
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