Medtronic 2016 Annual Report Download - page 110

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Table of Contents
Medtronic plc
Notes to Consolidated Financial Statements (Continued)
107
operating loss carryforwards of $8.6 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 29, 2016, the Company had $847 million of U.S. federal net operating loss carryforwards, which will expire during fiscal
2018 through 2036. For U.S. state purposes, the Company had $755 million of net operating loss carryforwards at April 29, 2016,
which will expire during fiscal 2017 through 2036.
At April 29, 2016, the Company also had $202 million of tax credits available to reduce future income taxes payable, of which
$98 million have no expiration, and the remaining credits begin to expire during fiscal 2017.
The Company has established valuation allowances of $7.0 billion and $5.6 billion at April 29, 2016 and April 24, 2015, 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 29, 2016, the Company had certain potential non-U.S. tax attributes that had not been recorded in the consolidated financial
statements, including $12.4 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
2016 2015 2014
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 0.9 0.8 0.6
Research and development credit (1.2)(0.7)(0.5)
Domestic production activities (0.3)(0.4)(0.4)
International (23.4)(24.3)(17.7)
Puerto Rico Excise Tax (1.6)(1.7)(1.6)
Impact of adjustments(1) 11.4 13.3 5.6
Reversal of excess tax accruals — — (1.9)
Valuation allowance release (0.9) — —
Other, net (1.5) 1.3 (1.8)
Effective tax rate 18.4% 23.3% 17.3%
(1) Adjustments include the impact of inventory step-up, impact of product technology upgrade commitment, special charges (gains), net,
restructuring charges, net, certain litigation charges, net, acquisition-related items, amortization of intangible assets, and certain tax
adjustments.
During fiscal year 2016 the Company recorded certain tax adjustments of $417 million. A $442 million certain tax adjustment
charge was recorded, which primarily related to the U.S. income tax expense resulting from our completion of an internal
reorganization of the ownership of certain legacy Covidien businesses that reduced the cash and investments held by our U.S.-
controlled non-U.S. subsidiaries (the Internal Reorganization). As a result of the Internal Reorganization, approximately $9.7
billion of cash, cash equivalents and investments in marketable debt and equity securities previously held by U.S.-controlled non-
U.S. subsidiaries became available for general corporate purposes. This charge was partially offset by a $25 million tax benefit
associated with the disposition of a wholly owned U.S. subsidiary. The $417 million net certain tax adjustment was recorded in
the provision for income taxes in the consolidated statement of income for fiscal year 2016.
During fiscal year 2015, a 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 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.