Income Taxes

6 Months Ended

Oct. 26, 2012

Income Tax Disclsosure [Abstract]

Income Taxes

Note 15 – Income Taxes

The Company's effective tax rates from continuing operations forthe three and six months ended October 26, 2012were24.36 percentand 22.25 percent, respectively, compared to 17.16 percent and 18.34 percent, respectively, from the same periods of the prior fiscal year.The increase in the Company's effective tax rate for the three and six months endedOctober 26, 2012 was primarily due to the net tax impact of acquisition-related items, certain litigation charges, net, the expiration of the U.S. federal research and development tax credit on December 31, 2011, and the impact associated with the resolution of certain income tax audits. These items were partially offset by the tax impact of foreign dividend distributions recorded during the quarter ended October 26, 2012.

During the three months ended October 26, 2012, the Company recorded a $4 million net benefit associated with foreign dividend distributions, resolution of certain income tax audits, finalization of certain income tax returns, and changes to uncertain tax position reserves. These tax adjustments are operational in nature and are recorded in provision for income taxes on the condensed consolidated statement of earnings.

During the six months ended October 26, 2012, the Company's gross unrecognized tax benefits decreased from $917 million to $915 million. In addition, the Company has accrued interest and penalties of $74million as of October 26, 2012. If all of the Company's unrecognized tax benefits were recognized, approximately $878 million would impact the Company's effective tax rate. The Company records the gross unrecognized tax benefit as a long-term liability as it does not expect significant payments to occur or the total amount of unrecognized tax benefits to change significantly over the next 12 months.

The Company will continue to recognize interest and penalties related to income tax matters in the provision for income taxes in the condensed consolidated statements of earnings and record the liability in the current or long-term accrued income taxes in the condensed consolidated balance sheets, as appropriate.

Tax audits associated with the allocation of income, and other complex issues, may require an extended period of time to resolve and may result in income tax adjustments if changes to the Company's allocation are required between jurisdictions with different tax rates. Tax authorities periodically review the Company's tax returns and propose adjustments to the Company's tax filings. The IRS has settled its audits with the Company for all years through fiscal year 2004. Tax years settled with the IRS may remain open for foreign tax audits and competent authority proceedings. Competent authority proceedings are a means to resolve intercompany pricing disagreements between countries.

In March 2009, the IRS issued its audit report for fiscal years 2005 and 2006. The Company reached agreement with the IRS on some but not all matters. On December 23, 2010, the IRS issued a statutory notice of deficiency with respect to the remaining issues. The Company filed a Petition with the U.S. Tax Court on March 21, 2011 objecting to the deficiency. During October 2012, the Company reached resolution with the IRS on the deductibility of a settlement payment. The remaining unresolved significant issue relates to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, which is one of the Company's key manufacturing sites.

In October 2011, the IRS issued its audit report for fiscal years 2007 and 2008. The Company reached agreement with the IRS on some but not all matters related to these fiscal years. The significant issues that remain unresolved relate to the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary in Puerto Rico, and proposed adjustments associated with the tax effects of the Company's acquisition of Kyphon. Associated with the Kyphon acquisition, Medtronic entered into an intercompany transaction whereby the Kyphon U.S. tangible assets were sold to another wholly-owned subsidiary in a taxable transaction. The IRS has disagreed with the Company's valuation and proposed that all U.S. goodwill, the value of the ongoing business, and the value of the workforce in place be included in the tangible asset sale. The Company disagrees that these items were sold, as well as with the IRS valuation of these items. The Company is currently attempting to resolve these matters at the IRS Appellate level and will proceed through litigation, if necessary.

The Company's reserve for the uncertain tax positions related to these significant unresolved matters with the IRS, as described above, is subject to a high degree of estimation and management judgment. Resolution of these significant unresolved matters, or positions taken by the IRS or foreign tax authorities during future tax audits, could have a material impact on the Company's financial results in future periods. The Company continues to believe that its reserves for uncertain tax positions are appropriate and have meritorious defenses for its tax filings and will vigorously defend them during the audit process, appellate process, and through litigation in courts, as necessary.