Medtronic 2011 Annual Report Download - page 40

36 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
In March 2009, the IRS issued its audit report for fiscal years
2005 and 2006. We have reached agreement with the IRS on
many, but not all, of the proposed adjustments for fiscal years
2005 and 2006. The significant issues that could effect our tax
payments that remain unresolved relate to the allocation of
income between Medtronic, Inc. and its wholly-owned subsidiary
operating in Puerto Rico and the timing of the deductibility of a
settlement payment. On December 23, 2010, the IRS issued a
statutory notice of deficiency with respect to the remaining
issues. We filed a Petition with the U.S. Tax Court on March 21,
2011 objecting to the deficiency.
Our reserve for the uncertain tax positions related to these
significant unresolved matters with the IRS, 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 our financial results
in future periods. We continue to believe that our reserves for
uncertain tax positions are appropriate and have meritorious
defenses for our tax filings and will vigorously defend them
during the audit process, appellate process, and through litigation
in courts, as necessary.
See Note 13 to the consolidated financial statements for
additional information.
Liquidity and Capital Resources
Fiscal Year
(dollars in millions) 2011 2010
Working capital$ 4,403 $ 4,718
Current ratio* 1.9:1.0 1.9:1.0
Cash, cash equivalents, and short-term
investments $ 2,428 $ 3,775
Long-term investments in debt, marketable
equity, and trading securities** 5,464 4,090
Total $ 7,892 $ 7,865
Short-term borrowings and long-term debt $ 9,835 $ 9,519
Net cash position*** $ (1,943) $ (1,654
* Current ratio is the ratio of current assets to current liabilities.
** L ong-term investments include debt securities with a maturity date greater than
one year from the end of the period, marketable equity securities, and trading
securities and exclude minority investments.
*** Net cash position is the sum of cash, cash equivalents, short-term investments,
and long-term investments in debt, marketable equity, and trading securities
less short-term borrowings and long-term debt.
As of April 29, 2011, we believe our strong balance sheet and
liquidity provide us with flexibility in the future. We believe
our existing cash and investments, as well as our $2.250 billion
syndicated credit facility and related commercial paper program
($1.500 billion of commercial paper outstanding as of April 29,
2011), will satisfy our foreseeable working capital requirements
for at least the next twelve months. However, we periodically
consider various financing alternatives and may, from time
to time, seek to take advantage of favorable interest rate
environments or other market conditions. At April 29, 2011, our
Standard and Poor’s Ratings Group and Moody’s Investors Service
ratings remain unchanged as compared to the fiscal year ended
April 30, 2010, with long-term debt ratings of AA- and A1,
respectively, and strong short-term debt ratings of A-1+ and P-1,
respectively.
The decrease in our net cash position in fiscal year 2011 as
compared to fiscal year 2010 was primarily due to changes in
working capital needs compared to the prior fiscal year. For
further information see the “Summary of Cash Flows” section of
this management’s discussion and analysis.
We have future contractual obligations and other minimum
commercial commitments that are entered into in the normal
course of business. We believe our off-balance sheet arrangements
do not have a material current or anticipated future effect on our
consolidated earnings, financial position, or cash flows. See the
“Off-Balance Sheet Arrangements and Long-Term Contractual
Obligations” section of this management’s discussion and analysis
for further information.
When applicable, Note 16 to the consolidated financial
statements provides information regarding amounts we have
accrued related to significant legal proceedings. In accordance
with U.S. GAAP, we record a liability in our consolidated financial
statements for these actions when a loss is known or considered
probable and the amount can be reasonably estimated. For the
fiscal year ended April 29, 2011, we have made significant
payments related to certain legal proceedings. For information
regarding these payments, please see the “Special Charges,
Restructuring Charges, Certain Litigation Charges, Net, Acquisition-
Related Items, and Certain Tax Adjustments” section of this
management’s discussion and analysis.
A significant amount of our earnings occur outside the U.S.,
and are deemed to be permanently reinvested in non-U.S.
subsidiaries, resulting in a majority of our cash, cash equivalents,
and investments being held by such non-U.S. subsidiaries. At April
29, 2011 and April 30, 2010, approximately $7.215 billion and $5.576
billion, respectively, of cash, cash equivalents, and short- and long-
term investments in marketable debt and equity securities were
held by our non-U.S. subsidiaries. These funds are available for use
by our worldwide operations; however, if these funds were
for