Medtronic 2009 Annual Report Download - page 41

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Medtronic, Inc.
In August 2003, the IRS proposed adjustments arising out of
its audit of the fiscal years 1997, 1998 and 1999 tax returns.
We initiated a defense of these adjustments at the IRS appellate
level, and in the second quarter of fiscal year 2006 we reached
settlement on most, but not all matters. The remaining issue
relates to the allocation of income between Medtronic, Inc., and
its wholly owned subsidiary in Switzerland. On April 16, 2008, the
IRS issued a statutory notice of deficiency with respect to this
remaining issue. We filed a Petition with the U.S. Tax Court on July
14, 2008 objecting to the deficiency and intend to defend our
position vigorously.
In September 2005, the IRS issued its audit report for fiscal
years 2000, 2001 and 2002. In addition, the IRS issued its audit
report for fiscal years 2003 and 2004 in March 2007. We have
reached agreement with the IRS on substantially all of the
proposed adjustments for these fiscal years 2000 through 2004.
The only item of significance that remains open for these years
relates to the carryover impact of the allocation of income issue
proposed for fiscal years 1997 through 1999.
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 remain unresolved
relate to the allocation of income between Medtronic, Inc. and its
wholly owned subsidiaries and the timing of the deductibility of
a settlement payment. For the proposed adjustments that we do
not agree with, we have filed our protest with the IRS.
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) 2009 2008
Working capital $ 4,313 $ 3,787
Current ratio* 2.4:1.0 2.1:1.0
Cash, cash equivalents, and short-term
investments $ 1,676 $ 1,613
Long-term investments in debt securities** 2,242 2,078
Cash, cash equivalents, short-term investments
and long-term debt securities $ 3,918 $ 3,691
Short-term borrowings and long-term debt $ 7,294 $ 6,956
Net cash position*** $ (3,376) $ (3,265)
* Current ratio is the ratio of current assets to current liabilities.
** Long-term investments include debt securities with a maturity date greater than
one year from the end of the period.
*** Net cash position is the sum of cash, cash equivalents, short-term investments
and long-term investments in debt securities less short-term borrowings and
long-term debt.
We believe our liquidity remains strong as of April 24, 2009 and
our strong balance sheet and liquidity provide us with flexibility
in the future. We believe our existing cash and investments, as
well as our unused lines of credit and commercial paper capacity
of $2.799 billion, if needed, 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 24, 2009,
our Standard and Poor’s Ratings Group and Moody’s Investors
Service ratings remain unchanged as compared to the fiscal year
ended April 25, 2008 with long-term debt ratings of AA- and A1,
respectively, and strong short-term debt ratings of A-1+ and P-1.
The decrease in our net cash position in fiscal year 2009 as
compared to fiscal year 2008 was primarily due to the fiscal year
2009 issuance of new debt partially offset by positive cash flow
from operations. 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.