Medtronic 2008 Annual Report Download - page 39

On April 16, 2008, the IRS issued a statutory notice of deficiency with
respect to this remaining issue. We intend to file a Petition with the U.S.
Tax Court and vigorously defend our position.
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.
The unresolved issue from the 1997 through 2004 tax audits, as well
as tax positions taken by the IRS or foreign tax authorities during future
tax audits, could have a material unfavorable impact on our effective
tax rate in future periods. We continue to believe that we have
meritorious defenses for our tax filings and will vigorously defend them
through litigation in the courts, as necessary. We believe that we have
adequately provided for probable liabilities resulting from tax
assessments by taxing authorities.
Liquidity and Capital Resources
Fiscal Year
(dollars in millions) 2008 2007
Working capital $ 3,787 $ 5,355
Current ratio* 2.1:1.0 3.1:1.0
Cash, cash equivalents and short-term investments $ 1,613 $ 3,078
Long-term investments in debt securities** 2,078 3,004
Cash, cash equivalents, short-term investments and
long-term debt securities 3,691 6,082
Short-term borrowings and long-term debt 6,956 6,087
Net cash position***
$ (3,265
)
$ (5
)
* 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 25, 2008 and our
strong balance sheet and liquidity provide us with flexibility in the
future. We believe our existing cash and investments, future cash
generated from operations and available lines of credit and commercial
paper capacity of $1.945 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 25, 2008, our Standard
and Poor’s Ratings Group and Moody’s Investors Service ratings remain
unchanged as compared to the fiscal year ended April 27, 2007 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 2008 as compared
to fiscal year 2007 is primarily due to the acquisition of Kyphon which
was consummated on November 2, 2007. The transaction was financed
through a combination of $3.303 billion of cash on hand, the issuance
of $600 million short-term commercial paper and borrowing $300 million
through a new long-term unsecured revolving credit facility. For further
information regarding the acquisition of Kyphon, see Note 4 to the
consolidated financial statements. See the “Summary of Cash Flows”
section of this management’s discussion and analysis for further
discussion of our cash uses and proceeds.
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.
Notes 2 and 15 to the consolidated financial statements provide
information regarding amounts we have accrued related to significant
legal proceedings as well as information regarding the expected timing
of payment. In accordance with SFAS No. 5, 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.
In May 2008, we paid substantially all of the settlement for certain
lawsuits relating to the Marquis line of ICDs and CRT-Ds. In June 2008,
we paid the settlement amount for the Kyphon qui tam complaint,
which we assumed in the acquisition of Kyphon.
At April 25, 2008 and April 27, 2007, $3.317 billion and $5.428 billion,
respectively, of cash, cash equivalents and short- and long-term debt
securities were held by our non-U.S. subsidiaries. The reduction in the
cash balance is the result of the use of cash by our non-U.S. subsidiaries
in connection with the acquisition of Kyphon, partially offset by
additional cash generated by our non-U.S. subsidiaries. These funds are
available for use by worldwide operations; however, if these funds were
to be repatriated to the U.S. or used for U.S. operations, the amounts
would be subject to U.S. tax.
We have investments in marketable debt securities that are classified
and accounted for as available-for-sale. Our debt securities include
government securities, commercial paper, corporate bonds, bank
certificates of deposit and mortgage backed and other asset backed
securities including auction rate securities. Market conditions during
35Medtronic, Inc.