Medtronic 2008 Annual Report Download - page 83

If all of the Company’s unrecognized tax benefits as of April 25, 2008
were recognized, $370 would impact the Company’s effective tax rate.
The Company has recorded the FIN No. 48 liability 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. Prior to the adoption of FIN No. 48, the Company
classified uncertain tax position in current accrued income taxes on the
consolidated balance sheet.
The Company recognizes interest and penalties related to income tax
matters in the provision for income taxes in the consolidated statement
of earnings and records the liability in the current or long-term income
taxes payable, as appropriate. The Company had $126 and $89 of
accrued gross interest and penalties as of April 25, 2008 and April 28,
2007, respectively. During the fiscal year ended April 25, 2008, the
Company recognized interest expense of approximately $24 in the
provision for income taxes in the consolidated statement of earnings.
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 1996. 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 August 2003, the IRS proposed adjustments arising out of its audit
of the fiscal years 1997, 1998 and 1999 tax returns. The Company initiated
defense of these adjustments at the IRS appellate level and in the
second quarter of fiscal 2006 the Company 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. The Company
intends to file a Petition with the U.S. Tax Court and vigorously defend
its 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. The Company has 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 the Company’s
effective tax rate in future periods. The Company continues to believe
that it has meritorious defenses for its tax filings and will vigorously
defend them through litigation in the courts, as necessary.
13. Retirement Benefit Plans
The Company sponsors various retirement benefit plans, including
defined benefit pension plans (pension benefits), post-retirement
medical plans (post-retirement benefits), defined contribution savings
plans and termination indemnity plans, covering substantially all U.S.
employees and many employees outside the U.S. The cost of these
plans was $215, $184 and $188 in fiscal years 2008, 2007 and 2006,
respectively. The Company uses a January 31 measurement date for its
U.S. plans and an April 30 measurement date for the majority of its plans
outside the U.S.
In the U.S., the Company maintains a qualified pension plan designed
to provide guaranteed minimum retirement benefits to all eligible U.S.
employees. Pension coverage for non-U.S. employees of the Company
is provided, to the extent deemed appropriate, through separate plans.
In addition, U.S. and Puerto Rico employees of the Company are also
eligible to receive specified Company paid healthcare and life insurance
benefits through the Company’s post-retirement medical plans. In
addition to the benefits provided under the qualified pension plan,
retirement benefits associated with wages in excess of the IRS allowable
limits are provided to certain employees under a non-qualified plan.
In September 2006, the FASB issued SFAS No. 158. This standard
requires employers to recognize the funded status of defined benefit
pension and post-retirement plans as an asset or liability in its statement
of financial position, and recognize changes in the funded status in
the year in which the changes occur through accumulated other
comprehensive (loss)/income, which is a component of shareholders’
equity. This standard also eliminates the requirement or need for the
recognition of Additional Minimum Pension Liability required under
SFAS No. 87, “Employers’ Accounting for Pensions.” As of April 25, 2008 and
April 27, 2007, the net overfunded/(underfunded) status of the Company’s
benefit plans was $90 and $(2), respectively. In fiscal year 2007, recognition
of the underfunded status upon the adoption of SFAS No. 158 resulted
in an after-tax charge to shareholders’ equity of $209.
79Medtronic, Inc.