Medtronic 2009 Annual Report Download - page 89

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Medtronic, Inc.
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 year 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 filed a Petition
with the U.S. Tax Court on July 14, 2008 objecting to the deficiency
and intends to defend its 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. 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.
In March 2009, the IRS issued its audit report for fiscal years
2005 and 2006. The Company has 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 the
Company does not agree with, the Company has filed its protest
with the IRS.
The Company’s 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 the Company’s
financial results in future periods. The Company continues to
believe that its reserves for uncertain tax positions are appropriate
and has meritorious defenses for its tax filings and will vigorously
defend them during the audit process, appellate process and
through litigation in courts, as necessary.
14. 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 $223 million, $222 million and
$184 million in fiscal years 2009, 2008 and 2007, respectively. The
Company adopted the measurement date provisions of SFAS No.
158 effective April 26, 2008. The U.S. plans and some plans outside
the U.S. previously had a measurement date of January 31. All
plans now measure their funded status as of the Company’s
year end. The adoption of the measurement date provisions of
SFAS No. 158 resulted in an after-tax decrease to shareholders’
equity of $13 million, a decrease to other long-term assets of $5
million and an increase to long-term accrued compensation and
retirement benefits of $8 million.
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.
As of April 24, 2009 and 2008, the net (underfunded)/overfunded
status of the Company’s benefit plans was $(157) million and $90
million, respectively.