Medtronic 2014 Annual Report Download - page 61

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the tax effects of our acquisition of Kyphon Inc. (Kyphon). Associated with the Kyphon acquisition, we entered into an
intercompany transaction whereby the Kyphon U.S. tangible assets were sold to another wholly-owned Medtronic subsidiary in
a taxable transaction. The IRS has disagreed with our valuation of these assets and proposed that all U.S. goodwill, the value of
the ongoing business, and the value of the workforce in place related to the Kyphon acquisition be included in the tangible asset
sale. We disagree that these items were sold, as well as with the IRS valuation of these items. The IRS continues to evaluate the
overall transaction that Medtronic entered into and because a foreign subsidiary acquired part of Kyphon directly from the
Kyphon shareholders, the IRS has argued that a deemed taxable event occurred. We disagree with the IRS and are currently
attempting to resolve these matters at the IRS Appellate level and will proceed through litigation, if necessary.
In April 2014, the IRS issued its audit report for fiscal years 2009, 2010, and 2011. We reached agreement with the IRS on some
but not all matters related to these fiscal years. The significant issues that remain unresolved relate to the allocation of income
between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico, and proposed adjustments associated with
the tax effects of our acquisition structures for Ardian, CoreValve, Inc., and Ablation Frontiers, Inc. The IRS’s positions are
similar to those presented in the Kyphon proposed adjustments. We disagree with the IRS and will attempt to resolve these
matters at the IRS Appellate level, however, we will proceed through litigation, if necessary.
Our reserves for uncertain tax positions relate to unresolved matters with the IRS and other taxing authorities. These reserves
are 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 that we 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 in “Item 8. Financial Statements and Supplementary Data” in this Annual
Report on Form 10-K for additional information.
Liquidity and Capital Resources
Fiscal Year
(dollars in millions) 2014 2013
Working capital $ 15,651 $ 13,902
Current ratio* 3.8:1.0 4.5:1.0
Cash, cash equivalents, and current investments $ 14,241 $ 11,130
Non-current investments in debt, marketable equity, and trading securities** 155 293
Total $ 14,396 $ 11,423
Short-term borrowings and long-term debt 11,928 10,651
Net cash position*** $ 2,468 $ 772
* Current ratio is the ratio of current assets to current liabilities.
** Non-current investments include debt, marketable equity, and trading securities that are not considered readily available
to fund current operations.
*** Net cash position is the sum of cash, cash equivalents, current investments, and non-current investments in debt,
marketable equity, and trading securities less short-term borrowings and long-term debt.
As of April 25, 2014, 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 (no
commercial paper outstanding as of April 25, 2014), will satisfy our foreseeable working capital requirements for at least the next
12 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. We also generally expect to refinance maturities of long-term debt.
At April 25, 2014, our Moody’s Investors Service (Moody’s) ratings remain unchanged as compared to those ratings at April 26,
2013 with a long-term debt rating of A2 and short-term debt rating of P-1. On December 13, 2013, Standard & Poor’s (S&P)
Ratings Services raised our long-term debt rating to AA-, compared to A+ at April 26, 2013. This upgrade reflects S&P Ratings
Services’ reassessment of Medtronic’s financial risk profile given its cash balances and sizable liquid investment portfolio. S&P
Ratings Services’ short-term debt rating remains unchanged at A-1+ as compared to the rating at April 26, 2013.
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