Medtronic 2011 Annual Report Download - page 89

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85
Medtronic, Inc.
If all of the Company’s unrecognized tax benefits as of April 29,
2011, April 30, 2010, and April 24, 2009 were recognized, $685
million, $459 million, and $360 million would impact the
Company’s effective tax rate, respectively. Although the Company
believes that it has adequately provided for liabilities resulting
from tax assessments by taxing authorities, positions taken by
these tax authorities could have a material impact on the
Company’s effective tax rate in future periods. The Company has
recorded the gross unrecognized tax benefits 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.
The Company recognizes interest and penalties related to
income tax matters in the provision for income taxes in the
consolidated statements of earnings and records the liability in
the current or long-term income taxes payable, as appropriate.
The Company had $80 million, $94 million, and $73 million of
accrued gross interest and penalties as of April 29, 2011, April 30,
2010, and April 24, 2009, respectively. During the fiscal years
ended April 29, 2011, April 30, 2010, and April 24, 2009, the
Company recognized interest expense, net of tax benefit, of
approximately $12 million, $14 million, and $18 million in the
provision for income taxes in the consolidated statements of
earnings, respectively.
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 1999. 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.
On December 7, 2010, the Company and the IRS reached
settlement with respect to the audits of fiscal years 1997, 1998,
and 1999 and the allocation of income between Medtronic, Inc.
and its wholly-owned subsidiary in Switzerland. The impact from
this settlement has been recorded in the provision for income taxes
in the consolidated statement of earnings for the fiscal year
ended April 29, 2011.
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. Following the
resolution on December 7, 2010 of the issue associated with the
allocation of income between Medtronic, Inc. and its wholly-
owned subsidiary in Switzerland, the Company reached agreement
with the IRS on substantially all of the proposed adjustments for
these fiscal years 2000 through 2004. The remaining open issues
are not significant and are expected to be resolved within the
next 12 months.
In March 2009, the IRS issued its audit report for fiscal years
2005 and 2006. The Company reached agreement with the IRS on
many, but not all, of the proposed adjustments for fiscal years
2005 and 2006. The significant issues that could effect the
Company’s tax payments that remain unresolved relate to
the allocation of income between Medtronic, Inc. and its wholly-
owned subsidiary operating in Puerto Rico and the timing of the
deductibility of a settlement payment. On December 23, 2010,
the IRS issued a statutory notice of deficiency with respect to the
remaining issues. The Company filed a Petition with the U.S. Tax
Court on March 21, 2011 objecting to the deficiency.
The Company’s reserve for the uncertain tax positions related
to these significant unresolved matters with the IRS, as 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 $368 million, $237 million, and
$223 million in fiscal years 2011, 2010, and 2009, respectively.