Medtronic 2012 Annual Report Download - page 64

between jurisdictions with different tax rates. Tax authorities periodically review our tax returns and propose
adjustments to our tax filings. The U.S. Internal Revenue Service (IRS) has settled its audits with us for all
years through fiscal year 2004. 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 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. During October 2011, we reached
agreement with the IRS on all remaining final proposed adjustments for fiscal years 2000 through 2004.
In March 2009, the IRS issued its audit report for fiscal years 2005 and 2006. We reached agreement
with the IRS on some but not all matters related to these fiscal years. The unresolved significant issues that
remain outstanding relate to the allocation of income between Medtronic, Inc. and its wholly-owned
subsidiary operating in Puerto Rico, which is one of our key manufacturing sites, as well as 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. We filed a Petition with the U.S. Tax Court on March 21, 2011 objecting
to the deficiency. We are currently in settlement discussions with the IRS as it relates to the outstanding
issues; however, a settlement has not yet been reached.
In October 2011, the IRS issued its audit report for fiscal years 2007 and 2008. 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 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 subsidiary in a
taxable transaction. The IRS has disagreed with our valuation and proposed that all U.S. goodwill, the value
of the ongoing business, and the value of the workforce in place be included in the tangible asset sale.
We disagree that these items were sold, as well as with the IRS valuation of these items. We are currently
attempting to resolve these matters at the IRS Appellate level and will proceed through litigation,
if necessary.
Our 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 our financial results in future periods. We continue to
believe that our reserves for uncertain tax positions are appropriate and 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 14 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) 2012 2011
__________________ _____________ _____________
Working capital(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,658 $ 4,254
Current ratio* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6:1.0 1.9:1.0
Cash, cash equivalents, and short-term investments . . . . . . . . . . . . . . . . . . . . . . . $ 2,592 $ 2,428
Long-term investments in debt, marketable equity and trading securities** . . 7,197 5,464
_____________ _____________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,789 $ 7,892
Short-term borrowings and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,633 $ 9,835
_____________ _____________
Net cash position*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (844) $ (1,943)
_____________ _____________
_____________ _____________
(1) Working capital excludes assets and liabilities held for sale as of April 29, 2011.
* 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, marketable
equity and trading securities and exclude minority investments.
*** Net cash position is the sum of cash, cash equivalents, short-term investments, and long-term investments in debt, marketable
equity and trading securities less short-term borrowings and long-term debt.
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