Medtronic 2008 Annual Report Download - page 43

In April 2006, we issued $2.200 billion of 1.500 percent Senior
Convertible Notes due 2011 and $2.200 billion of 1.625 percent Senior
Convertible Notes due 2013, collectively the Senior Convertible Notes.
The Senior Convertible Notes were issued at par and pay interest in cash
semi-annually in arrears on April 15 and October 15 of each year. The
Senior Convertible Notes are unsecured unsubordinated obligations
and rank equally with all other unsecured and unsubordinated
indebtedness. The Senior Convertible Notes have an initial conversion
price of $56.14 per share. The Senior Convertible Notes may only be
converted: (i) during any calendar quarter if the closing price of our
common stock reaches 140 percent of the conversion price for 20
trading days during a specified period, or (ii) if specified distributions to
holders of our common stock are made or specified corporate
transactions occur, or (iii) during the last month prior to maturity of the
applicable notes. Upon conversion, a holder would receive: (i) cash
equal to the lesser of the principal amount of the note or the conversion
value and (ii) to the extent the conversion value exceeds the principal
amount of the note, shares of our common stock, cash or a combination
of common stock and cash, at our option. In addition, upon a change
in control, as defined, the holders may require us to purchase for cash
all or a portion of their notes for 100 percent of the principal amount of
the notes plus accrued and unpaid interest, if any, plus a number of
additional make-whole shares of our common stock, as set forth in the
applicable indenture. The indentures under which the Senior Convertible
Notes were issued contain customary covenants, all of which we remain
in compliance with as of April 25, 2008. A total of $2.500 billion of the
net proceeds from these note issuances were used to repurchase
common stock. As of April 25, 2008, pursuant to provisions in the
indentures relating to the Company’s increase of its quarterly dividend
to shareholders, the conversion rates for each of the Senior Convertible
Notes is now 17.8715, which correspondingly changed the conversion
price per share for each of the Senior Convertible Notes to $55.96. See
Note 7 to the consolidated financial statements for further discussion
of the accounting treatment.
Concurrent with the issuance of the Senior Convertible Notes, we
purchased call options on our common stock in private transactions.
The call options allow us to receive shares of our common stock and/
or cash from counterparties equal to the amounts of common stock
and/or cash related to the excess conversion value that we would pay
to the holders of the Senior Convertible Notes upon conversion. These
call options will terminate upon the earlier of the maturity dates of the
related Senior Convertible Notes or the first day all of the related Senior
Convertible Notes are no longer outstanding due to conversion or
otherwise. The call options, which cost an aggregate $1.075 billion
($699 million net of tax benefit), were recorded as a reduction of
shareholders’ equity. See Note 7 to the consolidated financial statements
for further discussion of the accounting treatment.
In separate transactions, we sold warrants to issue shares of our
common stock at an exercise price of $76.56 per share in private
transactions. Pursuant to these transactions, warrants for 41 million
shares of our common stock may be settled over a specified period
beginning in July 2011 and warrants for 41 million shares of our common
stock may be settled over a specified period beginning in July 2013 (the
“settlement dates”). If the average price of our common stock during a
defined period ending on or about the respective settlement dates
exceeds the exercise price of the warrants, the warrants will be settled
in shares of our common stock. Proceeds received from the issuance of
the warrants totaled approximately $517 million and were recorded as
an addition to shareholders’ equity. See Note 7 to the consolidated
financial statements for further discussion of the accounting treatment.
In April 2008, certain of the holders requested adjustment to the
exercise price of the warrants from $76.47 to $76.30 pursuant to the
anti-dilution provisions of the warrants relating to our payment of
dividends to common shareholders.
In September 2005, we issued two tranches of Senior Notes with the
aggregate face value of $1.000 billion. The first tranche consisted of
$400 million of 4.375 percent Senior Notes due 2010 and the second
tranche consisted of $600 million of 4.750 percent Senior Notes due
2015. Each tranche was issued at a discount which resulted in an
effective interest rate of 4.433 percent and 4.760 percent for the five and
ten year Senior Notes, respectively. Interest on each series of Senior
Notes is payable semi-annually, on March 15 and September 15 of each
year. The Senior Notes are unsecured unsubordinated obligations and
rank equally with all other unsecured and unsubordinated indebtedness.
The indentures under which the Senior Notes were issued contain
customary covenants, all of which we remain in compliance with as of
April 25, 2008. We used the net proceeds from the sale of the Senior Notes
for repayment of a portion of our outstanding commercial paper.
In November 2005, we entered into a five year interest rate swap
agreement with a notional amount of $200 million. This interest rate
swap agreement was designated as a fair value hedge of the changes
in fair value of a portion of our fixed-rate $400 million Senior Notes due
39Medtronic, Inc.