Medtronic 2008 Annual Report Download - page 73

7. Financing Arrangements
Debt consisted of the following:
April 25, 2008 April 27, 2007
Maturity by
Fiscal Year
Payable
Average
Interest Rate Payable
Average
Interest Rate
Short-Term Borrowings:
Contingent convertible debentures 2009–2022 $ 94 1.25% $ — —
Bank borrowings 2009 175 0.87% 255 0.83%
Commercial paper 2009 874 2.42% 249 5.29%
Capital lease obligations 2009 11 5.33% 5 5.19%
Total Short-Term Borrowings
$ 1,154
$ 509
Long-Term Debt:
Contingent convertible debentures 2010–2022 $ — — $ 94 1.25%
Five-year senior convertible notes 2011 2,200 1.50% 2,200 1.50%
Five-year senior notes 2011 400 4.38% 400 4.38%
New credit agreement 2011 300 2.90% — —
Seven-year senior convertible notes 2013 2,200 1.63% 2,200 1.63%
Ten-year senior notes 2016 600 4.75% 600 4.75%
Interest rate swaps 2011/2016 35 2.04% — 4.81%
Capital lease obligations 2009–2014 67 5.37% 84 5.38%
Total Long-Term Debt
$ 5,802
$ 5,578
Senior Convertible Notes In April 2006, the Company issued $2,200 of
1.500 percent Senior Convertible Notes due 2011 and $2,200 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 the Company’s 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 the Company’s 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 the Company’s
common stock, cash or a combination of common stock and cash, at
the Company’s option. In addition, upon a change in control, as defined,
the holders may require the Company 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 the Company’s common stock, as set
forth in the applicable indenture. The indentures under which the
Senior Convertible Notes were issued contain customary covenants. A
total of $2,500 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.
Under EITF No. 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” (EITF
No. 00-19), the notes are accounted for similar to traditional convertible
debt (that is, as a combined instrument) because the conversion spread
meets the requirements of EITF No. 00-19, including the provisions
contained in paragraphs 12–32 of EITF No. 00-19. Accordingly, the
“conversion spread” is not separated as a derivative.
Concurrent with the issuance of the Senior Convertible Notes, the
Company purchased call options on its common stock in private
transactions. The call options allow the Company to receive shares of
the Company’s common stock and/or cash from counterparties equal
to the amounts of common stock and/or cash related to the excess
conversion value that it 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 ($699 net of tax benefit), were recorded
as a reduction of shareholders’ equity.
69Medtronic, Inc.