Medtronic 2010 Annual Report Download - page 41

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Medtronic, Inc.
Service ratings remain unchanged as compared to the fiscal year
ended April 24, 2009 with long-term debt ratings of AA- and A1,
respectively, and strong short-term debt ratings of A-1+ and P-1,
respectively.
The increase in our net cash position in fiscal year 2010 as
compared to fiscal year 2009 was primarily due to the fiscal year
2010 issuance of new debt, which we used to pay off a portion of
our short-term borrowings and invest in debt securities. For
further information see the “Summary of Cash Flows” section of
this management’s discussion and analysis.
We have future contractual obligations and other minimum
commercial commitments that are entered into in the normal
course of business. We believe our off-balance sheet arrangements
do not have a material current or anticipated future effect on our
consolidated earnings, financial position or cash flows. See the
“Off-Balance Sheet Arrangements and Long-Term Contractual
Obligations” section of this management’s discussion and analysis
for further information.
When applicable, Note 17 to the consolidated financial
statements provides information regarding amounts we have
accrued related to significant legal proceedings. In accordance
with U.S. GAAP, we record a liability in our consolidated financial
statements for these actions when a loss is known or considered
probable and the amount can be reasonably estimated. For the
fiscal year ended April 30, 2010, we have made significant
payments related to certain legal proceedings. For information
regarding these payments, please see the “Special Charges,
Restructuring Charges, Certain Litigation Charges, Net, IPR&D and
Certain Acquisition-Related Costs and Certain Tax Adjustments”
section of this management’s discussion and analysis.
At April 30, 2010 and April 24, 2009, approximately $5.576
billion and $3.628 billion, respectively, of cash, cash equivalents,
short-term investments and long-term investments in debt
securities were held by our non-U.S. subsidiaries. These funds are
available for use by worldwide operations; however, if these funds
were repatriated to the U.S. or used for U.S. operations, the amounts
would generally be subject to U.S. tax. As a result, we have not
chosen to repatriate this cash but instead use cash generated
from U.S. operations and short- and long-term borrowings to
meet our U.S. cash needs. Long-term investments at April 30, 2010
also include $156 million of cash invested in government securities
held in an indemnification trust established for self-insurance
coverage for our directors and officers. These investments are
restricted and can only be used to indemnify or advance expenses
related to claims against our directors and/or officers.
We have investments in marketable debt securities that are
classified and accounted for as available-for-sale. Our debt
securities include U.S. and foreign government and agency
securities, corporate debt securities, certificates of deposit and
mortgage backed and other asset backed securities including
auction rate securities. Market conditions over the past several
years have included periods of significant economic uncertainty
and at times general market distress especially in the banking and
financial services sector. This uncertainty has created reduced
liquidity across the fixed income investment market, including
certain securities in which we have invested. As a result, some of
our investments have experienced reduced liquidity including
unsuccessful monthly auctions for our auction rate security
holdings. Although certain securities are illiquid, if we required
capital we believe we could liquidate a substantial amount of our
portfolio and incur no material impairment loss or borrow under
our commercial paper program or lines of credit.
For the fiscal year ended April 30, 2010, other-than-temporary
impairment losses on available-for-sale debt securities were
$29 million, of which $15 million was recognized in other
comprehensive income resulting in $14 million of charges being
recognized in earnings. In determining this other-than-temporary
impairment loss, U.S. GAAP specifies that we consider a variety of
factors, including the quality and estimated value of the underlying
credit support for our holdings and the financial condition and
credit rating of the issuer in estimating the credit loss portion of
other-than-temporary impairment losses. Based on our assessment
of the credit quality of the underlying collateral and credit support
available to each of the remaining securities in which we are
invested, we believe we have recorded all necessary other-than-
temporary impairments as we do not have the intent to sell nor is
it more likely than not that we will be required to sell before
recovery of the amortized cost. However, as of April 30, 2010, we
have $83 million of gross unrealized losses on our aggregate
short-term and long-term available-for-sale debt securities of
$6.434 billion; if market conditions continue to deteriorate further,
some of these holdings may experience other-than-temporary
impairment in the future which could have a material impact on
our financial results. Management is required to use estimates
and assumptions in its valuation of our investments, which
requires a high degree of judgment. Therefore actual results
could differ materially from those estimates. See Note 7 to the
consolidated financial statements for additional information
regarding fair value measurements.