Medtronic 2010 Annual Report Download - page 43

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Medtronic, Inc.
percentage of sales related to the product under development or
in the event that regulatory approval for marketing is obtained. In
situations where we have no ability to influence the achievement
of the milestone or otherwise avoid the payment, we have
included those milestone or minimum royalty payments in the
following table. However, the majority of these arrangements give
us the discretion to unilaterally make the decision to stop
development of a product or cease progress of a clinical trial,
which would allow us to avoid making the contingent payments.
Although we are unlikely to cease development if a device
successfully achieves clinical testing objectives, these payments
are not included in the table of contractual obligations because
of the contingent nature of these payments and our ability to
avoid them if we decided to pursue a different path of
development or testing.
In the normal course of business, we periodically enter into
agreements that require us to indemnify customers or suppliers
for specific risks, such as claims for injury or property damage
arising out of our products or the negligence of our personnel or
claims alleging that our products infringe third-party patents or
other intellectual property. Our maximum exposure under these
indemnification provisions cannot be estimated, and we have not
accrued any liabilities within our consolidated financial statements
or included any indemnification provisions in our commitments
table. Historically, we have not experienced significant losses on
these types of indemnification obligations.
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. Presented below is a
summary of contractual obligations and other minimum
commercial commitments as of April 30, 2010. See Notes 9 and 16
to the consolidated financial statements for additional information
regarding long-term debt and lease obligations, respectively.
Additionally, see Note 14 to the consolidated financial statements
for additional information regarding accrued income tax
obligations, which are not reflected in the table below.
Maturity by Fiscal Year
(in millions) Total 2011 2012 2013 2014 2015 Thereafter
Contractual obligations related to off-balance sheet arrangements:
Operating leases(1) $ 360 $ 106 $ 78 $ 58 $ 44 $ 27 $ 47
Inventory purchases(2) 399 242 123 10 10 10 4
Commitments to fund minority investments/contingent acquisition consideration(3) 441 270 92 16 11 17 35
Interest payments(4) 2,749 294 252 252 216 191 1,544
Other(5) 204 77 49 23 17 15 23
Total $ 4,153 $ 989 $ 594 $ 359 $ 298 $ 260 $ 1,653
Contractual obligations reflected in the balance sheet:
Long-term debt, including current portion(6) $ 9,744 $ 2,600 $ 48 $ 2,220 $ 568 $ 1,254 $3,054
Capital leases 18 — 1 1 1 1 14
Total $ 9,762 $ 2,600 $ 49 $ 2,221 $ 569 $ 1,255 $3,068
(1) Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These future costs are not
included in the schedule above.
(2) We have included inventory purchase commitments which are legally binding and specify minimum purchase quantities. These purchase commitments do not exceed our
projected requirements and are in the normal course of business. These commitments do not include open purchase orders.
(3) Certain commitments related to the funding of minority investments and/or previous acquisitions are contingent upon the achievement of certain product-related
milestones and various other favorable operational conditions. While it is not certain if and/or when these payments will be made, the maturity dates included in this
table reflect our best estimates. In accordance with new authoritative accounting guidance on business combinations effective in fiscal year 2010, we are required to
record the fair value of contingent acquisition considerations as a liability on the consolidated balance sheet on a prospective basis, therefore, contingent acquisition
considerations are not included in the off-balance sheet disclosure for acquisitions subsequent to April 24, 2009. The table above excludes our pending acquisition of ATS
Medical, Inc.
(4) Interest payments in the table above reflect the interest on our outstanding debt, including the $3.000 billion of 2010 Senior Notes, $1.250 billion of 2009 Senior Notes,
$4.400 billion of Senior Convertible Notes, $1.000 billion of 2005 Senior Notes and $15 million of Contingent Convertible Debentures. The interest rate on each outstanding
obligation varies and interest is payable semi-annually. The interest rate is 3.000 percent on $1.250 billion of the 2010 Senior Notes due 2015, 4.450 percent on $1.250
billion of the 2010 Senior Notes due 2020, 5.550 percent on $500 million of the 2010 Senior Notes due 2040, 4.500 percent on $550 million of the 2009 Senior Notes due
2014, 5.600 percent on $400 million of the 2009 Senior Notes due 2019, 6.500 percent on $300 million of the 2009 Senior Notes due 2039, 1.500 percent on the $2.200 billion
Senior Convertible Notes due 2011, 1.625 percent on the $2.200 billion Senior Convertible Notes due 2013, 4.750 percent on the $400 million of 2005 Senior Notes due 2010,
4.750 percent on the $600 million of 2005 Senior Notes due 2015 and 1.250 percent on the Contingent Convertible Debentures due 2021. The table above excludes the
impact of the debt discount amortization, due to the adoption of the new authoritative guidance for convertible debt accounting, on the Senior Convertible Notes.
(5) These obligations include certain research and development arrangements.
(6) Long-term debt in the table above includes $3.000 billion 2010 Senior Notes, $1.250 billion 2009 Senior Notes, $4.400 billion Senior Convertible Notes, $1.000 billion 2005
Senior Notes and $15 million related to our Contingent Convertible Debentures. The table above excludes the remaining fair value from the five-year interest rate swap
agreement entered into in November 2005 and the eight-year interest rate swap agreement entered into in June 2007 that were terminated in December 2008. The table
above includes the impact of the five-year interest rate swap agreements entered into in June 2009, December 2009 and March 2010 along with the three-year interest
rate swap agreements entered into in March 2010. See Notes 9 and 10 to the consolidated financial statements for additional information regarding the interest rate swap
agreement terminations.