Medtronic 2011 Annual Report Download - page 77

73
Medtronic, Inc.
April 2 9, 2011 April 30, 2010
(in millions, except interest rates)
Maturity by
Fiscal Year Payable
Average
Interest Rate
Effective
Interest Rate Payable
Average
Interest Rate
Effective
Interest Rate
Long-Term Debt:
Contingent convertible debentures 2012–2022 $ 15 1.25% — $ 15 1.25% —
Seven-year senior convertible notes 2013 2,200 1.63% 6.03% 2,200 1.63% 6.03%
Five-year 2009 senior notes 2014 550 4.50% 4.50% 550 4.50% 4.50%
Five-year 2010 senior notes 2015 1,250 3.00% 3.00% 1,250 3.00% 3.00%
Ten-year 2005 senior notes 2016 600 4.75% 4.76% 600 4.75% 4.76%
Five-year 2011 senior notes 2016 500 2.63% 2.72% — — —
Ten-year 2009 senior notes 2019 400 5.60% 5.61% 400 5.60% 5.61%
Ten-year 2010 senior notes 2020 1,250 4.45% 4.47% 1,250 4.45% 4.47%
Ten-year 2011 senior notes 2021 500 4.13% 4.19% — — —
Thirty-year 2009 senior notes 2039 300 6.50% 6.52% 300 6.50% 6.52%
Thirty-year 2010 senior notes 2040 500 5.55% 5.56%500 5.55% 5.56%
Interest rate swaps 2013–2021 110 — — 33 — —
Gains from interest rate swap terminations 2011–201668 — — 41 — —
Capital lease obligations 2013–2025 32 6.28% — 18 4.21% —
Bank borrowings 2013 14 5.60% — 46 5.60% —
Debt discount 2011–2013 (177) — — (259) — —
Total Long-Term Debt $8,112 $6,944
Senior Convertible Notes In April 2006, the Company 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 $2.200 billion 1.500 percent Senior Convertible Notes due
2011 were repaid in April 2011. The Senior Convertible Notes are
unsecured unsubordinated obligations and rank equally with
all other unsecured and unsubordinated indebtedness. The
Senior Convertible Notes had an initial conversion price of $56.14
per share. As of April 29, 2011, pursuant to provisions in the
indentures relating to the Company’s increase of its quarterly
dividend to shareholders, the conversion rate for the Senior
Convertible Notes is now 18.5175, which correspondingly changed
the conversion price per share for the Senior Convertible Notes
to $54.00.
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 billion ($699 million net of tax benefit), were
recorded as a reduction of shareholders’ equity.
In separate transactions, the Company sold warrants to issue
shares of the Company’s common stock at an exercise price
of $76.56 per share in private transactions. Pursuant to these
transactions, warrants for 41 million shares of the Company’s
common stock may be settled over a specified period beginning
in July 2011 and warrants for 41 million shares of the Company’s
common stock may be settled over a specified period beginning
in July 2013 (the settlement dates). If the average price of the
Company’s 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 the
Company’s common stock. Proceeds received from the issuance
of the warrants totaled approximately $517 million and were
recorded as an addition to shareholders’ equity. During the fourth
quarter of fiscal year 2010, certain of the holders requested
adjustment to the exercise price of the warrants from $75.30 to
$74.71 pursuant to the anti-dilution provisions of the warrants
relating to the Company’s payment of dividends to shareholders
of the Company’s common stock.
Under authoritative guidance, the Company concluded that the
purchased call options and sold warrants were indexed to its own
stock and should continue to be classified in shareholders’ equity
and not be separated as a derivative; thus consistent with prior
periods, the existing guidance for accounting for derivative
financial instruments indexed to, and potentially settled in, a
company’s own stock would still apply.