Medtronic 2008 Annual Report Download - page 40

the third and fourth quarters of fiscal year 2008 and subsequent to our
fiscal year-end continue to indicate significant uncertainty on the part
of investors on the economic outlook for the U.S. and for financial
institutions that have potential exposure to the sub-prime housing
market. 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. During the third quarter of fiscal year
2008, we reclassified all of our auction rate fixed income securities,
which had a cost basis of $198 million, from short-term investments to
long-term investments on our consolidated balance sheet due to the fact
that they are currently not trading, and current conditions in the general
debt markets have reduced the likelihood that the securities will
successfully auction within the next 12 months. Auction rate securities
that did not successfully auction reset to the maximum rate as
prescribed in the underlying indenture and all of our holdings continue
to be current with their interest payments.
For the fiscal year ended April 25, 2008, we recognized a $3 million
impairment loss on AFS debt securities. 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
no other-than-temporary impairment has occurred as we have the
ability and the intent to hold these investments long enough to avoid
realizing any significant loss. Additionally, if we required capital we
believe we could liquidate the majority of our portfolio and incur no
material impairment loss and we have capacity under our commercial
paper program and lines of credit that we could access. As of April 25,
2008, we do not believe that we have material risk in our current
portfolio of investments that would impact our financial condition or
liquidity. For further information about the risks associated with our
investments, see the “Market Risk” section and the section entitled “Risk
Factors” in our Form 10-K.
Summary of Cash Flows
Fiscal Year
(dollars in millions) 2008 2007 2006
Cash provided by (used in):
Operating activities $ 3,489 $ 2,979 $ 2,220
Investing activities (2,790)(1,701)(2,867)
Financing activities (835)(3,011)1,304
Effect of exchange rate changes on cash
and cash equivalents (60)(5)105
Net change in cash and cash equivalents
$ (196
)
$ (1,738
)
$ 762
Operating Activities Our net cash provided by operating activities was
$3.489 billion for the fiscal year ended April 25, 2008 compared to net
cash provided by operating activities of $2.979 billion in the same
period of the prior year. The $510 million increase in net cash provided
by operating activities was primarily attributable to a $442 million
decrease in cash used for operating assets and liabilities. The decrease
in cash used was led by our improved management of outstanding
accounts receivable and inventory.
Our net cash provided by operating activities was $2.979 billion for
the fiscal year ended April 27, 2007 compared to net cash provided by
operating activities of $2.220 billion in the same period of the prior year.
The $759 million increase in net cash provided by operating activities was
primarily attributable to a $1.055 billion decrease in cash used for operating
assets and liabilities due to the timing of other receipts and payments
in the ordinary course of business and the general increase in the size
of the cash generating operations in comparison to the prior year.
Investing Activities Our net cash used in investing activities was
$2.790 billion for the fiscal year ended April 25, 2008 compared to
$1.701 billion used in investing activities for the fiscal year ended April 27,
2007. The $1.089 billion increase in net cash used in investing activities
was primarily attributable to the $4.185 billion increase in cash used for
acquisitions and the purchase of intellectual property, principally the
Kyphon acquisition, partially offset by $3.067 billion in incremental cash
generated through the liquidation of marketable securities as compared
to the prior year.
Our net cash used in investing activities was $1.701 billion for the
fiscal year ended April 27, 2007 compared to $2.867 billion used in
investing activities for the fiscal year ended April 28, 2006. The
$1.166 billion decrease in net cash used in investing activities was
primarily attributable to a decrease of $993 million in cash used for
acquisitions and purchases of intellectual property, as fiscal year 2006
included several acquisitions and a $495 million decrease in cash used
to purchase marketable securities. These decreases were partially offset
by a $166 million increase in capital expenditures for property, plant
and equipment.
Financing Activities Our net cash used in financing activities was
$835 million for the fiscal year ended April 25, 2008, compared to net
cash used in financing activities of $3.011 billion for the fiscal year ended
April 27, 2007. The $2.176 billion decrease in net cash used in financing
activities was primarily attributable to the fact that in the prior year
$1.877 billion in cash was used to repurchase long-term debt as the
bond holders put the Contingent Convertible Debentures to us and in
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
36 Medtronic, Inc.