Medtronic 2009 Annual Report Download - page 45

41
Medtronic, Inc.
Debt and Capital
In June 2007, our Board of Directors authorized the repurchase of
up to 50 million shares of our common stock. In addition, in April
2006, the Board of Directors made a special authorization for the
repurchase of up to 50 million shares in connection with the
$4.400 billion Senior Convertible Note offering (see below for
further discussion).
Shares are repurchased from time to time to support our
stock-based compensation programs and to take advantage of
favorable market conditions. During fiscal years 2009 and 2008,
we repurchased approximately 16.5 million shares and 30.7 million
shares at an average price of $45.94 and $50.28, respectively.
As of April 24, 2009, we have approximately 17.8 million shares
remaining under current buyback authorizations approved by
the Board of Directors. On June 18, 2009, our Board of Directors
authorized the repurchase of an additional 60 million shares of
our common stock.
In March 2009, we issued three tranches of Senior Notes (New
Senior Notes) with the aggregate face value of $1.250 billion. The
first tranche consisted of $550 million of 4.500 percent Senior
Notes due 2014, the second tranche consisted of $400 million of
5.600 percent Senior Notes due 2019 and the third tranche
consisted of $300 million of 6.500 percent Senior Notes due 2039.
The first tranche was issued at par, the second tranche was issued
at a discount which resulted in an effective interest rate of 5.609
percent and the third tranche was issued at a discount which
resulted in an effective interest rate of 6.519 percent. Interest on
each series of New Senior Notes is payable semi-annually, on
March 15 and September 15 of each year, commencing September
15, 2009. The New Senior Notes are unsecured senior obligations
that rank equally with all other unsecured and unsubordinated
indebtedness. The indentures under which the New Senior
Notes were issued contain customary covenants, all of which we
remain in compliance with as of April 24, 2009. We used the net
proceeds from the sale of the New Senior Notes for repayment of
a portion of our outstanding commercial paper and for general
corporate uses.
In April 2006, we 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 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 our 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 our 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 our
common stock, cash or a combination of common stock and
cash, at our option. In addition, upon a change in control, as
defined, the holders may require us 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 our common stock, as set
forth in the applicable indenture. The indentures under which
the Senior Convertible Notes were issued contain customary
covenants, all of which we remain in compliance with as of April
24, 2009. A total of $2.500 billion of the net proceeds from these
note issuances were used to repurchase common stock. As of
April 24, 2009, pursuant to provisions in the indentures relating
to our increase of its quarterly dividend to shareholders, the
conversion rates for each of the Senior Convertible Notes is now
18.0474, which correspondingly changed the conversion price per
share for each of the Senior Convertible Notes to $55.41. See Note
8 to the consolidated financial statements for further discussion
of the accounting treatment of these Senior Convertible Notes.
Concurrent with the issuance of the Senior Convertible Notes,
we purchased call options on our common stock in private
transactions. The call options allow us to receive shares of our
common stock and/or cash from counterparties equal to the
amounts of common stock and/or cash related to the excess
conversion value that we 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. See Note 8 to the consolidated financial
statements for further discussion of the accounting treatment of
these call options.