Medtronic 2009 Annual Report Download - page 79

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Medtronic, Inc.
trade date. SFAS No. 133 states that a reporting entity shall not
consider contracts to be derivative instruments if the contract
issued or held by the reporting entity is both indexed to its own
stock and classified in shareholders’ equity in its statement of
financial position. The Company concluded the purchased call
option contracts and the warrant contracts should be accounted
for in shareholders’ equity.
Senior Notes In March 2009, the Company 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 of the Company and rank equally
with all other unsecured and unsubordinated indebtedness of the
Company. The indentures under which the New Senior Notes
were issued contain customary covenants. The Company used
the net proceeds from the sale of the New Senior Notes for
repayment of a portion of its commercial paper and for general
corporate uses.
In September 2005, the Company issued two tranches of Senior
Notes with the aggregate face value of $1.000 billion. The first
tranche consisted of $400 million of 4.375 percent Senior Notes
due 2010 and the second tranche consisted of $600 million of
4.750 percent Senior Notes due 2015. Each tranche was issued
at a discount which resulted in an effective interest rate of
4.433 percent and 4.760 percent for the five and ten year Senior
Notes, respectively. Interest on each series of Senior Notes
is payable semi-annually, on March 15 and September 15 of
each year. The Senior Notes are unsecured unsubordinated
obligations of the Company and rank equally with all other
unsecured and unsubordinated indebtedness of the Company.
The indentures under which Senior Notes were issued contain
customary covenants. The Company used the net proceeds from
the sale of the Senior Notes for repayment of a portion of its
commercial paper.
In November 2005 and June 2007, the Company entered into a
five year interest rate swap agreement with a notional amount of
$200 million, and an eight year interest rate swap agreement with
a notional amount of $300 million, respectively. These interest
rate swap agreements were designated as fair value hedges of
the changes in fair value of a portion of the Company’s fixed-rate
$400 million Senior Notes due 2010 and fixed-rate $600 million
Senior Notes due 2015, respectively. The outstanding market
values of these swap agreements were $8 million and $27 million
of unrealized gains, respectively, at April 25, 2008. The unrealized
gains of $8 million and $27 million at April 25, 2008 were recorded
in long-term debt with the offset recorded in other assets on the
consolidated balance sheets.
In December 2008, the Company terminated the interest rate
swap agreements. At that time, the contracts were in an asset
position, resulting in cash receipts of $62 million, which included
$3 million of accrued interest. The gain from terminating the
interest rate swap agreements increased the outstanding balance
of the Senior Notes and is being amortized as a reduction of
interest expense over the remaining life of the Senior Notes. The
cash flows from the termination of these interest rate swap
agreements have been reported as operating activities in the
consolidated statement of cash flows.
Contingent Convertible Debentures As of April 24, 2009, the
Company has $15 million remaining in aggregate principal amount
of 1.250 percent Contingent Convertible Debentures, Series B
due 2021 (the Debentures) outstanding. Interest is payable semi-
annually. Each Debenture is convertible into shares of common
stock at an initial conversion price of $61.81 per share; however,
the Debentures are not convertible before their final maturity
unless the closing price of our common stock reaches 110 percent
of the conversion price for 20 trading days during a consecutive
30 trading day period. Upon conversion of the Debentures, the
Company will pay holders cash equal to the lesser of the principal
amount of the Debentures or their conversion value, and shares
of the Company’s common stock to the extent the conversion
value exceeds the principal amount of the Debentures. The
Company may be required to repurchase the remaining debentures
at the option of the holders in September 2011 or 2016. For put
options exercised by the holders of the Debentures, the purchase
price is equal to the principal amount of the applicable debenture
plus any accrued and unpaid interest thereon to the repurchase
date. If the put option is exercised, the Company will pay holders
the repurchase price solely in cash. The Company can redeem the
debentures for cash at any time.