Medtronic 2010 Annual Report Download - page 81

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Medtronic, Inc.
Effective the first day of the Company’s fiscal year 2010, the
Company accounted for the Senior Convertible Notes in accordance
with the new authoritative guidance for convertible debt. The
new guidance requires the proceeds from the issuance of the
Senior Convertible Notes to be allocated between a liability
component (issued at a discount) and an equity component. The
resulting debt discount is amortized over the period the Senior
Convertible Notes are expected to be outstanding as additional
non-cash interest expense. This change in accounting for the
Senior Convertible Notes has been applied to the Company’s prior
period financial statements on a retrospective basis, as required
by the new guidance. For additional information on the impact of
this change to the Company’s financial statement, refer to Note 2.
The following table provides equity and debt information for
the Senior Convertible Notes under the convertible debt guidance.
Senior Convertible
Notes due 2011
Senior Convertible
Notes due 2013
April 30, April 24, April 30, April 24,
(in millions) 2010 2009 2010 2009
Carrying amount of the
equity component $ 420 $ 420 $ 547 $ 547
Principal amount of the
Senior Convertible Notes $2,200 $2,200 $2,200 $2,200
Unamortized discount (90) (181) (259) (338)
Net carrying amount $2,110 $2,019 $1,941 $1,862
At April 30, 2010, the unamortized balance of the debt discount
will be amortized over the remaining life of the Senior Convertible
Notes, which is approximately one year for the 2011 Senior
Convertible Notes and three years for the 2013 Senior Convertible
Notes. The following table provides interest rate and interest
expense amounts related to the Senior Convertible Notes.
Senior
Convertible
Notes due 2011
Senior
Convertible
Notes due 2013
Fiscal Year Fiscal Year
(in millions, except interest rate) 2010 2009 2010 2009
Effective interest rate 5.97% 5.97% 6.03% 6.03%
Interest cost related to
contractual interest coupon $34 $33 $36 $36
Interest cost related to
amortization of the discount $90 $84 $79 $73
Senior Notes In March 2010, the Company issued three tranches
of Senior Notes (collectively, the 2010 Senior Notes) with the
aggregate face value of $3.000 billion. The first tranche consisted
of $1.250 billion of 3.000 percent Senior Notes due 2015, the
second tranche consisted of $1.250 billion of 4.450 percent Senior
Notes due 2020 and the third tranche consisted of $500 million of
5.550 percent Senior Notes due 2040. All three tranches were
issued at a discount which resulted in an effective interest rate of
3.002 percent, 4.470 percent and 5.564 percent, respectively.
Interest on each series of the 2010 Senior Notes is payable semi-
annually, on March 15 and September 15 of each year, commencing
September 15, 2010. The 2010 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 2010 Senior Notes were issued
contain customary covenants, all of which the Company remains
in compliance with as of April 30, 2010. The Company used the
net proceeds from the sale of the 2010 Senior Notes for working
capital and general corporate uses, which may include repayment
of its indebtedness that matures in fiscal year 2011. This includes
the $2.200 billion of 1.500 percent Senior Convertible Notes due
2011 and the $400 million of 2005 Senior Notes due 2010.
In March 2009, the Company issued three tranches of Senior
Notes (collectively, the 2009 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 2009 Senior Notes
is payable semi-annually, on March 15 and September 15 of each
year. The 2009 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 2009 Senior Notes were issued contain customary
covenants, all of which the Company remains in compliance with
as of April 30, 2010. The Company used the net proceeds from the
sale of the 2009 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 (collectively, the 2005 Senior Notes) with the aggregate
face value of $1.000 billion. The first tranche consisted of $400
million of 4.375 percent 2005 Senior Notes due 2010 and the
second tranche consisted of $600 million of 4.750 percent 2005
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 2005 Senior Notes,