Medtronic 2008 Annual Report Download - page 47

Operations Outside the U.S.
The table below illustrates U.S. net sales versus net sales outside the U.S.
for fiscal years 2008, 2007 and 2006:
Fiscal Year
(dollars in millions) 2008 2007 2006
U.S. net sales $ 8,336 $ 7,900 $ 7,626
Non-U.S. net sales 5,179 4,399 3,666
Total net sales
$ 13,515
$ 12,299
$ 11,292
From fiscal year 2007 to fiscal year 2008, consolidated net sales in the
U.S. grew 6 percent compared to 18 percent growth in net sales outside
the U.S. The slower U.S. growth is primarily a result of the voluntary
suspension of the Fidelis lead and the voluntary suspension of U.S.
shipments of Physio-Control products from our Redmond, Washington
facility. Outside the U.S., net sales growth was strong across all
businesses and led by strong performance in CardioVascular, Diabetes
and CRDM, the benefit of the addition of Kyphon in Spinal and a
favorable impact of foreign currency translation which added
9 percentage points to the outside the U.S. growth rate. CardioVascular
net sales were led by market share gains with Endeavor and Endeavor
Resolute. Diabetes sales increased as a result of further acceptance of
the paradigm Real Time System. Increased sales of Defibrillation Systems
and Pacing Systems led the increase within our CRDM business.
From fiscal year 2006 to fiscal year 2007, consolidated net sales in the
U.S. grew 4 percent compared to 20 percent growth in net sales outside
the U.S. The slower U.S. growth is primarily a result of declines in the
overall ICD market in the U.S. and the voluntary suspension of U.S.
shipments of Physio-Control products from our Redmond, Washington
facility. Outside the U.S., net sales growth was strong across all
businesses and led by strong performance in CardioVascular and CRDM,
and a favorable impact of foreign currency translation. CardioVascular
net sales were led by market share gains with Endeavor. Increased sales
of Defibrillation Systems and Pacing Systems led the increase within our
CRDM business.
Net sales outside the U.S. are accompanied by certain financial risks,
such as collection of receivables, which typically have longer payment
terms. Outstanding receivables from customers outside the U.S. totaled
$1.800 billion at April 25, 2008, or 53 percent of total outstanding
accounts receivable, and $1.456 billion at April 27, 2007, or 50 percent of
total outstanding accounts receivable. The increase in the percentage
of accounts receivable from customers outside the U.S. is primarily
driven by increased sales volume outside the U.S. and the impact of
foreign currency exchange rates.
Market Risk
Due to the global nature of our operations, we are subject to the
exposures that arise from foreign currency exchange rate fluctuations.
We manage these exposures using operational and economic hedges
as well as derivative financial instruments. The primary currencies
hedged are the Euro and the Japanese Yen.
Our objective in managing exposure to foreign currency fluctuations
is to minimize earnings and cash flow volatility associated with foreign
exchange rate changes. We enter into various contracts, principally
forward contracts that change in value as foreign exchange rates
change, to protect the value of existing foreign currency assets,
liabilities, net investments and probable commitments. The gains and
losses on these contracts offset changes in the value of the related
exposures. It is our policy to enter into foreign currency hedging
transactions only to the extent true exposures exist; we do not enter
into foreign currency transactions for speculative purposes.
We had foreign exchange derivative contracts outstanding in
notional amounts of $6.613 billion and $5.372 billion at April 25, 2008
and April 27, 2007, respectively. The fair value of these contracts at
April 25, 2008 was $441 million less than the original contract value. A
sensitivity analysis of changes in the fair value of all foreign exchange
derivative contracts at April 25, 2008 indicates that, if the U.S. dollar
uniformly strengthened/weakened by 10 percent against all currencies,
the fair value of these contracts would increase/decrease by $654 million,
respectively. Any gains and losses on the fair value of derivative
contracts would be largely offset by gains and losses on the underlying
transactions. These offsetting gains and losses are not reflected in the
above analysis.
We are also exposed to interest rate changes affecting principally our
investments in interest rate sensitive instruments. A sensitivity analysis
of the impact on our interest rate sensitive financial instruments of a
hypothetical 10 percent change in short-term interest rates compared
to interest rates at April 25, 2008 indicates that the fair value of these
instruments would correspondingly change by $21 million.
We have investments in marketable debt securities that are classified
and accounted for as available-for-sale. Our debt securities include
government securities, commercial paper, corporate bonds, bank
certificates of deposit and mortgage backed and other asset backed
securities including auction rate securities. Market conditions during
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
43Medtronic, Inc.