Medtronic 2008 Annual Report Download - page 77

The following table summarizes activity in accumulated other
comprehensive (loss)/income related to all derivatives classified as cash
flow hedges in fiscal years 2008, 2007, and 2006 (amounts are net of tax):
Accumulated derivative losses, April 29, 2005 $ (11)
Net gains reclassified to earnings (14)
Change in fair value of hedges 40
Accumulated derivative gains, April 28, 2006 $ 15
Net gains reclassified to earnings (11)
Change in fair value of hedges (59)
Accumulated derivative losses, April 27, 2007 $ (55)
Net losses reclassified to earnings 96
Change in fair value of hedges (307)
Accumulated derivative losses, April 25, 2008
$ (266
)
The Company expects that the $163, net of tax, in accumulated
derivative losses at April 25, 2008 will be reflected in the consolidated
statements of earnings over the next twelve months.
Fair Value Hedges
Interest rate derivative instruments designated as fair value hedges are
designed to manage the exposure to interest rate movements and to
reduce borrowing costs by converting fixed-rate debt into floating-rate
debt. The Company currently has two outstanding interest rate
derivatives, one from November 2005 which is a five year interest
swap agreement and one from June 2007 that is an eight year interest
rate swap agreement. See Note 7 for further information on the interest
rate derivatives.
During fiscal years 2008, 2007 and 2006, the Company did not have
any ineffective fair value hedging instruments. In addition, the Company
did not recognize any gains or losses during fiscal years 2008, 2007 and
2006 on firm commitments that no longer qualify as fair value hedges.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist principally of interest-
bearing investments, forward exchange derivative contracts and trade
accounts receivable.
The Company maintains cash and cash equivalents, investments and
certain other financial instruments (including forward exchange
contracts) with various major financial institutions. The Company
performs periodic evaluations of the relative credit standings of these
financial institutions and limits the amount of credit exposure with any
one institution.
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of customers and their dispersion
across many geographic areas. The Company monitors the
creditworthiness of its customers to which it grants credit terms in the
normal course of business. However, a significant amount of trade
receivables are with national healthcare systems in many countries.
Although the Company does not currently foresee a credit risk
associated with these receivables, repayment is dependent upon the
financial stability of the economies of those countries. As of April 25,
2008 and April 27, 2007, no customer represented more than 10 percent
of the outstanding accounts receivable.
9. Interest Income, Net
Interest income and interest expense for fiscal years 2008, 2007 and
2006 are as follows:
Fiscal Year
2008 2007 2006
Interest income $ (364) $ (382) $ (203)
Interest expense 255 228 116
Interest income, net
$ (109
)
$ (154
)
$ (87
)
Interest income includes interest earned on cash and cash equivalents,
short- and long-term investments and the net realized gains or losses
on the sale of AFS debt securities.
Interest expense includes the expense associated with the interest
that the Company pays on outstanding borrowings, including short- and
long-term instruments, and the amortization of debt issuance costs.
10. Shareholders’ Equity
Repurchase of Common Stock In October 2005 and June 2007, the
Company’s Board of Directors authorized the repurchase of 40 million
and 50 million shares of the Company’s stock, respectively. 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
Senior Convertible Note offering (see Note 7 for further discussion).
Shares are repurchased from time to time to support the Company’s
stock-based compensation programs and to take advantage of favorable
market conditions. The Company repurchased approximately
30.7 million and 21.7 million shares at an average price of $50.28 and
$47.83, respectively, during fiscal years 2008 and 2007. The amounts
disclosed as repurchased for fiscal year 2007 include 544,224 shares that
the Company obtained as part of the final settlement of the previously
announced and executed accelerated share repurchase program.
Excluding the shares obtained in the settlement of the accelerated
share repurchase program, for fiscal year 2007 the Company repurchased
21.2 million shares at an average price of $49.06. As of April 25, 2008, the
Company has approximately 34.3 million shares remaining under
the buyback authorizations. The Company accounts for repurchases
of common stock using the par value method and shares repurchased
are cancelled.
73Medtronic, Inc.