Medtronic 2009 Annual Report Download - page 42

38 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
When applicable, Note 16 to the consolidated financial
statements provides information regarding amounts we have
accrued related to significant legal proceedings. In accordance
with SFAS No. 5, we record a liability in our consolidated financial
statements for these actions when a loss is known or considered
probable and the amount can be reasonably estimated. For the
fiscal year ended April 24, 2009, we have made significant
payments related to certain legal proceedings. For information
regarding these payments, please see the “Special, Restructuring,
Certain Litigation and IPR&D Charges and Certain Tax Adjustments”
section of this management’s discussion and analysis for further
information.
At April 24, 2009 and April 25, 2008, approximately $3.628
billion and $3.317 billion, respectively, of cash, cash equivalents,
short-term investments and long-term investments in debt
securities were held by our non-U.S. subsidiaries. These funds are
available for use by worldwide operations; however, if these
funds were repatriated to the U.S. or used for U.S. operations, the
amounts would generally be subject to U.S. tax. As a result,
we have not chosen to repatriate this cash but instead use
cash generated from U.S. operations and short- and long-term
borrowings to meet our U.S. cash needs. Long-term investments
at April 24, 2009 also include $100 million of cash invested in
government securities held in an indemnification trust established
for self-insurance coverage for our directors and officers. These
investments are restricted and can only be used to indemnify
or advance expenses related to claims against our directors
and/or officers.
We have investments in marketable debt securities that are
classified and accounted for as available-for-sale. Our debt
securities include corporate debt securities, government and
agency securities, certificates of deposit and mortgage backed
and other asset backed securities including auction rate securities.
Market conditions during fiscal year 2009 and subsequent to our
April 24, 2009 year-end continue to indicate significant uncertainty
on the part of investors on the economic outlook for the U.S. and
for financial institutions. This uncertainty has created reduced
liquidity across the fixed income investment market, including
certain securities in which we have invested. As a result, some of
our investments have experienced reduced liquidity including
unsuccessful monthly auctions for our auction rate security
holdings. Although certain securities are illiquid, if we required
capital we believe we could liquidate a substantial amount of our
portfolio and incur no material impairment loss or borrow under
our commercial paper program or lines of credit.
For the fiscal year ended April 24, 2009, we recognized an
other-than-temporary impairment loss on AFS debt securities of
$38 million. In determining this other-than-temporary impairment
loss, we considered the provisions of SFAS No. 115, “Accounting
for Certain Investments in Debt and Equity Securities,” and related
guidance. This guidance specifies that we consider a variety
of factors, including the quality and estimated value of the
underlying credit support for our holding and the financial
condition and credit rating of the issuer. Based on our assessment
of the credit quality of the underlying collateral and credit support
available to each of the remaining securities in which we are
invested, we believe we have recorded all necessary other-than-
temporary impairments as we have the ability and the intent to
hold these investments long enough to avoid realizing further
losses. However, as of April 24, 2009, we have $175 million of
gross unrealized losses on our aggregate short-term and long-
term investments of $2.647 billion; if market conditions continue
to deteriorate further, some of these holdings may experience
other-than-temporary impairment in the future which could
have a material impact on our financial results. Management
is required to use estimates and assumptions in its valuation of
our investments, which requires a high degree of judgment,
and therefore actual results could differ materially from those
estimates. See Note 6 to the consolidated financial statements for
additional information regarding fair value measurements under
SFAS No. 157, “Fair Value Measurements.”
Summary of Cash Flows
Fiscal Year
(dollars in millions) 2009 2008 2007
Cash provided by (used in):
Operating activities $ 3,878 $ 3,489 $ 2,979
Investing activities (2,740) (2,790) (1,701)
Financing activities (845) (835) (3,011)
Effect of exchange rate changes
on cash and cash equivalents (82) (60) (5)
Net change in cash and cash
equivalents $ 211 $ (196) $ (1,738)
Operating Activities Our net cash provided by operating activities
was $3.878 billion for the fiscal year ended April 24, 2009 compared
to $3.489 billion provided by operating activities for the same
period of the prior year. The $389 million increase in net cash
provided by operating activities is primarily attributable to
the increase in earnings and due to the timing of receipts and
payments for disbursements in the ordinary course of business.