Medtronic 2009 Annual Report Download - page 46

42 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
In separate transactions, we sold warrants to issue shares of our
common stock at an exercise price of $76.56 per share in private
transactions. Pursuant to these transactions, warrants for 41
million shares of our common stock may be settled over a
specified period beginning in July 2011 and warrants for 41 million
shares of our common stock may be settled over a specified
period beginning in July 2013 (the “settlement dates”). If the
average price of our common stock during a defined period
ending on or about the respective settlement dates exceeds
the exercise price of the warrants, the warrants will be settled
in shares of our common stock. Proceeds received from the
issuance of the warrants totaled approximately $517 million and
were recorded as an addition to shareholders’ equity. See Note 8
to the consolidated financial statements for further discussion
of the accounting treatment. In April 2009, certain of the holders
requested adjustment to the exercise price of the warrants from
$76.30 to $75.56 pursuant to the anti-dilution provisions of
the warrants relating to our payment of dividends to common
shareholders.
In September 2005, we 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 and rank equally with
all other unsecured and unsubordinated indebtedness. The
indentures under which the Senior Notes were issued contain
customary covenants, all of which we remain in compliance with
as of April 24, 2009. We used the net proceeds from the sale of
the Senior Notes for repayment of a portion of our outstanding
commercial paper.
In November 2005 and June 2007, we 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 our 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, we 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.
As of April 24, 2009, we have $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 the
Company’s 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, we 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. We 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, we
will pay holders the repurchase price solely in cash. In September
2008, as a result of certain holders of the Debentures exercising
their put options, we repurchased $79 million of the Debentures
for cash. We can redeem the remaining debentures for cash at
any time.
We maintain a commercial paper program that allows us
to have a maximum of $2.250 billion in commercial paper
outstanding, with maturities up to 364 days from the date of
issuance. At April 24, 2009 and April 25, 2008, outstanding
commercial paper totaled $385 million and $874 million,
respectively. During fiscal years 2009 and 2008, the weighted
average original maturity of the commercial paper outstanding
was approximately 50 and 35 days, respectively, and the weighted