Medtronic 2010 Annual Report Download - page 45

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Medtronic, Inc.
Concurrent with the issuance of the Senior Convertible Notes,
we purchased call options on our common stock in private
transactions. The call options allow us to receive shares of our
common stock and/or cash from counterparties equal to the
amounts of common stock and/or cash related to the excess
conversion value that we would pay to the holders of the Senior
Convertible Notes upon conversion. These call options will
terminate upon the earlier of the maturity dates of the related
Senior Convertible Notes or the first day all of the related Senior
Convertible Notes are no longer outstanding due to conversion or
otherwise. The call options, which cost an aggregate $1.075 billion
($699 million net of tax benefit), were recorded as a reduction of
shareholders’ equity.
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 9 to the
consolidated financial statements for further discussion of the
accounting treatment. During the fourth quarter of fiscal year
2010, certain of the holders requested adjustment to the exercise
price of the warrants from $75.30 to $74.71 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
(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, respectively. Interest on
each series of 2005 Senior Notes is payable semi-annually, on
March 15 and September 15 of each year. The 2005 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 30, 2010. We used the net proceeds from the sale
of the 2005 Senior Notes for repayment of a portion of our
outstanding commercial paper.
As of April 30, 2010, we had interest rate swap agreements
designated as fair value hedges of underlying fixed rate
obligations including our $1.250 billion 3.000 percent Senior
Notes due 2015, our $600 million 4.750 percent Senior Notes due
2015, our $2.200 billion 1.625 percent Senior Convertible Notes
due 2013 and our $550 million 4.500 percent Senior Notes due
2014. We did not have any interest rate swap agreements
outstanding as of April 24, 2009. For additional information
regarding the interest rate swap agreements, refer to Note 10 of
the consolidated financial statements.
As of April 30, 2010, we had $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. 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. There
was no outstanding commercial paper as of April 30, 2010. At
April 24, 2009, outstanding commercial paper totaled $385 million.
During fiscal years 2010 and 2009, the weighted average original
maturity of the commercial paper outstanding was approximately
63 and 50 days, respectively, and the weighted average interest
rate was 0.44 percent and 1.60 percent, respectively.