Medtronic 2010 Annual Report Download - page 83

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79
Medtronic, Inc.
Maturities of long-term debt, including capital leases, for the
next five fiscal years are as follows:
(in millions)
Fiscal Year Obligation
2011 $2,600
2012 49
2013 2,221
2014 569
2015 1,255
Thereafter 3,068
Total long-term debt 9,762
Less: Current portion of long-term debt 2,600
Long-term portion of long-term debt $7,162
10. Derivatives and Foreign Exchange
Risk Management
The Company uses operational and economic hedges, as well as
forward currency exchange rate derivative contracts and interest
rate derivative instruments to manage the impact of currency
exchange and interest rate changes on earnings and cash flows.
The gross notional amount of all derivative contracts outstanding
at April 30, 2010 and April 24, 2009 was $10.095 billion and $5.296
billion, respectively. In order to reduce the uncertainty of currency
exchange rate movements, the Company enters into derivative
instruments, primarily forward currency exchange rate contracts,
to manage its exposure related to currency exchange rate changes.
These contracts are designed to hedge anticipated foreign
currency transactions and changes in the value of specific assets,
liabilities, net investments and probable commitments. At
inception of the forward contract, the derivative is designated as
either a freestanding derivative, net investment hedge or cash
flow hedge. Principal currencies hedged are the Euro and the
Japanese Yen. The Company does not enter into forward currency
exchange rate derivative contracts for speculative purposes. The
gross notional amount of these contracts outstanding at April 30,
2010 and April 24, 2009 was $5.495 billion and $5.296 billion,
respectively. The aggregate currency exchange rate gains/(losses)
were $56 million, $(53) million and $(134) million, in fiscal years
2010, 2009 and 2008, respectively. These gains/(losses) represent
the net impact to the consolidated statements of earnings for the
derivative instruments presented below offset by remeasurement
gains/(losses) on foreign currency denominated assets and
liabilities.
The information that follows explains the various types of
derivatives and financial instruments used by the Company,
how and why the Company uses such instruments, how such
instruments are accounted for and how such instruments impact
the Company’s consolidated balance sheets and statements
of earnings.
Freestanding Derivative Forward Contracts
Freestanding derivative forward contracts are used to offset the
Company’s exposure to the change in value of certain foreign
currency denominated assets and liabilities. These derivatives are
not designated as hedges, and therefore, changes in the value of
these forward contracts are recognized currently in earnings,
thereby offsetting the current earnings effect of the related
change in U.S. dollar value of foreign currency denominated assets
and liabilities. The cash flows from these contracts are reported as
operating activities in the consolidated statements of cash flows.
The gross notional amount of these contracts, not designated as
hedging instruments, outstanding at April 30, 2010 and April 24,
2009 was $1.839 billion and $1.162 billion, respectively.
The amount of (losses)/gains and location of the (losses)/gains
in the consolidated statement of earnings related to derivative
instruments not designated as hedging instruments for the fiscal
years ended April 30, 2010 and April 24, 2009 were as follows:
April 30, 2010
(in millions)
Derivatives Not Designated as
Hedging Instruments Location Amount
Foreign exchange contracts Other expense, net $(118)
April 24, 2009
(in millions)
Derivatives Not Designated as
Hedging Instruments Location Amount
Foreign exchange contracts Other expense, net $ 208
Net Investment Hedges
Net investment hedges are used to hedge the long-term
investment (equity) in foreign operations. For hedges that meet
effectiveness requirements, the net gains/(losses) related to
changes in the current exchange rates, or spot rates, are
recorded as a cumulative translation adjustment, a component
of accumulated other comprehensive loss on the consolidated
balance sheets. Net gains/(losses) associated with changes in
forward currency exchange rates of the contracts are reflected in
other expense, net in the consolidated statements of earnings.
Recognition in earnings of amounts previously recorded as a
cumulative translation adjustment is limited to circumstances
such as complete or substantially complete liquidation of the
long-term investment (equity) in foreign operations. The cash
flows from these contracts are reported as investing activities in