Medtronic 2010 Annual Report Download - page 84

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80 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
the consolidated statements of cash flows. As of April 30, 2010,
there were no open net investment hedge contracts. For the fiscal
year ended April 30, 2010, there were no reclassifications of the
effective portion of net investment hedges out of accumulated
other comprehensive loss into income; therefore, consistent with
the fourth quarter of fiscal year 2009, $27 million in gains
remained in cumulative translation within accumulated other
comprehensive loss.
Cash Flow Hedges
Forecasted Debt Issuance Interest Rate Risk During fiscal year
2010, the Company entered into $1.100 billion of pay-fixed,
forward starting interest rate swaps with a weighted average
fixed rate of 4.130 percent in anticipation of the fixed-rate debt
issuance that occurred during the fourth quarter of fiscal year
2010. All of these forward-starting interest rate swaps were cash
settled for $7 million coinciding with the issuance of the 2010
Senior Notes. A $6 million pre-tax loss will be reclassified to
earnings over the term of the related debt and the ineffective
portion of $1 million was recorded in interest expense, net on the
consolidated statement of earnings. The Company did not have
any forward starting interest rate swaps outstanding at April 30,
2010, April 24, 2009 and April 25, 2008.
Foreign Currency Exchange Rate Risk Forward contracts designated
as cash flow hedges are designed to hedge the variability of cash
flows associated with forecasted transactions denominated in a
foreign currency that will take place in the future. For derivative
instruments that are designated and qualify as a cash flow hedge,
the effective portion of the gain or loss on the derivative is
reported as a component of accumulated other comprehensive loss
and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. No gains
or losses relating to ineffectiveness of cash flow hedges were
recognized in earnings during fiscal years 2010, 2009 and 2008.
No components of the hedge contracts were excluded in the
measurement of hedge ineffectiveness and no hedges were
derecognized or discontinued during fiscal years 2010, 2009 and
2008. 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, designated as cash
flow hedges, outstanding at April 30, 2010 and April 24, 2009 was
$3.656 billion and $4.134 billion, respectively, and will mature
within the subsequent 36-month period.
The amount of gains/(losses) and location of the gains/
(losses) in the consolidated statements of earnings and other
comprehensive income (OCI) related to derivative instruments
designated as cash flow hedges for the fiscal years ended April 30,
2010 and April 24, 2009 are as follows:
April 30, 2010
(in millions)
Derivatives in Cash Flow
Hedging Relationships
Gross (Losses)
Recognized in
OCI on Effective
Portion of
Derivative
Effective Portion of
Gains on Derivative
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Amount Location Amount
Foreign currency exchange
rate contracts $(212)
Other
expense, net $ 1
Cost of
products
sold 45
Total $(212) $ 46
April 24, 2009
(in millions)
Derivatives in Cash Flow
Hedging Relationships
Gross Gains
Recognized in
OCI on Effective
Portion of
Derivative
Effective Portion of
(Losses) on Derivative
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Amount Location Amount
Foreign currency exchange
rate contracts $ 814
Other
expense, net $(16)
Cost of
products
sold (25)
Total $ 814 $(41)
As of April 30, 2010 and April 24, 2009, the Company had a
balance of $91 million and $228 million, respectively, in after-tax
net unrealized gains associated with cash flow hedging instruments
recorded in accumulated other comprehensive loss. The Company
expects that $90 million of the balance will be reclassified into the
consolidated statement of earnings over the next 12 months.
Fair Value Hedges
For derivative instruments that are designated and qualify as fair
value hedges, the gain or loss on the derivatives as well as the
offsetting gain or loss on the hedged item attributable to the
hedged risk are recognized in current earnings.
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. Under these agreements, the
Company agrees to exchange, at specified intervals, the difference