Medtronic 2011 Annual Report Download - page 81

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77
Medtronic, Inc.
designated as cash flow hedges for the fiscal years ended April
29, 2011 and April 30, 2010 are as follows:
April 2 9, 2 011
(in millions)
Derivatives in Cash Flow
Gross (Losses)
Recognized in
OCI on Effective
Portion of
Derivative
Effective Portion of
Gains on Derivative
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Hedging Relationships Amount Location Amount
Foreign currency exchange
rate contracts $(530)
Other
expense, net $50
Cost of
products
sold 31
Total $(530) $81
April 30, 2010
(in millions)
Derivatives in Cash Flow
Gross (Losses)
Recognized in
OCI on Effective
Portion of
Derivative
Effective Portion of
Gains on Derivative
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Hedging Relationships Amount Location Amount
Foreign currency exchange
rate contracts $ (212)
Other
expense, net $ 1
Cost of
products
sold 45
Total $ (212) $ 46
As of April 29, 2011 and April 30, 2010, the Company had $(257)
million and $91 million in after-tax net unrealized gains/(losses)
associated with cash flow hedging instruments recorded in
accumulated other comprehensive loss, respectively. The Company
expects that $192 million of the unrealized losses as of April 29,
2011 will be reclassified into the consolidated statement of
earnings over the next twelve 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 between fixed and floating interest amounts calculated
by reference to an agreed-upon notional principal amount.
As of April 29, 2011 and April 30, 2010, the Company had
interest rate swaps in gross notional amounts of $3.500 billion
and $4.600 billion, respectively, designated as fair value hedges of
underlying fixed-rate obligations.
In March 2011, the Company entered into five-year and ten-year
fixed-to-floating interest rate swap agreements with a
consolidated notional amount of $750 million, which were
designated as fair value hedges of fixed interest rate obligations
under the Company’s 2011 Senior Notes due 2016 and 2021. The
Company pays variable interest equal to the London Interbank
Offered Rate (LIBOR) plus approximately 37.00 and 66.00 basis
points, and receives a fixed interest rate of 2.625 percent and
4.125 percent, respectively.
In March 2010, the Company entered into 12 five-year fixed-
to-floating interest rate swap agreements with a consolidated
notional amount of $1.850 billion. Nine of these interest rate swap
agreements were designated as fair value hedges of the fixed
interest rate obligation under the Company’s $1.250 billion 3.000
percent Senior Notes due 2015. The remaining three interest rate
swap agreements were designated as fair value hedges of the
fixed interest rate obligation under the Company’s $600 million
4.750 percent Senior Notes due 2015. On the first nine interest
rate swap agreements, the Company pays variable interest equal
to the three-month LIBOR plus 36.00 basis points and it receives
a fixed interest rate of 3.000 percent. On the remaining three
interest rate swap agreements, the Company pays variable
interest equal to the LIBOR plus 185.00 basis points and it receives
a fixed interest rate of 4.750 percent.
Additionally, in March 2010, the Company entered into nine
three-year fixed-to-floating interest rate swap agreements with a
consolidated notional amount of $2.200 billion. These interest
rate swap agreements were designated as fair value hedges of
the fixed interest rate obligation under the Company’s $2.200
billion 1.625 percent Senior Convertible Notes due 2013. The
Company pays variable interest equal to the three-month LIBOR
minus 19.70 basis points and it receives a fixed interest rate of
1.625 percent. During fiscal year 2011, the Company terminated
interest rate swap agreements with a consolidated notional
amount of $1.850 billion that were designated as fair value hedges
of the fixed interest rate obligation under the Company’s $2.200