Medtronic 2014 Annual Report Download - page 106

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Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
April 27, 2012
(in millions)
Gross (Losses) Gains Recognized in OCI
on Effective Portion of Derivative
Effective Portion of (Losses) Gains on Derivative
Reclassified from AOCI into Income
Derivatives in Cash Flow Hedging
Relationships Amount Location Amount
Foreign currency exchange
rate contracts $ 332 Other expense, net $ (141)
Cost of products sold 14
Total $ 332 $ (127)
Forecasted Debt Issuance Interest Rate Risk Forward starting interest rate derivative instruments designated as cash flow
hedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The
effective portion of the gains or losses on the forward starting interest rate derivative instruments that are designated and qualify
as cash flow hedges are reported as a component of accumulated other comprehensive loss. Beginning in the period in which the
planned debt issuance occurs and the related derivative instruments are terminated, the effective portion of the gains or losses
are then reclassified into interest expense, net over the term of the related debt. Any portion of the gains or losses that are
determined to be ineffective are immediately recognized in interest expense, net. In February 2014, the Company terminated
forward starting interest rate derivative instruments with a consolidated notional amount of $250 million in conjunction with the
issuance of the 2014 Senior Notes. Upon termination, there was no material ineffectiveness on the contracts which were in a net
asset position, resulting in cash receipts of $8 million. In March 2013, the Company terminated forward starting interest rate
derivative instruments with a consolidated notional amount of $750 million in conjunction with the issuance of the 2013 Senior
Notes. Upon termination, there was no material ineffectiveness on the contracts which were in a net liability position, resulting
in cash payments of $68 million. As of April 25, 2014, the Company had $250 million of fixed pay, forward starting interest
rate swaps with a weighted average fixed rate of 2.83 percent in anticipation of planned debt issuances.
For the fiscal years ended April 25, 2014 and April 26, 2013, the Company reclassified $8 million and $1 million, respectively,
of the effective portion of the net losses on forward starting interest rate derivative instruments from accumulated other
comprehensive loss to interest expense, net.
The market value of outstanding forward starting interest rate swap derivative instruments at April 25, 2014 and April 26, 2013
was an unrealized gain (loss) of $7 million and $(18) million, respectively. These unrealized gains (losses) were recorded in
other assets and long-term liabilities with the offset recorded in accumulated other comprehensive loss in the consolidated
balance sheets.
As of April 25, 2014 and April 26, 2013, the Company had $(44) million and $58 million, respectively, in after-tax net
unrealized (losses) gains associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The
Company expects that $7 million of after-tax net unrealized losses as of April 25, 2014 will be reclassified into the consolidated
statements 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 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.
The gains (losses) from terminated interest rate swap agreements are recorded in long-term debt, increasing (decreasing) the
outstanding balances of the debt, and amortized as a reduction (addition) of interest expense, net over the remaining life of the
related debt. The cash flows from the termination of the interest rate swap agreements are reported as operating activities in the
consolidated statements of cash flows.
98