Medtronic 2008 Annual Report Download - page 76

Maturities of long-term debt, including capital leases, for the next five
fiscal years are as follows:
Fiscal Year Obligation
2009 $ 11
2010 13
2011 2,924
2012 17
2013 2,220
Thereafter 628
Total long-term debt 5,813
Less: Current portion of long-term debt 11
Long-term portion of long-term debt
$ 5,802
The Company has entered into agreements to sell specific pools of
receivables in Italy in the amount of $0, $37 and $53 in fiscal years 2008,
2007 and 2006, respectively. The discount cost related to the receivable
sales was insignificant and recorded in interest income, net in the
consolidated statements of earnings.
8. Derivatives and Foreign Exchange
Risk Management
The Company uses operational and economic hedges, as well as
forward exchange derivative contracts to manage the impact of foreign
exchange rate changes on earnings and cash flows. In order to reduce
the uncertainty of foreign exchange rate movements, the Company
enters into derivative instruments, primarily forward exchange contracts,
to manage its exposure related to foreign 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 exchange derivative contracts for speculative purposes.
Notional amounts of these contracts outstanding at April 25, 2008
and April 27, 2007 were $6,613 and $5,372, respectively. All derivative
instruments are recorded at fair value on the consolidated balance
sheets, as a component of prepaid expenses and other current assets, other
long-term assets, other accrued expenses or other long-term liabilities
depending upon the gain or loss position of the contract and contract
maturity date. Aggregate foreign currency gains/(losses) were $(134),
$22 and $52, in fiscal years 2008, 2007 and 2006, respectively. These
gains/(losses), which were offset by gains/(losses) on the related assets,
liabilities and transactions being hedged, were recorded in either other
expense, net or cost of products sold in the consolidated statements of
earnings. As a result of hedging inventory-related forecasted transactions,
the Company recognized gains/(losses) of $14, $1 and $(40) in cost of
products sold in the consolidated statements of earnings in fiscal years
2008, 2007 and 2006, respectively; the remaining $(148), $21 and $92
was recognized in other expense, net in the consolidated statements of
earnings for fiscal years 2008, 2007 and 2006, respectively.
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 intercompany 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 foreign currency
denominated assets and liabilities. The aggregate foreign currency
transaction losses were $7, $9 and $3 in fiscal years 2008, 2007 and 2006,
respectively, and are recognized in other expense, net in the consolidated
statements of earnings.
Net Investment Hedges
Net investment hedges are used to hedge the long-term investment
(equity) in foreign operations. Net gains/(losses) related to changes in
the current rates, or spot rates, were $(143), $(41) and $57 during fiscal
years 2008, 2007 and 2006, respectively, and recorded as a cumulative
translation adjustment, a component of accumulated other comprehensive
(loss)/income on the consolidated balance sheets. Net gains associated
with changes in forward rates of the contracts totaled $19, $23 and $15
in fiscal years 2008, 2007 and 2006, respectively, and are reflected in
other expense, net in the consolidated statements of earnings.
Cash Flow Hedges
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. Net unrealized losses related to the Company’s outstanding
cash flow hedges totaled $(266) and $(55) in fiscal years 2008 and 2007,
respectively, and were recorded in accumulated other comprehensive
(loss)/income on the consolidated balance sheets. During fiscal years
2008, 2007 and 2006, the Company’s net gains/(losses) related to the
settlement of cash flow hedges were $(146), $8 and $40, respectively.
In fiscal years 2008, 2007 and 2006, gains/(losses) of $(160), $7 and $80
were recorded as other expense, net and gains/(losses) of $14, $1 and
$(40) were recorded in cost of products sold in the consolidated
statements of earnings. No gains or losses relating to ineffectiveness of
cash flow hedges were recognized in earnings during fiscal years 2008,
2007 and 2006. No components of the hedge contracts were excluded
in the measurement of hedge ineffectiveness and no hedges were
derecognized or discontinued during fiscal years 2008, 2007 and 2006.
All cash flow hedges outstanding at April 25, 2008 mature within the
subsequent 36-month period.
Notes to Consolidated Financial Statements
(continued)
(dollars in millions, except per share data)
72 Medtronic, Inc.