Medtronic 2010 Annual Report Download - page 48

44 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Market Risk
Due to the global nature of our operations, we are subject to the
exposures that arise from currency exchange rate fluctuations. In
a period where the U.S. dollar is strengthening/weakening as
compared to other currencies, our revenues and expenses
denominated in foreign currencies are translated into U.S. dollars
at a lower/higher value than they would otherwise be in a
constant currency exchange rate environment. We manage these
exposures using operational and economic hedges as well as
derivative financial instruments. The primary currencies hedged
are the Euro and the Japanese Yen.
Our objective in managing exposure to currency exchange rate
fluctuations is to minimize earnings and cash flow volatility
associated with currency exchange rate changes. We enter into
various contracts, principally forward contracts that change in
value as currency exchange rates change, to protect the U.S.
dollar value of existing foreign currency assets, liabilities, net
investments and probable commitments. The gains and losses on
these contracts offset changes in the value of the related
exposures. It is our policy to enter into currency exchange rate
hedging transactions only to the extent true exposures exist; we
do not enter into currency exchange rate hedging transactions for
speculative purposes.
We had currency exchange rate derivative contracts outstanding
in notional amounts of $5.495 billion and $5.296 billion at
April 30, 2010 and April 24, 2009, respectively. The fair value of
these contracts at April 30, 2010 was $217 million more than the
original contract value. A sensitivity analysis of changes in the fair
value of all currency exchange rate derivative contracts at April
30, 2010 indicates that, if the U.S. dollar uniformly strengthened/
weakened by 10 percent against all currencies, the fair value of
these contracts would increase/decrease by $489 million,
respectively. Any gains and losses on the fair value of derivative
contracts would be largely offset by gains and losses on the
underlying transactions. These offsetting gains and losses are not
reflected in the above analysis. We are also exposed to interest
rate changes affecting principally our investments in interest rate
sensitive instruments, which include our fixed-to-floating interest
rate swap agreements. A sensitivity analysis of the impact on our
interest rate sensitive financial instruments of a hypothetical 10
percent change in short-term interest rates compared to interest
rates at April 30, 2010 indicates that the fair value of these
instruments would correspondingly change by $34 million.
We have investments in marketable debt securities that are
classified and accounted for as available-for-sale. Our debt
securities include U.S. government and agency securities, foreign
government and agency securities, corporate debt securities,
certificates of deposit and mortgage backed and other asset
backed securities including auction rate securities. For a discussion
of current market conditions and the impact on Medtronic, please
see the “Liquidity and Capital Resources” section of this
management’s discussion and analysis.
Cautionary Factors That May Affect Future Results
This Annual Report may include “forward-looking” statements.
Forward-looking statements broadly involve our current
expectations or forecasts of future results. Our forward-looking
statements generally relate to our growth and growth strategies,
financial results, product development, regulatory approvals,
competitive strengths, intellectual property rights, litigation and
tax matters, mergers and acquisitions, market acceptance of our
products, accounting estimates, financing activities, ongoing
contractual obligations and sales efforts. Such statements can be
identified by the use of terminology such as “anticipate,” “believe,”
“could,” “estimate,” “expect,” “forecast,” “intend,” “looking ahead,”
“may,” “plan,” “possible,” “potential,” “project,” “should,” “will” and
similar words or expressions. Forward-looking statements in this
Annual Report include, but are not limited to, future launches of
products and continued or future acceptance of products in our
operating segments; market positioning and performance of our
products; increased presence in new markets; integration of
acquired companies into our operations; the resolution of tax
matters; the effectiveness of our development activities in
reducing patient care costs; the elimination of certain positions or