Medtronic 2010 Annual Report Download - page 85

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Medtronic, Inc.
between fixed and floating interest amounts calculated by
reference to an agreed-upon notional principal amount.
As of April 30, 2010, the Company had interest rate swaps
designated as fair value hedges of underlying fixed rate obligations.
The Company did not have any fair value hedges outstanding as
of April 24, 2009.
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 London Interbank Offered Rate (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
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.
In December 2009, the Company entered into three five-year
fixed-to-floating interest rate swap agreements, two with notional
amounts of $75 million each and one with a notional amount of
$100 million. These interest rate swap agreements were designated
as fair value hedges of the fixed interest rate obligation under the
Company’s $550 million 4.500 percent Senior Notes due 2014. On
the first $75 million interest rate swap agreement, the Company
pays variable interest equal to the three-month LIBOR plus 181.25
basis points and it receives a fixed interest rate of 4.500 percent.
For the second $75 million interest rate swap agreement, the
Company pays variable interest equal to the three-month LIBOR
plus 196.50 basis points and it receives a fixed interest rate of
4.500 percent. For the $100 million interest rate swap agreement,
the Company pays variable interest equal to the three-month
LIBOR plus 198.10 basis points and it receives a fixed interest rate
of 4.500 percent.
In June 2009, the Company entered into two five-year fixed-to-
floating interest rate swap agreements with notional amounts of
$150 million each. These interest rate swap agreements were
designated as fair value hedges of the fixed interest rate obligation
under the Company’s $550 million 4.500 percent Senior Notes due
2014. On the first interest rate swap agreement, the Company
pays variable interest equal to the one-month LIBOR plus 134.00
basis points and it receives a fixed interest rate of 4.500 percent.
For the second interest rate swap agreement, the Company pays
variable interest equal to the one-month LIBOR plus 137.25 basis
points and it receives a fixed interest rate of 4.500 percent.
The market value of these interest rate swap agreements was a
$31 million unrealized gain and the market value of the hedged
item was a $33 million unrealized loss at April 30, 2010 which
were recorded in long-term debt with the offset recorded in other
assets on the consolidated balance sheet. These fair value hedges
resulted in $(2) million of ineffectiveness which was recorded as
an increase in interest expense, net on the consolidated statement
of earnings. The gross notional amount of these contracts,
designated as fair value hedges outstanding at April 30, 2010 was
$4.600 billion.
In November 2005 and June 2007, the Company entered into a
five-year interest rate swap agreement with a notional amount of
$200 million, and an eight-year interest rate swap agreement with
a notional amount of $300 million, respectively. These interest
rate swap agreements were designated as fair value hedges of
the changes in fair value of a portion of the Company’s fixed-rate
$400 million Senior Notes due 2010 and fixed-rate $600 million
Senior Notes due 2015, respectively. In December 2008, the
Company terminated the interest rate swap agreements. At that
time, the contracts were in an asset position, resulting in cash
receipts of $62 million, which included $3 million of accrued
interest. The gain from terminating the interest rate swap
agreements increased the outstanding balance of the Senior
Notes and is being amortized as a reduction of interest expense
over the remaining life of the Senior Notes. The cash flows from
the termination of these interest rate swap agreements have
been reported as operating activities in the consolidated
statement of cash flows. As of April 30, 2010, the unamortized
gain was $41 million.
During fiscal years 2009 and 2008, the Company did not have
any ineffective fair value hedging instruments. In addition, the
Company did not recognize any gains or losses during fiscal years
2010, 2009 and 2008 on firm commitments that no longer qualify
as fair value hedges.