Medtronic 2011 Annual Report Download - page 83

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79
Medtronic, Inc.
Asset Derivatives Liability Derivatives
April 30, 2010
(in millions)
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives designated as hedging instruments
Foreign currency exchange rate contracts
Prepaid expenses and
other current assets $ 1 98 Other accrued expenses $ 44
Interest rate contracts Other assets 31
Foreign currency exchange rate contracts Other assets 65 Other long-term liabilities 2
Total derivatives designated as hedging instruments $ 2 9 4$ 4 6
Derivatives not designated as hedging instruments
Foreign currency exchange rate contracts
Prepaid expenses and other
current assets $ 2 Other accrued expenses $ 1
T o t a l d e r i v a t i v e s n o t d e s i g n a t e d a s h e d g i n g i n s t r u m e n t s$ 2 $ 1
Total derivatives $ 2 9 6$ 4 7
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company
to significant concentrations of credit risk, consist principally
of interest-bearing investments, currency exchange and interest
rate derivative contracts, and trade accounts receivable.
The Company maintains cash and cash equivalents , investments,
and certain other financial instruments (including currency
exchange and interest rate derivative contracts) with various
major financial institutions. The Company performs periodic
evaluations of the relative credit standings of these financial
institutions and limits the amount of credit exposure with any one
institution. In addition, the Company has collateral credit
agreements with its primary derivative counterparties. Under
these agreements either party is required to post eligible
collateral when the market value of transactions covered by the
agreement exceeds specific thresholds, thus limiting credit
exposure for both parties. As of April 29, 2011, the Company
pledged $8 million in securities as collateral to its counterparty.
The securities pledged as collateral are included in cash and cash
equivalents in the consolidated balance sheet. As of April 30,
2010, the Company received cash collateral of $123 million from
its counterparty. The collateral received was recorded as an
increase in cash and cash equivalents with the offset recorded as
an increase in other accrued expenses on the consolidated balance
sheet.
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers and
their dispersion across many geographic areas. The Company
monitors the creditworthiness of its customers to which it grants
credit terms in the normal course of business. However, a
significant amount of trade receivables are with national health
care systems in many countries. In light of the current economic
state of many foreign countries, the Company continues to
monitor their creditworthiness. During fiscal year 2011, the
Company established additional bad debt reserves in certain
markets, including Greece. Although the Company does not
currently foresee a significant credit risk associated with these
receivables, repayment is dependent upon the financial stability
of the economies of those countries. As of April 29, 2011 and April
30, 2010, neither one customer nor national health care system
represented more than 10 percent of the outstanding accounts
receivable.
10. Interest Expense, Net
Interest income and interest expense for fiscal years 2011, 2010,
and 2009 are as follows:
Fiscal Year
(in millions) 2011 2010 2009
Interest income $(172) $(156) $(188)
Interest expense 450 402 371
Interest expense, net $ 278 $ 246 $ 183
Interest income includes interest earned on the Company’s
cash and cash equivalents, short- and long-term investments, the
net realized and unrealized gain or loss on trading securities,
changes in the fair value of interest rate derivative instruments,
and the net realized gain or loss on the sale or impairment of
available-for-sale debt securities. See Note 5 for further discussion
of these items.
Interest expense includes the expense associated with the
interest that the Company pays on its outstanding borrowings,
including short- and long-term instruments, changes in the fair
value of interest rate derivative instruments, and the amortization
of debt issuance costs and debt discounts.