Medtronic 2012 Annual Report Download - page 112

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Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
95
The amount of gains/(losses) and location of the gains/(losses) in the consolidated statements of
earnings and other comprehensive income (OCI) related to derivative instruments designated as cash flow
hedges for the fiscal years ended April 27, 2012 and April 29, 2011 are as follows:
April 27, 2012
Gross Gains/(Losses) Effective Portion of Gains/(Losses)
Recognized in OCI on on Derivative Reclassified from Accumulated
(in millions) Effective Portion of Derivative Other Comprehensive Loss 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)
__________ ____________
__________ ____________
April 29, 2011
Gross Gains/(Losses) Effective Portion of Gains/(Losses)
Recognized in OCI on on Derivative Reclassified from Accumulated
(in millions) Effective Portion of Derivative Other Comprehensive Loss into Income
___________________________________ ______________________________________________________
Derivatives in Cash Flow Hedging Relationships Amount Location Amount
_____________________________________________ ___________________________________ _______________________________ _______________________
Foreign currency exchange
rate contracts $ (530) Other expense, net $ 50
Cost of products sold 31
__________ ____________
Total $ (530) $ 81
__________ ____________
__________ ____________
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. For forward starting interest rate derivative instruments that are
designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is
reported as a component of accumulated other comprehensive loss and beginning in the period or periods
in which the planned debt issuance occurs, the gain or loss is then reclassified into interest expense, net over
the term of the related debt. In the second quarter of fiscal year 2012, the Company entered into $750 million
of pay fixed, forward starting interest rate swaps with a weighted average fixed rate of 2.84 percent in
anticipation of a planned debt issuance.
The market value of outstanding forward interest rate swap derivative instruments at April 27, 2012 was
a $45 million unrealized loss. This unrealized loss was recorded in other long-term liabilities with the offset
recorded in OCI in the consolidated balance sheet. The Company did not have any forward starting interest
rate swaps outstanding at April 29, 2011.
As of April 27, 2012 and April 29, 2011, the Company had $6 million and $(188) million in after-tax
net unrealized gains/(losses) associated with cash flow hedging instruments recorded in accumulated other
comprehensive loss, respectively. The Company expects that $29 million of unrealized gains as of April 27,
2012 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 current 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.