Medtronic 2012 Annual Report Download - page 114

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Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
97
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. During fiscal
year 2011, the Company terminated interest rate swap agreements with a consolidated notional amount of
$1.850 billion that 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. Upon termination, the contracts
were in an asset position, resulting in cash receipts of $51 million, which included $11 million of accrued
interest. The gain from terminating the interest rate swap agreements increased the outstanding balance of
the Senior Convertible Notes and is being amortized as a reduction of interest expense over the remaining
life of the Senior Convertible Notes. The cash flows from the termination of these interest rate swap
agreements have been reported as operating activities in the consolidated statements of cash flows.
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 2009 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 2009
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.
As of April 27, 2012 and April 29, 2011, the market value of outstanding interest rate swap agreements
was an unrealized gain of $167 million and $109 million, respectively, and the market value of the hedged
items was an unrealized loss of $167 million and $110 million, respectively, which was recorded in other
assets with the offset recorded in long-term debt on the consolidated balance sheets. The fair value hedges
outstanding during fiscal years 2012 and 2011 resulted in ineffectiveness of less than $1 million and
$4 million, respectively, which were recorded as increases in interest expense, net on the consolidated
statements of earnings.
During fiscal years 2012, 2011, and 2010, 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 2012, 2011,
or 2010 on firm commitments that no longer qualify as fair value hedges.
Balance Sheet Presentation
The following tables summarize the location and fair value amounts of derivative instruments reported
in the consolidated balance sheets as of April 27, 2012 and April 29, 2011. The fair value amounts are
presented on a gross basis and are segregated between derivatives that are designated and qualify as
hedging instruments and those that are not, and are further segregated by type of contract within those
two categories.