Medtronic 2013 Annual Report Download - page 71

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75732me_10K.indd 56 6/25/13 6:39 PM
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Due to the global nature of our operations, we are exposed to currency exchange rate changes. 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 be in an otherwise constant currency exchange rate environment.
We use operational and economic hedges, as well as currency exchange rate derivative instruments, to manage the impact of
currency exchange rate changes on earnings and cash flows. In order to minimize earnings and cash flow volatility resulting from
currency exchange rate changes, we enter into derivative instruments, principally forward currency exchange rate contracts. These
contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities.
At inception of the contract, the derivative is designated as either a freestanding derivative or a cash flow hedge. The primary
currencies of the derivative instruments are the Euro and Japanese Yen. We do not enter into currency exchange rate derivative
instruments for speculative purposes.
The gross notional amount of all currency exchange rate derivative instruments outstanding at April 26, 2013 and April 27, 2012
was $6.812 billion and $5.136 billion, respectively. At April 26, 2013, these contracts were in an unrealized gain position of $172
million. A sensitivity analysis of changes in the fair value of all foreign currency exchange rate derivative contracts at April 26,
2013 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 approximately $553 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 our investments in interest rate sensitive
instruments, which include our marketable debt securities, fixed-to-floating interest rate swap agreements, and forward starting
interest rate swap agreements. Asensitivity analysis of the impact on our interest rate sensitive financial instruments of a hypothetical
10 basis point change in interest rates, compared to interest rates as of April 26, 2013, indicates that the fair value of these instruments
would correspondingly change by $27 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, mortgage-backed securities, other asset-backed securities, and auction rate securities. For a discussion of current market
conditions and the impact on our financial condition and results of operations, please see the “Liquidity and Capital Resources”
section of “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report
on Form 10-K.
For additional discussion of market risk, see Notes 5 and 9 to the consolidated financial statements in “Item 8. Financial Statements
and Supplementary Data” in this Annual Report on Form 10-K.
53