Medtronic 2013 Annual Report Download - page 108

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Table of Contents
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
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 March 2013, the Company terminated forward starting interest rate derivative instruments with a consolidated
notional amount of $750 million in conjunction with the issuance of the 2013 Senior Notes. Upon termination, there was no
material ineffectiveness on the contracts which were in a net liability position, resulting in cash payments of $68 million. As of
April 26, 2013, the Company had $500 million of pay fixed, forward starting interest rate swaps with a weighted average fixed
rate of 2.68 percent in anticipation of a planned debt issuance.
The market value of outstanding forward interest rate swap derivative instruments at April 26, 2013 and April 27, 2012 was an
unrealized loss of $18 million and $45 million, respectively. These unrealized losses were recorded in other long-term liabilities
with the offset recorded in accumulated other comprehensive loss in the consolidated balance sheets.
As of April 26, 2013 and April 27, 2012, the Company had $165 million and $6 million in after-tax net unrealized gains associated
with cash flow hedging instruments recorded in accumulated other comprehensive loss, respectively. The Company expects that
$76 million of unrealized gains as of April 26, 2013 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 earnings. The gains (losses) from
terminating the interest rate swap agreements are recorded in long-term debt, increasing (decreasing) the outstanding balances of
the related debt, and amortized as a reduction of interest expense, net over the remaining life of the related debt. The cash flows
from the termination of the interest rate swap agreements are reported as operating activities in the consolidated statements of
cash flows.
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.
As of both April 26, 2013 and April 27, 2012, the Company had interest rate swaps in gross notional amounts of $2.625 billion
designated as fair value hedges of underlying fixed-rate obligations. As of April 26, 2013 and April 27, 2012, the Company had
interest rate swap agreements designated as fair value hedges of underlying fixed-rate obligations including the Company’s $1.250
billion 3.000 percent 2010 Senior Notes due 2015, the $600 million 4.750 percent 2010 Senior Notes due 2015, the $500 million
2.625 percent 2011 Senior Notes due 2016, the $500 million 4.125 percent 2011 Senior Notes due 2021, and the $675 million
3.125 percent 2012 Senior Notes due 2022.
In March 2012, the Company entered into ten-year fixed-to-floating interest rate swap agreements with a consolidated notional
amount of $675 million, which were designated as fair value hedges of fixed interest rate obligations under the Company’s 2012
Senior Notes due 2022. The Company pays variable interest equal to the one-month London Interbank Offered Rate (LIBOR)
plus approximately 92 basis points, and receives a fixed interest rate of 3.125 percent.
In July 2011, the Company terminated interest rate swap agreements with a consolidated notional amount of $900 million that
were designated as fair value hedges of the fixed interest rate obligation under the Company’s $2.200 billion 1.625 percent 2013
Senior Convertible Notes and $550 million 4.500 percent 2009 Senior Notes due 2014. Upon termination, the contracts were in
an asset position, resulting in cash receipts of $46 million, which included $10 million of accrued interest.
In August 2011, the Company terminated interest rate swap agreements with a consolidated notional amount of $650 million that
were designated as fair value hedges of the fixed interest rate obligation under the Company’s $1.250 billion 3.000 percent 2010
Senior Notes due 2015. Upon termination, the contracts were in an asset position, resulting in cash receipts of $42 million, which
included $7 million of accrued interest.
In March 2011, the Company entered into five-year and ten-year fixed-to-floating interest rate swap agreements with a consolidated
notional amount of $750 million, which were designated as fair value hedges of fixed interest rate obligations under the Company’s
2011 Senior Notes due 2016 and 2021. The Company pays variable interest equal to the LIBOR plus approximately 37 and 66
basis points, and receives a fixed interest rate of 2.625 percent and 4.125 percent, respectively.
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