XML 78 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Financial Instruments
12 Months Ended
Apr. 28, 2012
Derivative Financial Instruments

8. Derivative Financial Instruments

Patterson is a party to certain offsetting and identical interest rate cap agreements. These cap agreements are not designated for hedge accounting treatment and were entered into to fulfill certain covenants of a sale agreement between a commercial paper conduit managed by The Bank of Tokyo-Mitsubishi UFJ, Ltd. and PDC Funding. On December 2, 2011 this agreement was amended on terms consistent with the expiring agreement. These agreements are structured to expire at the end of a 364-day term, so effectively are amended annually. The cap agreements provide a credit enhancement feature for the financing contracts sold by PDC Funding to the commercial paper conduit and replace a minimum interest rate margin previously required under the sale agreement.

The cap agreements are cancelled and new agreements entered into periodically to maintain consistency with the dollar maximum of the sale agreements and the maturity of the underlying financing contracts. As of April 28, 2012, PDC Funding had purchased two interest rate caps from a bank with combined notional amounts of $416 million and maturity dates of September 2018. Patterson Companies, Inc. sold two identical interest rate caps to the same bank.

Similar to the above agreements, PDC Funding II and Patterson Companies, Inc. had entered into offsetting and identical interest rate swap agreements with a notional amount of $110 million. During the second quarter of 2012, these agreements were terminated and replaced with offsetting and identical interest rate cap agreements. As of April 28, 2012 these agreements had notional amounts of $75 million and maturity dates of October 2017.

In addition to the identical purchased and sold interest rate contracts described above, we entered into two interest rate swap agreements with banks to economically hedge the interest rate risk associated with our finance contracts. One agreement ended in November 2011, and other matured in February 2012.

Our interest rate contracts do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change in any period as income or expense during the period in which the change occurs.

In the first quarter of fiscal 2011, we entered into a foreign currency forward contract that was settled in the same quarter. This contract served as an economic hedge and was not designated as a hedge for accounting purposes. The total gain on the contract was $0.1 million.

In the second quarter of fiscal 2011, we entered into a foreign currency forward contract that served to manage foreign exchange risk on a short-term intercompany loan. The forward contract and intercompany loan were both settled during the quarter. The loss on the contract was $2.0 million that effectively was offset by the gain on the intercompany loan.

The following presents the fair value of interest rate contracts included in the consolidated balance sheets:

 

    

Assets

     Liabilities  
    

Classification

   Fair Value      Classification    Fair Value  

Derivative type

      April 28,
2012
     April 30,
2011
        April 28,
2012
     April 30,
2011
 

Interest rate contracts

   Other noncurrent assets    $ 0.2       $ 5.5       Other noncurrent
liabilities
   $ 0.2       $ 5.6   

The following presents the effect of interest rate and foreign currency contracts on the consolidated statements of income:

 

Derivative type

  

Classification of gain (loss)

recognized on derivative

   Gain (loss)
recognized on derivative
 
      Fiscal Year  
      2012      2011     2010  

Interest rate contracts

   Other income (expense), net      $0.0       ($ 0.1     ($0.9

Foreign currency contracts

   Other income (expense), net      $0.0       ($ 1.9     $0.0