Medtronic 2016 Annual Report Download - page 101

Table of Contents
Medtronic plc
Notes to Consolidated Financial Statements (Continued)
98
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. No gains or losses relating to ineffectiveness of forward starting
interest rate derivative instruments were recognized in earnings during fiscal years 2016, 2015, or 2014. No components of the
hedge contracts were excluded in the measurement of hedge ineffectiveness. In connection with the closing of the 2015 Senior
Notes, the Company entered into forward starting interest rate derivatives with a notional amount of $5.9 billion, these swaps were
terminated upon the issuance of the 2015 Senior Notes. Upon termination, there was no material ineffectiveness on the contracts
which were in a net liability position, resulting in cash payment of $79 million. During fiscal year 2016, the Company terminated
forward starting interest rate derivatives with a consolidated notional amount of $500 million, which were previously entered into
in advance of a planned debt issuance that is no longer expected. Upon termination, these swaps were in a net liability position,
resulting in a cash payment of $45 million. As of April 29, 2016, the Company had $300 million of fixed pay, forward starting
interest rate swaps with a weighted average fixed rate of 3.10 percent in anticipation of planned debt issuances.
For the fiscal years ended April 29, 2016 and April 24, 2015, the Company reclassified $12 million and $11 million, respectively,
of the effective portion of the net losses on forward starting interest rate derivative instruments from accumulated other
comprehensive (loss) income to interest expense, net. In addition, we reclassified $20 million from accumulated other comprehensive
(loss) income to interest expense, net due to the acceleration of net losses on forward starting interest derivatives, which had been
terminated at the time of the original debt issuances, relating to the portion of debt extinguished in the tender offer.
The unrealized losses on outstanding forward starting interest rate swap derivative instruments as of April 29, 2016 and April 24,
2015 were $48 million and $71 million, respectively.
As of April 29, 2016 and April 24, 2015, the Company had $(90) million and $210 million, respectively, in after-tax net unrealized
(losses) gains associated with cash flow hedging instruments recorded in accumulated other comprehensive (loss) income. The
Company expects that $17 million of after-tax net unrealized gains as of April 29, 2016 will be reclassified into the consolidated
statements of earnings over the next 12 months.
Fair Value Hedges
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 April 29, 2016 and April 24, 2015, the Company had interest rate swaps in gross notional amounts of $1.2 billion and $2.0
billion, respectively, designated as fair value hedges of underlying fixed rate obligations. As of April 29, 2016 and April 24, 2015,
the Company had interest rate swap agreements designated as fair value hedges of underlying fixed rate obligations including the
Company’s $500 million 4.125 percent 2011 Senior Notes due 2021, and the $675 million 3.125 percent 2012 Senior Notes due
2022. As of April 24, 2015, the Company also had an interest rate swap agreement designated as a fair value hedge underlying the
fixed rate obligation related to the Company's $600 million 4.750 percent 2005 Senior Notes due 2016 and the $500 million 2.625
percent 2011 Senior Notes due 2016.
As of April 29, 2016 and April 24, 2015, the market value of outstanding interest rate swap agreements was an unrealized gain of
$89 million and $18 million, respectively, and the market value of the hedged items was an unrealized loss of $89 million and $18
million, respectively, which was recorded in other assets, prepaid expenses and other current assets, and other long-term liabilities
with the offsets recorded in long-term debt and short-term borrowings on the consolidated balance sheets. No significant hedge
ineffectiveness was recorded as a result of these fair value hedges for fiscal year 2016, 2015, and 2014.
During fiscal years 2016, 2015, and 2014, 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 2016, 2015, or 2014 on firm commitments that no longer
qualify as fair value hedges.