SEC Filings

10-Q
MEDTRONIC PLC filed this Form 10-Q on 09/01/2017
Entire Document
 
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)


The amount of gross gains, classification of the gains in the consolidated statements of income, and the accumulated other comprehensive (loss) income (AOCI) related to the effective portion of currency exchange rate contract derivative instruments designated as cash flow hedges for the three months ended July 28, 2017 and July 29, 2016 were as follows:
 
 
Three months ended July 28, 2017
 
 
Recognized in AOCI
 
Recognized in Income
(in millions)
 
Amount
 
Classification
 
Amount
Currency exchange rate contracts
 
$
(250
)
 
Other expense, net
 
$
22

Total
 
$
(250
)
 
 
 
$
22

 
 
 
 
 
 
 
 
 
Three months ended July 29, 2016
 
 
Recognized in AOCI
 
Recognized in Income
(in millions)
 
Amount
 
Classification
 
Amount
Currency exchange rate contracts
 
$
121

 
Other expense, net
 
$
15

Total
 
$
121

 
 
 
$
15

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. The effective portion of the gains or losses on forward starting interest rate derivative instruments that is designated and qualify as cash flow hedges is reported as a component of accumulated other comprehensive loss. Beginning in the period in which the planned debt issuance occurs and the related derivative instruments are terminated, the effective portion of the gains or losses are then reclassified into interest expense, net over the term of the related debt. Any portion of the gains or losses that is determined to be ineffective is immediately recognized in interest expense, net.
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. During the fourth quarter of fiscal year 2017, in connection with the issuance of the 2017 Senior Notes, these swaps were terminated. For the three months ended July 29, 2016, there were $23 million of unrealized losses recorded in accumulated other comprehensive loss.
No gains or losses relating to ineffectiveness of forward starting interest rate derivative instruments were recognized in interest expense, net during the three months ended July 29, 2016. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness during the three months ended July 29, 2016.
For the three months ended July 28, 2017 and July 29, 2016, the reclassification of the effective portion of the net losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense, net was not significant.
At July 28, 2017 and April 28, 2017, the Company had $(134) million and $37 million, respectively, in after-tax net unrealized (losses) gains associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $37 million of after-tax net unrealized losses at July 28, 2017 will be recognized in 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.
Changes in the fair value of the derivative instrument are recognized in interest expense, net, and are offset by changes in the fair value of the underlying debt instrument. The gains (losses) from terminated interest rate swap agreements are recognized in long-term debt, increasing (decreasing) the outstanding balances of the debt, and amortized as a reduction of (addition to) interest expense, net over the remaining life of the related debt. The cash flows from the termination of interest rate swap agreements are reported as operating activities in the consolidated statements of cash flows.
At both July 28, 2017 and April 28, 2017, the Company had interest rate swaps in gross notional amounts of $1.2 billion, designated as fair value hedges of underlying fixed-rate senior note 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.

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