Medtronic 2015 Annual Report Download - page 75

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency 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 fluctuations on earnings and cash flows. In order to minimize earnings and cash flow volatility resulting
from currency exchange rate fluctuations, 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 instrument 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. Fluctuations in the
currency exchange rates of currency exposures that are unhedged, such as in certain emerging markets, may result in future
earnings and cash flow volatility. 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 24, 2015 and April 26,
2014 was $9.782 billion and $8.051 billion, respectively. At April 24, 2015, these contracts were in an unrealized gain position
of $599 million. A sensitivity analysis of changes in the fair value of all foreign currency exchange rate derivative contracts at
April 24, 2015 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 $586 million. Any gains and losses on the fair value of
derivative contracts would generally be offset by gains and losses on the underlying transactions. These offsetting gains and
losses are not reflected in the above analysis.
Interest Rate Risk
We are subject to interest rate risk on our investments and our borrowings. We manage interest rate risk in the aggregate, while
focusing on our immediate and intermediate liquidity needs. Our debt portfolio as of April 24, 2015, was comprised of debt
predominately denominated in U.S. dollars. Our debt portfolio was comprised of approximately 90% fixed rate debt and
approximately 10% floating-rate debt as of April 24, 2015. 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.
A sensitivity analysis of the impact on our investments in interest rate sensitive financial instruments of a hypothetical 10 basis
point change in interest rates, compared to interest rates as of April 24, 2015, indicates that the fair value of these instruments
would correspondingly change by $76 million.
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.
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