Medtronic 2016 Annual Report Download - page 66

Table of Contents
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Currency Exchange Rate 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 other 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 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 29, 2016 and April 24, 2015
was $10.8 billion and $9.8 billion, respectively. At April 29, 2016, these contracts were in an unrealized loss position of $11
million. A sensitivity analysis of changes in the fair value of all currency exchange rate derivative contracts at April 29, 2016
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 $725 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 short-term 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 29, 2016, was comprised of debt
predominately denominated in U.S. dollars, of which approximately 90% is fixed rate debt and approximately 10% is floating-
rate debt. 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 29, 2016, indicates that the fair value of these instruments
would correspondingly change by $85 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 8 to the consolidated
financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.