XML 52 R18.htm IDEA: XBRL DOCUMENT
v3.5.0.2

Financial Instruments | 12 Months Ended
--- | ---
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | 11. Financial Instruments We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, currency exchange risk, and commodity price risk. We do not use derivative instruments for trading or speculative purposes. While the majority of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments. These derivative instruments are adjusted to current fair value through earnings at the end of each period. We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines and only enter into derivative instruments with major financial institutions that are investment grade or better. We do not have significant exposure to any one counterparty and we believe the risk of loss is remote. Additionally, we do not require collateral under these agreements. Interest Rate Risk Management We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs. Currency Exchange Risk Management We conduct business in several major international currencies and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenue and expenses. Commodity Price Risk Management We are exposed to changes in the price of certain commodities. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts when possible to manage the price risk associated with certain forecasted purchases. The following table summarizes the fair value of our assets and liabilities related to derivatives designated as hedging instruments and the respective line items in which they were recorded in the consolidated balance sheets at June 30:
(in millions) | 2016 |  | 2015
Assets: |  |  |
Foreign currency contracts (1) | $ | 1 |  |  | $ | 3 |
Pay-floating interest rate swaps (2) | 33 |  |  | 8 |
Pay-floating interest rate swaps (1) | 1 |  |  | — |
Total assets | $ | 35 |  |  | $ | 11 |
Liabilities: |  |  |
Foreign currency contracts (3) | $ | 3 |  |  | $ | 2 |
Forward interest rate swaps (4) | 10 |  |  | — |
Pay-floating interest rate swaps (4) | — |  |  | 1 |
Commodity contracts (3) | 2 |  |  | 2 |
Commodity contracts (4) | 1 |  |  | 1 |
Total liabilities | $ | 16 |  |  | $ | 6 |
(1) Included in prepaid expenses and other in the consolidated balance sheets. (2) Included in other assets in the consolidated balance sheets.
(3) | Included in other accrued liabilities in the consolidated balance sheets.
(4) | Included in deferred income taxes and other liabilities in the consolidated balance sheets.
Fair Value Hedges We enter into pay-floating interest rate swaps to hedge the changes in the fair value of fixed-rate debt resulting from fluctuations in interest rates. These contracts are designated and qualify as fair value hedges. Accordingly, the gain or loss recorded on the pay-floating interest rate swaps is directly offset by the change in fair value of the underlying debt. Both the derivative instrument and the underlying debt are adjusted to market value at the end of each period with any resulting gain or loss recorded in interest expense, net in the consolidated statements of earnings. During fiscal 2016, we entered into pay-floating interest rate swaps with total notional amounts of $600 million. These swaps have been designated as fair value hedges of our fixed rate debt and are included in other assets in the consolidated balance sheets. During fiscal 2016, we terminated notional amounts of $250 million of pay-floating interest rate swaps that were previously designated as fair value hedges. During fiscal 2015, we entered into pay-floating interest rate swaps with total notional amounts of $1,050 million, of which $250 million and $450 million was in connection with the registered debt offerings in June 2015 and November 2014, respectively. These swaps have been designated as fair value hedges of our fixed rate debt and are included in other assets in the consolidated balance sheets. Also during fiscal 2015, we terminated notional amounts of $875 million of pay-floating interest rate swaps in connection with the debt redemption in December 2014 as described in Note 6. These swaps were previously designated as fair value hedges. The following tables summarize the outstanding interest rate swaps designated as fair value hedges at June 30:
| 2016
(in millions) | Notional Amount |  | Maturity Date
Pay-floating interest rate swaps | $ | 1,963 |  |  | Jun 2017 | - | Sep 2025
| 2015
(in millions) | Notional Amount |  | Maturity Date
Pay-floating interest rate swaps | $ | 1,613 |  |  | Jun 2017 | - | Jun 2022
The following table summarizes the gain/(loss) recognized in earnings for interest rate swaps designated as fair value hedges:
(in millions) | 2016 |  | 2015 |  | 2014
Pay-floating interest rate swaps (1) (2) | $ | 23 |  |  | $ | 14 |  |  | $ | 23 |
Fixed-rate debt (1) | (23 | ) |  | (14 | ) |  | (23 | )
(1) Included in interest expense, net in the consolidated statements of earnings.
(2) | Fiscal 2015 excludes $22 million fair value adjustment to the previously terminated interest rate swaps as a result of the December 2014 debt extinguishment as disclosed in Note 6.
There was no ineffectiveness associated with these derivative instruments for any periods presented. Cash Flow Hedges We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to interest rate, foreign currency and commodity price fluctuations associated with certain forecasted transactions. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in earnings immediately. During fiscal 2016 and 2015 we entered into forward interest rate swaps with a total notional amount of $300 million and $850 million, respectively, to hedge probable, but not firmly committed, future transactions associated with our debt. Additionally, during fiscal 2015 we terminated $1,150 million in forward interest rate swaps that were previously designated as cash-flow hedges. We enter into foreign currency contracts to protect the value of anticipated foreign currency revenues and expenses. At June 30, 2016 and 2015, we held contracts to hedge probable, but not firmly committed, revenue and expenses. The principal currencies hedged are the Canadian dollar, Mexican peso, Thai baht, Chinese renminbi and euro. We enter into commodity contracts to manage the price risk associated with forecasted purchases of certain commodities used in our Medical segment. The following tables summarize the outstanding cash flow hedges at June 30:
| 2016
(in millions) | Notional Amount |  | Maturity Date
Forward interest rate swaps | $ | 300 |  |  | Jun 2018 | - | Jun 2028
Foreign currency contracts | 183 |  |  | Jul 2016 | - | Jun 2017
Commodity contracts | 22 |  |  | Jul 2016 | - | Mar 2019
| 2015
(in millions) | Notional Amount |  | Maturity Date
Foreign currency contracts | 146 |  |  | Jul 2015 | - | Jun 2016
Commodity contracts | 22 |  |  | Jul 2015 | - | Mar 2018
The following table summarizes the gain/(loss) included in AOCI for derivative instruments designated as cash flow hedges at June 30:
(in millions) | 2016 |  | 2015
Forward interest rate swaps | $ | (10 | ) |  | $ | — |
Commodity contracts | (3 | ) |  | (3 | )
Foreign currency contracts | (4 | ) |  | 2 |
The following table summarizes the gain/(loss) reclassified from AOCI into earnings for derivative instruments designated as cash flow hedges:
(in millions) | 2016 |  | 2015 |  | 2014
Foreign currency contracts (1) | $ | 1 |  |  | $ | 1 |  |  | $ | — |
Foreign currency contracts (2) | 5 |  |  | 4 |  |  | 2 |
Foreign currency contracts (3) | (3 | ) |  | (2 | ) |  | 1 |
Commodity contracts (3) | (5 | ) |  | (1 | ) |  | — |
(1) | Included in revenue in the consolidated statements of earnings.
(2) | Included in cost of products sold in the consolidated statements of earnings.
(3) | Included in SG&A expenses in the consolidated statements of earnings.
The amount of ineffectiveness associated with these derivative instruments was immaterial for all periods presented. Economic (Non-Designated) Hedges We enter into foreign currency contracts to manage our foreign exchange exposure related to intercompany financing transactions and other balance sheet items subject to revaluation that do not meet the requirements for hedge accounting treatment. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability. The settlement of the derivative instrument and the remeasurement adjustment on the foreign currency denominated asset or liability are both recorded in other (income)/expense, net. The principal currencies managed through foreign currency contracts are the Canadian dollar, Mexican peso, euro, Thai baht and Chinese renminbi. The following tables summarize the outstanding economic (non-designated) derivative instruments at June 30:
| 2016
(in millions) | Notional Amount |  | Maturity Date
Foreign currency contracts | $ | 492 |  |  | Jul 2016 | - | Jul 2016
| 2015
(in millions) | Notional Amount |  | Maturity Date
Foreign currency contracts | $ | 398 |  |  | Jul 2015 | - | Jul 2015
The following table summarizes the gain/(loss) recognized in earnings for economic (non-designated) derivative instruments:
(in millions) | 2016 |  | 2015 |  | 2014
Foreign currency contracts (1) | $ | (17 | ) |  | $ | (45 | ) |  | $ | 12 |
(1) | Included in other income, net in the consolidated statements of earnings.
Fair Value of Financial Instruments The carrying amounts of cash and equivalents, trade receivables, net, accounts payable, and other accrued liabilities at June 30, 2016 and 2015 approximate fair value due to their short-term maturities. The following table summarizes the estimated fair value of our long-term obligations and other short-term borrowings compared to the respective carrying amounts at June 30:
(in millions) | 2016 |  | 2015
Estimated fair value | $ | 5,780 |  |  | $ | 5,521 |
Carrying amount | 5,539 |  |  | 5,492 |
The fair value of our long-term obligations and other short-term borrowings is estimated based on either the quoted market prices for the same or similar issues or other inputs derived from available market information, which represents a Level 2 measurement. The following table is a summary of the fair value gain/(loss) of our derivative instruments based upon the estimated amount that we would receive (or pay), considering counter-party credit risk, to terminate the contracts at June 30:
| 2016 |  | 2015
(in millions) | Notional Amount |  | Fair Value Gain/(Loss) |  | Notional Amount |  | Fair Value Gain/(Loss)
Pay-floating interest rate swaps | $ | 1,963 |  |  | $ | 34 |  |  | $ | 1,613 |  |  | $ | 7 |
Foreign currency contracts | 675 |  |  | (2 | ) |  | 544 |  |  | 1 |
Forward interest rate swaps | 300 |  |  | (10 | ) |  | — |  |  | — |
Commodity contracts | 22 |  |  | (3 | ) |  | 22 |  |  | (3 | )

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
Name: | us-gaap_FinancialInstrumentsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration