Derivative Financial Instruments

6 Months Ended

Jul. 02, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses foreign currency forward contracts, interest rate swaps and interest rate contracts to manage risks generally associated with foreign exchange rate and interest rate fluctuations. The information that follows explains the various types of derivatives financial instruments and how they impacted the Company's financial position and performance.

Cash Flow Hedges

Foreign exchange forward contracts: During 2015, the Company began to enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. These transactions are designated as cash flow hedges. The Company hedges its exposure to the variability in future cash flows of forecasted transactions for periods of up to 24 months. The dollar equivalent gross notional amount of the Company’s foreign exchange forward contracts designated as cash flow hedges at July 2, 2016 was approximately $1.0 billion. Hedge ineffectiveness recognized in earnings on cash flow hedges during the three and six months ended July 2, 2016 and July 4, 2015 was not material.

As of July 2, 2016, the Company had a balance of $27 million associated with the after-tax net unrealized loss position related to foreign currency forward contracts recorded in accumulated other comprehensive income. Based on exchange rates as of July 2, 2016, the Company expects to reclassify net losses of approximately $19 million after-tax to earnings over the next 12 months contemporaneously with the earnings effects of the related forecasted transactions (with the impact offset by cash flows from the underlying hedged items).

The following table provides the (gains) losses related to derivative instruments designated as cash flow hedges for the three and six months ended July 2, 2016 and July 4, 2015, including the location in the Condensed Consolidated Statements of Earnings and the Condensed Consolidated Statements of Comprehensive Income (in millions):

			Pre-tax (Gain) Loss Recognized				Ineffective Portion of
	Pre-tax (Gain) Loss		in Earnings on Effective Portion				(Gain) Loss on Derivative
	Recognized in Other		of Derivative as a Result of				and Amount Excluded from
Three	Comprehensive		Reclassification from				Effectiveness Testing
months	Income on Effective		Accumulated Other				Recognized
ended	Portion of Derivative		Comprehensive Income				in Earnings
July 2, 2016	Amount		Amount			Location	Amount		Location
Derivatives in Cash Flow Hedging Relationships
Foreign currency forward contracts	$	5	$	—		Cost of sales	$	—	Cost of sales
			Pre-tax (Gain) Loss Recognized				Ineffective Portion of
	Pre-tax (Gain) Loss		in Earnings on Effective Portion				(Gain) Loss on Derivative
	Recognized in Other		of Derivative as a Result of				and Amount Excluded from
Six	Comprehensive		Reclassification from				Effectiveness Testing
months	Income on Effective		Accumulated Other				Recognized
ended	Portion of Derivative		Comprehensive Income				in Earnings
July 2, 2016	Amount		Amount			Location	Amount		Location
Derivatives in Cash Flow Hedging Relationships
Foreign currency forward contracts	$	44	$	(6	)	Cost of sales	$	—	Cost of sales

				Pre-tax (Gain) Loss Recognized				Ineffective Portion of
	Pre-tax (Gain) Loss			in Earnings on Effective Portion				(Gain) Loss on Derivative
	Recognized in Other			of Derivative as a Result of				and Amount Excluded from
Three	Comprehensive			Reclassification from				Effectiveness Testing
months	Income on Effective			Accumulated Other				Recognized
ended	Portion of Derivative			Comprehensive Income				in Earnings
July 4, 2015	Amount			Amount			Location	Amount		Location
Derivatives in Cash Flow Hedging Relationships
Foreign currency forward contracts	$	15		$	(4	)	Cost of sales	$	—	Cost of sales
				Pre-tax (Gain) Loss Recognized				Ineffective Portion of
	Pre-tax (Gain) Loss			in Earnings on Effective Portion				(Gain) Loss on Derivative
	Recognized in Other			of Derivative as a Result of				and Amount Excluded from
Six	Comprehensive			Reclassification from				Effectiveness Testing
months	Income on Effective			Accumulated Other				Recognized
ended	Portion of Derivative			Comprehensive Income				in Earnings
July 4, 2015	Amount			Amount			Location	Amount		Location
Derivatives in Cash Flow Hedging Relationships
Foreign currency forward contracts	$	(19	)	$	(4	)	Cost of sales	$	—	Cost of sales

Reclassifications from accumulated other comprehensive income into earnings include accumulated (gains) losses on dedesignated hedges at the time earnings are impacted.

Derivatives Not Designated as Hedging Instruments

Derivatives not designated as hedging instruments include dedesignated foreign currency forward contracts and foreign currency forward contracts that the Company utilizes to economically hedge the foreign currency impact of assets and liabilities denominated in nonfunctional currencies. The dollar equivalent gross notional amount of these forward contracts not designated as hedging instruments totaled approximately $0.2 billion as of July 2, 2016. The fair value of the Company's outstanding contracts was not material as of July 2, 2016 and January 2, 2016.

The following table provides the (gains) losses related to derivative instruments not designated as hedging instruments, including the location in the Condensed Consolidated Statements of Earnings (in millions):

Derivatives Not	(Gain) Loss on Derivatives					(Gain) Loss on Derivatives
Designated as	Recognized in Earnings					Recognized in Earnings
Hedging	Three Months Ended					Six Months Ended
Instruments	July 2, 2016			July 4, 2015		July 2, 2016		July 4, 2015			Location
Foreign currency forward contracts	$	(2	)	$	1	$	1	$	(8	)	Other (income) expense

The net (gains) losses werealmost entirely offset by corresponding net (losses) gains on the foreign currency exposures being managed.

Location and Fair Value Amount of Derivative Instruments

The following table summarizes the fair value of the Company’s derivative instruments and their locations in the Condensed Consolidated Balance Sheets as of July 2, 2016 and January 2, 2016 (in millions):

Fair Value of Derivative Instruments	July 2, 2016			January 2, 2016			Location
Derivatives Designated as Hedging Instruments
Foreign currency forward contracts	$	4		$	14		Other current assets
	1			2			Other assets
	(34		)	(6		)	Other current liabilities
	(5		)	(3		)	Other liabilities
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts	—			—			Other current assets
	—			—			Other current liabilities
Total	$	(34	)	$	7

Additional information with respect to the fair values of the Company's derivative instruments is included in Note 8.

Credit Risk and Offsetting of Assets and Liabilities of Derivative Instruments

As of July 2, 2016, St. Jude Medical, Inc. had International Swaps and Derivatives Association agreements with four applicable banks and financial institutions that contain netting provisions.

The following tables provide information as though the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of the netting arrangements with each of the counterparties as of July 2, 2016 and January 2, 2016, respectively (in millions):

			Gross Amounts not Offset in the Condensed Consolidated Balance Sheet that are Subject to Master Netting Agreements
			Gross Amount of
			Eligible Offsetting
	Gross Amount of		Recognized
	Derivative Assets		Derivative Liabilities
	Presented in the		Presented in the				Net
	Condensed		Condensed		Cash		Amount of
	Consolidated		Consolidated		Collateral		Derivative
Derivatives as of July 2, 2016	Balance Sheet		Balance Sheet		Received		Assets
Derivatives subject to master netting agreements	$	3	$	2	$	—	$	1
Derivatives not subject to master netting agreements	2						2
Total	$	5	$	2	$	—	$	3
			Gross Amounts not Offset in the Condensed Consolidated Balance Sheet that are Subject to Master Netting Agreements
			Gross Amount of
	Gross Amount of		Eligible Offsetting
	Derivative		Recognized
	Liabilities		Derivative Assets
	Presented in the		Presented in the				Net
	Condensed		Condensed		Cash		Amount of
	Consolidated		Consolidated		Collateral		Derivative
Derivatives as of July 2, 2016	Balance Sheet		Balance Sheet		Pledged		Liabilities
Derivatives subject to master netting agreements	$	22	$	2	$	—	$	20
Derivatives not subject to master netting agreements	17						17
Total	$	39	$	2	$	—	$	37

			Gross Amounts not Offset in the Condensed Consolidated Balance Sheet that are Subject to Master Netting Agreements
			Gross Amount of
			Eligible Offsetting
	Gross Amount of		Recognized
	Derivative Assets		Derivative Liabilities
	Presented in the		Presented in the				Net
	Condensed		Condensed		Cash		Amount of
	Consolidated		Consolidated		Collateral		Derivative
Derivatives as of January 2, 2016	Balance Sheet		Balance Sheet		Received		Assets
Derivatives subject to master netting agreements	$	3	$	1	$	—	$	2
Derivatives not subject to master netting agreements	13						13
Total	$	16	$	1	$	—	$	15
			Gross Amounts not Offset in the Condensed Consolidated Balance Sheet that are Subject to Master Netting Agreements
			Gross Amount of
	Gross Amount of		Eligible Offsetting
	Derivative		Recognized
	Liabilities		Derivative Assets
	Presented in the		Presented in the				Net
	Condensed		Condensed		Cash		Amount of
	Consolidated		Consolidated		Collateral		Derivative
Derivatives as of January 2, 2016	Balance Sheet		Balance Sheet		Pledged		Liabilities
Derivatives subject to master netting agreements	$	1	$	1	$	—	$	—
Derivatives not subject to master netting agreements	8						8
Total	$	9	1		$	—	$	8

For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period. Derivatives not subject to master netting agreements are not eligible for net presentation. As of both July 2, 2016 and January 2, 2016, no cash collateral had been received or pledged related to these derivative instruments.