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Derivative Instruments | 12 Months Ended
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Jul. 27, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments
(a) | Summary of Derivative Instruments
We use derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price risks. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates, interest rates, and equity prices. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties. The fair values of our derivative instruments and the line items on the Consolidated Balance Sheets to which they were recorded are summarized as follows (in millions):
| DERIVATIVE ASSETS |  | DERIVATIVE LIABILITIES
| Balance Sheet Line Item |  | July 27, 2019 |  | July 28, 2018 |  | Balance Sheet Line Item |  | July 27, 2019 |  | July 28, 2018
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives | Other current assets |  | $ | 5 |  |  | $ | 1 |  |  | Other current liabilities |  | $ | 8 |  |  | $ | — |
Interest rate derivatives | Other current assets |  | — |  |  | — |  |  | Other current liabilities |  | 1 |  |  | 10 |
Interest rate derivatives | Other assets |  | 75 |  |  | — |  |  | Other long-term liabilities |  | — |  |  | 62 |
Total |  |  | 80 |  |  | 1 |  |  |  |  | 9 |  |  | 72 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives | Other current assets |  | 9 |  |  | 1 |  |  | Other current liabilities |  | 6 |  |  | 2 |
Total |  |  | 9 |  |  | 1 |  |  |  |  | 6 |  |  | 2 |
Total |  |  | $ | 89 |  |  | $ | 2 |  |  |  |  | $ | 15 |  |  | $ | 74 |
The effects of our cash flow and net investment hedging instruments on other comprehensive income (OCI) and the Consolidated Statements of Operations are summarized as follows (in millions):
GAINS (LOSSES) RECOGNIZED IN OCI ON DERIVATIVES FOR THE YEARS ENDED (EFFECTIVE PORTION) |  | GAINS (LOSSES) RECLASSIFIED FROM AOCI INTO INCOME FOR THE YEARS ENDED (EFFECTIVE PORTION)
|  | July 27, 2019 |  | July 28, 2018 |  | July 29, 2017 |  | Line Item in Statements of Operations |  | July 27, 2019 |  | July 28, 2018 |  | July 29, 2017
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | (1 | ) |  | $ | 20 |  |  | $ | 22 |  |  | Revenue |  | $ | 2 |  |  | $ | — |  |  | $ | — |
|  |  |  |  |  |  |  | Cost of sales |  | — |  |  | 16 |  |  | (20 | )
|  |  |  |  |  |  |  | Operating expenses |  | 1 |  |  | 52 |  |  | (59 | )
Total |  | $ | (1 | ) |  | $ | 20 |  |  | $ | 22 |  |  | Total |  | $ | 3 |  |  | $ | 68 |  |  | $ | (79 | )
Derivatives designated as net investment hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | 4 |  |  | $ | (1 | ) |  | $ | (15 | ) |  | Other income (loss), net |  | $ | — |  |  | $ | — |  |  | $ | — |
As of July 27, 2019, we estimate that approximately $2 million of net derivative losses related to our cash flow hedges included in AOCI will be reclassified into earnings within the next 12 months when the underlying hedged item impacts earnings. The effect on the Consolidated Statements of Operations of derivative instruments designated as fair value hedges and the underlying hedged items is summarized as follows (in millions):
|  |  |  | GAINS (LOSSES) ON DERIVATIVE INSTRUMENTS FOR THE YEARS ENDED |  | GAINS (LOSSES) RELATED TO HEDGED ITEMS FOR THE YEARS ENDED
Derivatives Designated as Fair Value Hedging Instruments |  | Line Item in Statements of Operations |  | July 27, 2019 |  | July 28, 2018 |  | July 29, 2017 |  | July 27, 2019 |  | July 28, 2018 |  | July 29, 2017
Interest rate derivatives |  | Interest expense |  | $ | 145 |  |  | $ | (174 | ) |  | $ | (275 | ) |  | $ | (138 | ) |  | $ | 173 |  |  | $ | 271 |
The effect on the Consolidated Statements of Operations of derivative instruments not designated as hedges is summarized as follows (in millions):
|  |  |  | GAINS (LOSSES) FOR THE YEARS ENDED
Derivatives Not Designated as Hedging Instruments |  | Line Item in Statements of Operations |  | July 27, 2019 |  | July 28, 2018 |  | July 29, 2017
Foreign currency derivatives |  | Other income (loss), net |  | $ | (60 | ) |  | $ | (24 | ) |  | $ | 13 |
Total return swaps—deferred compensation |  | Operating expenses |  | 19 |  |  | 50 |  |  | 53 |
|  | Cost of sales |  | 2 |  |  | 4 |  |  | 5 |
|  | Other income (loss), net |  | (16 | ) |  | (11 | ) |  | — |
Equity derivatives |  | Other income (loss), net |  | 3 |  |  | (4 | ) |  | 11 |
Total |  |  |  | $ | (52 | ) |  | $ | 15 |  |  | $ | 82 |
The notional amounts of our outstanding derivatives are summarized as follows (in millions):
| July 27, 2019 |  | July 28, 2018
Derivatives designated as hedging instruments: |  |  |
Foreign currency derivatives—cash flow hedges | $ | 663 |  |  | $ | 147 |
Interest rate derivatives | 4,500 |  |  | 6,750 |
Net investment hedging instruments | 309 |  |  | 250 |
Derivatives not designated as hedging instruments: |  |  |
Foreign currency derivatives | 2,708 |  |  | 2,298 |
Total return swaps—deferred compensation | 574 |  |  | 566 |
Total | $ | 8,754 |  |  | $ | 10,011 |
(b) | Offsetting of Derivative Instruments
We present our derivative instruments at gross fair values in the Consolidated Balance Sheets. However, our master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. To further limit credit risk, we also enter into collateral security arrangements related to certain derivative instruments whereby cash is posted as collateral between the counterparties based on the fair market value of the derivative instrument. Information related to these offsetting arrangements is summarized as follows (in millions):
| GROSS AMOUNTS OFFSET IN THE CONSOLIDATED BALANCE SHEET |  | GROSS AMOUNTS NOT OFFSET IN THE CONSOLIDATED BALANCE SHEET BUT WITH LEGAL RIGHTS TO OFFSET
July 27, 2019 | Gross Amounts Recognized |  | Gross Amounts Offset |  | Net Amounts Presented |  | Gross Derivative Amounts |  | Cash Collateral |  | Net Amount
Derivatives assets | $ | 89 |  |  | $ | — |  |  | $ | 89 |  |  | $ | (13 | ) |  | $ | (76 | ) |  | $ | — |
Derivatives liabilities | $ | 15 |  |  | $ | — |  |  | $ | 15 |  |  | $ | (13 | ) |  | $ | — |  |  | $ | 2 |
| GROSS AMOUNTS OFFSET IN THE CONSOLIDATED BALANCE SHEET |  | GROSS AMOUNTS NOT OFFSET IN THE CONSOLIDATED BALANCE SHEET BUT WITH LEGAL RIGHTS TO OFFSET
July 28, 2018 | Gross Amounts Recognized |  | Gross Amounts Offset |  | Net Amounts Presented |  | Gross Derivative Amounts |  | Cash Collateral |  | Net Amount
Derivatives assets | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | (2 | ) |  | $ | — |  |  | $ | — |
Derivatives liabilities | $ | 74 |  |  | $ | — |  |  | $ | 74 |  |  | $ | (2 | ) |  | $ | (53 | ) |  | $ | 19 |
(c) | Foreign Currency Exchange Risk
We conduct business globally in numerous currencies. Therefore, we are exposed to adverse movements in foreign currency exchange rates. To limit the exposure related to foreign currency changes, we enter into foreign currency contracts. We do not enter into such contracts for speculative purposes. We hedge forecasted foreign currency transactions related to certain revenues, operating expenses and service cost of sales with currency options and forward contracts. These currency options and forward contracts, designated as cash flow hedges, generally have maturities of less than 24 months. The effective portion of the derivative instrument’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion, if any, of the gain or loss is reported in earnings immediately. During the fiscal years presented, we did not discontinue any cash flow hedges for which it was probable that a forecasted transaction would not occur. We enter into foreign exchange forward and option contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency receivables, including long-term customer financings, investments, and payables. These derivatives are not designated as hedging instruments. Gains and losses on the contracts are included in other income (loss), net, and substantially offset foreign exchange gains and losses from the remeasurement of intercompany balances or other current assets, investments, or liabilities denominated in currencies other than the functional currency of the reporting entity. We hedge certain net investments in our foreign operations with forward contracts to reduce the effects of foreign currency fluctuations on our net investment in those foreign subsidiaries. These derivative instruments generally have maturities of up to six months.
(d) | Interest Rate Risk
Interest Rate Derivatives Designated as Fair Value Hedges, Long-Term Debt We hold interest rate swaps designated as fair value hedges related to fixed-rate senior notes that are due in fiscal 2020 through 2025. Under these interest rate swaps, we receive fixed-rate interest payments and make interest payments based on LIBOR plus a fixed number of basis points. The effect of such swaps is to convert the fixed interest rates of the senior fixed-rate notes to floating interest rates based on LIBOR. The gains and losses related to changes in the fair value of the interest rate swaps are included in interest expense and substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes in market interest rates.
(e) | Equity Price Risk
We hold marketable equity securities in our portfolio that are subject to price risk. To diversify our overall portfolio, we also hold equity derivatives that are not designated as accounting hedges. The change in the fair value of each of these investment types are included in other income (loss), net. We are also exposed to variability in compensation charges related to certain deferred compensation obligations to employees. Although not designated as accounting hedges, we utilize derivatives such as total return swaps to economically hedge this exposure and offset the related compensation expense.
(f) | Hedge Effectiveness
For the fiscal years presented, there were no components excluded from the assessment of hedge effectiveness for fair value or cash flow hedges, and the amounts excluded for net investment hedges was not material. In addition, hedge ineffectiveness for fair value, cash flow and net investment hedges was not material for any of the periods presented.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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