v3.19.1

Derivative Instruments | 9 Months Ended
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Apr. 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 |  | April 27, 2019 |  | July 28, 2018 |  | Balance Sheet Line Item |  | April 27, 2019 |  | July 28, 2018
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives | Other current assets |  | $ | 5 |  |  | $ | 1 |  |  | Other current liabilities |  | $ | 3 |  |  | $ | — |
Interest rate derivatives | Other current assets |  | — |  |  | — |  |  | Other current liabilities |  | 7 |  |  | 10 |
Interest rate derivatives | Other assets |  | 27 |  |  | — |  |  | Other long-term liabilities |  | 4 |  |  | 62 |
Total |  |  | 32 |  |  | 1 |  |  |  |  | 14 |  |  | 72 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives | Other current assets |  | 4 |  |  | 1 |  |  | Other current liabilities |  | 6 |  |  | 2 |
Total |  |  | 4 |  |  | 1 |  |  |  |  | 6 |  |  | 2 |
Total |  |  | $ | 36 |  |  | $ | 2 |  |  |  |  | $ | 20 |  |  | $ | 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 THREE MONTHS ENDED (EFFECTIVE PORTION) |  | GAINS (LOSSES) RECLASSIFIED FROM AOCI INTO INCOME FOR THE THREE MONTHS ENDED (EFFECTIVE PORTION)
|  | April 27, 2019 |  | April 28, 2018 |  | Line Item in Statements of Operations |  | April 27, 2019 |  | April 28, 2018
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | 12 |  |  | $ | (10 | ) |  | Revenue — product |  | $ | (1 | ) |  | $ | — |
|  |  |  |  |  | Revenue — service |  | 1 |  |  | — |
|  |  |  |  |  | Cost of sales — service |  | — |  |  | 7 |
|  |  |  |  |  | Operating expenses |  | — |  |  | 21 |
Total |  | $ | 12 |  |  | $ | (10 | ) |  |  |  | $ | — |  |  | $ | 28 |
Derivatives designated as net investment hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | — |  |  | $ | 7 |  |  | Other income (loss), net |  | $ | — |  |  | $ | — |
GAINS (LOSSES) RECOGNIZED IN OCI ON DERIVATIVES FOR THE NINE MONTHS ENDED (EFFECTIVE PORTION) |  | GAINS (LOSSES) RECLASSIFIED FROM AOCI INTO INCOME FOR THE NINE MONTHS ENDED (EFFECTIVE PORTION)
|  | April 27, 2019 |  | April 28, 2018 |  | Line Item in Statements of Operations |  | April 27, 2019 |  | April 28, 2018
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | 2 |  |  | $ | 28 |  |  | Revenue — product |  | $ | — |  |  | $ | — |
|  |  |  |  |  | Revenue — service |  | 3 |  |  | — |
|  |  |  |  |  | Cost of sales — service |  | (1 | ) |  | 14 |
|  |  |  |  |  | Operating expenses |  | (1 | ) |  | 45 |
Total |  | $ | 2 |  |  | $ | 28 |  |  |  |  | $ | 1 |  |  | $ | 59 |
Derivatives designated as net investment hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives |  | $ | 3 |  |  | $ | (10 | ) |  | Other income (loss), net |  | $ | — |  |  | $ | — |
As of April 27, 2019, we estimate that approximately $3 million of net derivative gains related to our cash flow hedges included in accumulated other comprehensive income (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 THREE MONTHS ENDED |  | GAINS (LOSSES) RELATED TO HEDGED ITEMS FOR THE THREE MONTHS ENDED
Derivatives Designated as Fair Value Hedging Instruments |  | Line Item in Statements of Operations |  | April 27, 2019 |  | April 28, 2018 |  | April 27, 2019 |  | April 28, 2018
Interest rate derivatives |  | Interest expense |  | $ | 33 |  |  | $ | (59 | ) |  | $ | (31 | ) |  | $ | 58 |
Equity derivatives |  | Other income (loss), net |  | — |  |  | 25 |  |  | — |  |  | (25 | )
Total |  |  |  | $ | 33 |  |  | $ | (34 | ) |  | $ | (31 | ) |  | $ | 33 |
|  |  |  | GAINS (LOSSES) ON DERIVATIVE INSTRUMENTS FOR THE NINE MONTHS ENDED |  | GAINS (LOSSES) RELATED TO HEDGED ITEMS FOR THE NINE MONTHS ENDED
Derivatives Designated as Fair Value Hedging Instruments |  | Line Item in Statements of Operations |  | April 27, 2019 |  | April 28, 2018 |  | April 27, 2019 |  | April 28, 2018
Interest rate derivatives |  | Interest expense |  | $ | 88 |  |  | $ | (168 | ) |  | $ | (83 | ) |  | $ | 167 |
Equity derivatives |  | Other income (loss), net |  | — |  |  | (24 | ) |  | — |  |  | 24 |
Total |  |  |  | $ | 88 |  |  | $ | (192 | ) |  | $ | (83 | ) |  | $ | 191 |
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 THREE MONTHS ENDED |  | GAINS (LOSSES) FOR THE NINE MONTHS ENDED
Derivatives Not Designated as Hedging Instruments |  | Line Item in Statements of Operations |  | April 27, 2019 |  | April 28, 2018 |  | April 27, 2019 |  | April 28, 2018
Foreign currency derivatives |  | Other income (loss), net |  | $ | (29 | ) |  | $ | (53 | ) |  | $ | (57 | ) |  | $ | 20 |
Total return swaps—deferred compensation |  | Operating expenses |  | 42 |  |  | (26 | ) |  | 9 |  |  | 28 |
|  | Cost of sales — product |  | 2 |  |  | (1 | ) |  | 1 |  |  | — |
|  | Cost of sales — service |  | 2 |  |  | (1 | ) |  | — |  |  | 1 |
|  | Other income (loss), net |  | (4 | ) |  | (3 | ) |  | (12 | ) |  | (8 | )
Equity derivatives |  | Other income (loss), net |  | 1 |  |  | (7 | ) |  | 2 |  |  | (4 | )
Total |  |  |  | $ | 14 |  |  | $ | (91 | ) |  | $ | (57 | ) |  | $ | 37 |
The notional amounts of our outstanding derivatives are summarized as follows (in millions):
| April 27, 2019 |  | July 28, 2018
Derivatives designated as hedging instruments: |  |  |
Foreign currency derivatives—cash flow hedges | $ | 623 |  |  | $ | 147 |
Interest rate derivatives | 4,500 |  |  | 6,750 |
Net investment hedging instruments | 363 |  |  | 250 |
Derivatives not designated as hedging instruments: |  |  |
Foreign currency derivatives | 2,760 |  |  | 2,298 |
Total return swaps—deferred compensation | 572 |  |  | 566 |
Total | $ | 8,818 |  |  | $ | 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):
| April 27, 2019
| GROSS AMOUNTS OFFSET IN THE CONSOLIDATED BALANCE SHEETS |  | GROSS AMOUNTS NOT OFFSET IN THE CONSOLIDATED BALANCE SHEETS BUT WITH LEGAL RIGHTS TO OFFSET
| Gross Amounts Recognized |  | Gross Amounts Offset |  | Net Amounts Presented |  | Gross Derivative Amounts |  | Cash Collateral |  | Net Amount
Derivatives assets | $ | 36 |  |  | $ | — |  |  | $ | 36 |  |  | $ | (10 | ) |  | $ | (26 | ) |  | $ | — |
Derivatives liabilities | $ | 20 |  |  | $ | — |  |  | $ | 20 |  |  | $ | (10 | ) |  | $ | (5 | ) |  | $ | 5 |
| July 28, 2018
| GROSS AMOUNTS OFFSET IN THE CONSOLIDATED BALANCE SHEETS |  | GROSS AMOUNTS NOT OFFSET IN THE CONSOLIDATED BALANCE SHEETS BUT WITH LEGAL RIGHTS TO OFFSET
| 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. We assess effectiveness based on changes in total fair value of the derivatives. 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 periods 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, Investments Our primary objective for holding available-for-sale debt investments is to achieve an appropriate investment return consistent with preserving principal and managing risk. To realize these objectives, we may utilize interest rate swaps or other derivatives designated as fair value or cash flow hedges. As of April 27, 2019 and July 28, 2018, we did not have any outstanding interest rate derivatives related to our available-for-sale debt investments. Interest Rate Derivatives Designated as Fair Value Hedges, Long-Term Debt In the first nine months of fiscal 2019, we did not enter into any interest rate swaps. In prior fiscal years, we entered into 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. The fair value of the interest rate swaps was reflected in other assets and other current and long-term liabilities.
(e) | Equity Price Risk
We may hold equity securities for strategic purposes or to diversify our overall investment portfolio. The marketable equity securities in our portfolio are subject to price risk. To manage our exposure to changes in the fair value of certain equity securities, we have periodically entered into equity derivatives that are designated as fair value hedges. The changes in the value of the hedging instruments are included in other income (loss), net, and offset the change in the fair value of the underlying hedged investment. In addition, we periodically enter into equity derivatives that are not designated as accounting hedges. The changes in the fair value of these derivatives are also 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.
(f) | Hedge Effectiveness
For the periods presented, amounts excluded from the assessment of hedge effectiveness were not material for fair value, cash flow, and net investment hedges. 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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