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Derivatives and Currency Exchange Risk Management | 12 Months Ended
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Apr. 28, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Currency Exchange Risk Management | Derivatives and Currency Exchange Risk Management The Company uses operational and economic hedges, as well as currency exchange rate derivative contracts and interest rate derivative instruments, to manage the impact of currency exchange and interest rate changes on earnings and cash flows. In addition, the Company uses cross currency interest rate swaps to manage currency risk related to certain debt. In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, the Company enters into derivative instruments, principally forward currency exchange rate contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities. At inception of the contract, the derivative 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. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional amount of all currency exchange rate derivative instruments outstanding was $10.8 billion at both April 28, 2017 and April 29, 2016. The information that follows explains the various types of derivatives and financial instruments used by the Company, reasons the Company uses such instruments, and the impact such instruments have on the Company’s consolidated balance sheets, statements of income, and statements of cash flows. Freestanding Derivative Contracts Freestanding derivative contracts are used to offset the Company’s exposure to the change in value of specific foreign currency denominated assets and liabilities and to offset variability of cash flows associated with forecasted transactions denominated in other currencies. These derivatives are not designated as hedges, and therefore, changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in value of foreign currency denominated assets, liabilities, and cash flows. The gross notional amount of these contracts outstanding at April 28, 2017 and April 29, 2016 was $4.9 billion and $5.0 billion, respectively. The amounts and classification of the gains in the consolidated statements of income related to derivative instruments, not designated as hedging instruments, for fiscal years 2017, 2016, and 2015 are as follows:
|  |  |  | Fiscal Year
(in millions) |  | Classification |  | 2017 |  | 2016 |  | 2015
Currency exchange rate contracts |  | Other expense, net |  | $ | 54 |  |  | $ | 33 |  |  | $ | 210 |
Cash Flow Hedges Currency Exchange Rate Risk Forward contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that will take place in the future. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss. The effective portion of the gain or loss on the derivative instrument is reclassified into earnings and is included in other expense, net or cost of products sold in the consolidated statements of income, depending on the underlying transaction that is being hedged, in the same period or periods during which the hedged transaction affects earnings. No gains or losses relating to ineffectiveness of cash flow hedges were recognized in earnings during fiscal years 2017, 2016, or 2015. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness and no hedges were derecognized or discontinued during fiscal years 2017, 2016, or 2015. The gross notional amount of these contracts, designated as cash flow hedges, outstanding at April 28, 2017 and April 29, 2016 was $5.8 billion and $5.7 billion, respectively, and will mature within the subsequent three-year period. The amount of gross gains (losses), classification of the gains (losses) in the consolidated statements of income, and the accumulated other comprehensive (loss) income (AOCI) related to the effective portion of currency exchange rate contract derivative instruments designated as cash flow hedges for fiscal years 2017, 2016, and 2015 were as follows:
|  | Fiscal Year 2017
|  | Recognized in AOCI |  | Recognized in Income
(in millions) |  | Amount |  | Classification |  | Amount
Currency exchange rate contracts |  | $ | 342 |  |  | Other expense, net |  | $ | 173 |
Total |  | $ | 342 |  |  |  |  | $ | 173 |
|  | Fiscal Year 2016
|  | Recognized in AOCI |  | Recognized in Income
(in millions) |  | Amount |  | Classification |  | Amount
Currency exchange rate contracts |  | $ | (165 | ) |  | Other expense, net |  | $ | 405 |
|  |  |  |  | Cost of products sold |  | (37 | )
Total |  | $ | (165 | ) |  |  |  | $ | 368 |
|  | Fiscal Year 2015
|  | Recognized in AOCI |  | Recognized in Income
(in millions) |  | Amount |  | Classification |  | Amount
Currency exchange rate contracts |  | $ | 707 |  |  | Other expense, net |  | $ | 221 |
|  |  |  | Cost of products sold |  | (65 | )
Total |  | $ | 707 |  |  |  |  | $ | 156 |
Forecasted Debt Issuance Interest Rate Risk Forward starting interest rate derivative instruments designated as cash flow hedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The effective portion of the gains or losses on forward starting interest rate derivative instruments that are designated and qualify as cash flow hedges are reported as a component of accumulated other comprehensive loss. Beginning in the period in which the planned debt issuance occurs and the related derivative instruments are terminated, the effective portion of the gains or losses are then reclassified into interest expense, net over the term of the related debt. Any portion of the gains or losses that are determined to be ineffective are immediately recognized in interest expense, net. No gains or losses relating to ineffectiveness of forward starting interest rate derivative instruments were recognized in interest expense, net during fiscal years 2017, 2016, or 2015. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness. At April 29, 2016, the Company had $300 million of fixed pay, forward starting interest rate swaps with a weighted average fixed rate of 3.10 percent in anticipation of planned debt issuances. During fiscal year 2017, in connection with the issuance of the 2017 Senior Notes, these swaps were terminated. Upon termination, there was no material ineffectiveness on the contracts which were in a net liability position, resulting in a cash payment of $27 million. During fiscal year 2016, the Company terminated forward starting interest rate derivatives with a consolidated notional amount of $500 million, which were previously entered into in advance of a planned debt issuance that was no longer expected. Upon termination, these swaps were in a net liability position, resulting in a cash payment of $45 million. For fiscal years 2017 and 2016, the reclassification of the effective portion of the net losses on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense, net was not significant. There were no unrealized gains or losses on outstanding forward starting interest rate swap derivative instruments at April 28, 2017, as compared to unrealized losses of $48 million at April 29, 2016. Unrealized losses on outstanding forward starting interest rate swap derivative instruments were recorded in other liabilities, with the offset recorded in accumulated other comprehensive loss in the consolidated balance sheets. For fiscal years 2017 and 2016, the Company recorded $363 million and $(164) million , respectively, of unrealized gains (losses) in accumulated other comprehensive loss. At April 28, 2017 and April 29, 2016, the Company had $37 million and $(90) million, respectively, in after-tax net unrealized gains (losses) associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $73 million of after-tax net unrealized gains at April 28, 2017 will be reclassified into the consolidated statements of earnings over the next 12 months. Fair Value Hedges Interest rate derivative instruments designated as fair value hedges are designed to manage the exposure to interest rate movements and to reduce borrowing costs by converting fixed-rate debt into floating-rate debt. Under these agreements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. Changes in the fair value of the derivative instrument are recognized in interest expense, net, and are offset by changes in the fair value of the underlying debt instrument. The gains (losses) from terminated interest rate swap agreements are recognized in long-term debt, increasing (decreasing) the outstanding balances of the debt, and amortized as a reduction of (addition to) interest expense, net over the remaining life of the related debt. The cash flows from the termination of the interest rate swap agreements are reported as operating activities in the consolidated statements of cash flows. At April 28, 2017 and April 29, 2016, the Company had interest rate swaps in gross notional amounts of $1.2 billion designated as fair value hedges of underlying fixed-rate senior note obligations including the Company’s $500 million 4.125 percent 2011 Senior Notes due 2021 and the $675 million 3.125 percent 2012 Senior Notes due 2022. At April 28, 2017 and April 29, 2016, the market value of outstanding interest rate swap agreements was an unrealized gain of $41 million and $89 million, respectively, and the market value of the hedged items was an unrealized loss of $41 million and $89 million, respectively, which was recorded in other assets with the offsets recorded in long-term debt on the consolidated balance sheets. No significant hedge ineffectiveness was recorded as a result of these fair value hedges for fiscal years 2017, 2016, and 2015. In addition, the Company did no t recognize any gains or losses during fiscal years 2017, 2016, or 2015 on firm commitments that no longer qualify as fair value hedges. Balance Sheet Presentation The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at April 28, 2017 and April 29, 2016. The fair value amounts are presented on a gross basis and are segregated between derivatives that are designated and qualify as hedging instruments and those that are not and are further segregated by type of contract within those two categories.
| April 28, 2017
| Derivative Assets |  | Derivative Liabilities
(in millions) | Balance Sheet Classification |  | Fair Value |  | Balance Sheet Classification |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |
Currency exchange rate contracts | Prepaid expenses and other current assets |  | $ | 152 |  |  | Other accrued expenses |  | $ | 43 |
Interest rate contracts | Other assets |  | 41 |  |  | Other liabilities |  | — |
Currency exchange rate contracts | Other assets |  | 48 |  |  | Other liabilities |  | 14 |
Total derivatives designated as hedging instruments |  |  | $ | 241 |  |  |  |  | $ | 57 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |
Currency exchange rate contracts | Prepaid expenses and other current assets |  | $ | 16 |  |  | Other accrued expenses |  | $ | 36 |
Cross currency interest rate contracts | Other assets |  | 5 |  |  | Other liabilities |  | 11 |
Total derivatives not designated as hedging instruments |  |  | $ | 21 |  |  |  |  | $ | 47 |
Total derivatives |  |  | $ | 262 |  |  |  |  | $ | 104 |
| April 29, 2016
| Derivative Assets |  | Derivative Liabilities
(in millions) | Balance Sheet Classification |  | Fair Value |  | Balance Sheet Classification |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |
Currency exchange rate contracts | Prepaid expenses and other current assets |  | $ | 123 |  |  | Other accrued expenses |  | $ | 89 |
Interest rate contracts | Other assets |  | 89 |  |  | Other liabilities |  | 48 |
Currency exchange rate contracts | Other assets |  | 9 |  |  | Other liabilities |  | 54 |
Total derivatives designated as hedging instruments |  |  | $ | 221 |  |  |  |  | $ | 191 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |
Commodity derivatives | Prepaid expenses and other current assets |  | $ | — |  |  | Other accrued expenses |  | $ | 1 |
Currency exchange rate contracts | Prepaid expenses and other current assets |  | 13 |  |  | Other accrued expenses |  | 23 |
Cross currency interest rate contracts | Other assets |  | 14 |  |  | Other liabilities |  | 4 |
Total derivatives not designated as hedging instruments |  |  | $ | 27 |  |  |  |  | $ | 28 |
Total derivatives |  |  | $ | 248 |  |  |  |  | $ | 219 |
The following table provides information by level for the derivative assets and liabilities that are measured at fair value on a recurring basis:
| April 28, 2017 |  | April 29, 2016
(in millions) | Level 1 |  | Level 2 |  | Level 1 |  | Level 2
Derivative assets | $ | 216 |  |  | $ | 46 |  |  | $ | 145 |  |  | $ | 103 |
Derivative liabilities | 93 |  |  | 11 |  |  | 166 |  |  | 53 |
The Company has elected to present the fair value of derivative assets and liabilities within the consolidated balance sheets on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. The following table provides information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria as stipulated by the terms of the master netting arrangements with each of the counterparties. Derivatives not subject to master netting arrangements are not eligible for net presentation.
|  | April 28, 2017
|  |  |  | Gross Amount Not Offset on the Balance Sheet |  |
(in millions) |  | Gross Amount of Recognized Assets (Liabilities) |  | Financial Instruments |  | Collateral (Received) Posted |  | Net Amount
Derivative assets: |  |  |  |  |  |  |  |
Currency exchange rate contracts |  | $ | 216 |  |  | $ | (58 | ) |  | $ | (55 | ) |  | $ | 103 |
Interest rate contracts |  | 41 |  |  | (15 | ) |  | (5 | ) |  | 21 |
Cross currency interest rate contracts |  | 5 |  |  | (2 | ) |  | — |  |  | 3 |
|  | $ | 262 |  |  | $ | (75 | ) |  | $ | (60 | ) |  | $ | 127 |
Derivative liabilities: |  |  |  |  |  |  |  |
Currency exchange rate contracts |  | $ | (93 | ) |  | $ | 73 |  |  | $ | — |  |  | $ | (20 | )
Cross currency interest rate contracts |  | (11 | ) |  | 2 |  |  | — |  |  | (9 | )
|  | (104 | ) |  | 75 |  |  | — |  |  | (29 | )
Total |  | $ | 158 |  |  | $ | — |  |  | $ | (60 | ) |  | $ | 98 |
|  | April 29, 2016
|  |  |  | Gross Amount Not Offset on the Balance Sheet |  |
(in millions) |  | Gross Amount of Recognized Assets (Liabilities) |  | Financial Instruments |  | Collateral (Received) Posted |  | Net Amount
Derivative assets: |  |  |  |  |  |  |  |
Currency exchange rate contracts |  | $ | 145 |  |  | $ | (98 | ) |  | $ | (1 | ) |  | $ | 46 |
Interest rate contracts |  | 89 |  |  | (20 | ) |  | — |  |  | 69 |
Cross currency interest rate contracts |  | 14 |  |  | — |  |  | — |  |  | 14 |
|  | $ | 248 |  |  | $ | (118 | ) |  | $ | (1 | ) |  | $ | 129 |
Derivative liabilities: |  |  |  |  |  |  |  |
Currency exchange rate contracts |  | $ | (166 | ) |  | $ | 85 |  |  | $ | 26 |  |  | $ | (55 | )
Interest rate contracts |  | (48 | ) |  | 34 |  |  | — |  |  | (14 | )
Cross currency interest rate contracts |  | (4 | ) |  | — |  |  | — |  |  | (4 | )
Commodity contracts |  | (1 | ) |  | — |  |  | — |  |  | (1 | )
|  | (219 | ) |  | 119 |  |  | 26 |  |  | (74 | )
Total |  | $ | 29 |  |  | $ | 1 |  |  | $ | 25 |  |  | $ | 55 |
Concentrations of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of interest-bearing investments, forward exchange derivative contracts, and trade accounts receivable. Global concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across many geographic areas. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The Company maintains cash and cash equivalents, investments, and certain other financial instruments (including currency exchange rate and interest rate derivative contracts) with various major financial institutions. The Company performs periodic evaluations of the relative credit standings of these financial institutions and limits the amount of credit exposure with any one institution. In addition, the Company has collateral credit agreements with its primary derivatives counterparties. Under these agreements, either party is required to post eligible collateral when the market value of transactions covered by the agreement exceeds specific thresholds, thus limiting credit exposure for both parties. At April 28, 2017, the Company received net cash collateral of $60 million from its counterparties. At April 29, 2016, the Company posted net cash collateral of $25 million to its counterparties. The collateral received was recorded in cash and cash equivalents, with the offset recorded as an increase in other accrued expenses on the consolidated balance sheets. The collateral posted was recorded in prepaid expenses and other current assets, with the offset recorded as a decrease in cash and cash equivalents on the consolidated balance sheets.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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