Financial Instruments

Derivative Financial Instruments

The Company is exposed to changes in foreign currency exchange rates, primarily relating to certain anticipated cash flows of its international operations. Consequently, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not enter into derivative transactions for speculative or trading purposes.

The following table summarizes the Company's outstanding derivative instruments on a gross basis as recorded in its consolidated balance sheets as of March 28, 2015 and March 29, 2014:



	Notional Amounts				Derivative Assets						Derivative Liabilities
Derivative Instrument^(a)	March 28, 2015		March 29, 2014		March 28, 2015			March 29, 2014			March 28, 2015			March 29, 2014
					Balance Sheet Line^(b)	Fair Value		Balance Sheet Line^(b)	Fair Value		Balance Sheet Line^(b)	Fair Value		Balance Sheet Line^(b)	Fair Value
	(millions)
Designated Hedges:
FC — Inventory purchases	$	587	$	476	PP	$	49	^(c)	$	2	AE	$	9	AE	$	5
FC — Other^(d)	118		223		PP	5		—	—		AE	1		AE	2
Total Designated Hedges	$	705	$	699		$	54		$	2		$	10		$	7
Undesignated Hedges:
FC — Other^(e)	$	464	$	280	^(f)	$	33	^(g)	$	6	^(h)	$	9	—	$	—
Total Hedges	$	1,169	$	979		$	87		$	8		$	19		$	7


^(a)	FC = Forward foreign currency exchange contracts.


^(b)	PP = Prepaid expenses and other current assets; AE = Accrued expenses and other current liabilities.


^(c)	$1 million included within prepaid expenses and other current assets and $1 million included within other non-current assets.


^(d)	Primarily includes designated hedges of foreign currency-denominated intercompany royalty payments, marketing contributions, and other operational exposures.


^(e)	Primarily includes undesignated hedges of foreign currency-denominated intercompany loans.


^(f)	$11 million included within prepaid expenses and other current assets and $22 million included within other non-current assets.


^(g)	$2 million included within prepaid expenses and other current assets and $4 million included within other non-current assets.


^(h)	$8 million included within accrued expenses and other current liabilities and $1 million included within other non-current liabilities.

The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance sheets on a gross basis, even though they are subject to master netting arrangements. However, if the Company were to offset and record the asset and liability balances of all of its forward foreign currency exchange contracts on a net basis in accordance with the terms of each of its master netting arrangements, spread across eight separate counterparties, the amounts presented in the consolidated balance sheets as of March 28, 2015 and March 29, 2014 would be adjusted from the current gross presentation as detailed in the following table:



	March 28, 2015							March 29, 2014
Derivative Instrument	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Arrangements			Net Amount		Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Arrangements			Net Amount
	(millions)
FC — Derivative assets	$	87	$	(14	)	$	73	$	8	$	(1	)	$	7
FC — Derivative liabilities	$	19	$	(14	)	$	5	$	7	$	(1	)	$	6

The Company's master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties. Refer to Note 3 for further discussion of the Company's master netting arrangements.

The following tables summarize the pretax impact of the effective portion of gains and losses from the Company's derivative instruments on its consolidated financial statements for the fiscal years presented:



	Gains (Losses) Recognized in OCI								Gains (Losses) Reclassified from AOCI to Earnings						Location of Gains (Losses) Reclassified from AOCI to Earnings
	Fiscal Years Ended								Fiscal Years Ended
Derivative Instrument	March 28, 2015		March 29, 2014			March 30, 2013			March 28, 2015		March 29, 2014		March 30, 2013
	(millions)
Designated Cash Flow Hedges:
FC — Inventory purchases	$	50	$	(10	)	$	21		$	3	$	10	$	32	Cost of goods sold
FC — Other	19		—			(1		)	14		—		4		Foreign currency gains (losses)
	$	69	$	(10	)	$	20		$	17	$	10	$	36
Designated Hedge of Net Investment:
Euro Debt^(a)	$	—	$	—		$	11		$	—	$	—	$	—
Total Designated Hedges	$	69	$	(10	)	$	31		$	17	$	10	$	36


^(a)	Amounts recognized in OCI relate to remeasurement of the Euro Debt (see Note 14), which was repaid in October 2013, and would be recognized in earnings only upon the sale or liquidation of the hedged net investment.

During Fiscal 2014, the Company also recorded a foreign currency gain of $2 million associated with the discontinuance of certain cash flow hedges, as the related forecasted transactions were no longer probable of occurring.

As of March 28, 2015, it is expected that approximately $46 million of net gains deferred in AOCI related to derivative financial instruments will be recognized in earnings over the next twelve months. No material gains or losses relating to ineffective hedges were recognized during any of the fiscal years presented.

The following table summarizes the impact of gains and losses from the Company's undesignated hedge contracts on its consolidated financial statements for the fiscal years presented:



	Gains (Losses) Recognized in Earnings							Location of Gains (Losses) Recognized in Earnings
	Fiscal Years Ended
Derivative Instrument	March 28, 2015		March 29, 2014		March 30, 2013
	(millions)
Undesignated Hedges:
FC — Other	$	18	$	20	$	(4	)	Foreign currency gains (losses)
Total Undesignated Hedges	$	18	$	20	$	(4	)

Risk Management Strategies

Forward Foreign Currency Exchange Contracts

The Company primarily enters into forward foreign currency exchange contracts as hedges to reduce its risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certain of its international operations, intercompany contributions made to fund certain marketing efforts of its international operations, and other foreign currency-denominated operational and intercompany cash flows. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, and the Hong Kong Dollar, the Company hedges a portion of its foreign currency exposures anticipated over a two-year period. In doing so, the Company uses forward foreign currency exchange contracts that generally have maturities of two months to two years to provide continuing coverage throughout the hedging period.

Hedge of Net Investment in Certain European Subsidiaries

Historically, the Company designated the principal amount of its outstanding Euro Debt as a hedge of its net investment in certain of its European subsidiaries. To the extent designated as a net investment hedge, changes in the Euro Debt's carrying value resulting from fluctuations in the Euro exchange rate were reported in equity within foreign currency translation gains (losses), a component of AOCI, as the debt was a highly effective hedge. The Euro Debt was repaid upon its maturity in October 2013.

See Note 3 for further discussion of the Company's accounting policies relating to its derivative financial instruments.

Investments

As of March 28, 2015, the Company's short-term and non-current investments consisted of $644 million of time deposits and $8 million of non-U.S. corporate bonds, respectively. As of March 29, 2014, the Company's short-term investments consisted of $487 million of time deposits and $1 million of U.S. government bonds, and its non-current investments consisted of $2 million of other securities.

No significant realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded in any of the fiscal periods presented. Refer to Note 19 for further detail.

See Note 3 for further discussion of the Company's accounting policies relating to its investments.