Derivative Financial Instruments

3 Months Ended

Jun. 29, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Forward Foreign Currency Exchange Contracts

The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain of its transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to certain forecasted inventory purchases by using forward foreign currency exchange contracts. The Company only enters into derivative instruments with highly credit-rated counterparties. The Company does not enter into derivative contracts for trading or speculative purposes.

Net Investment Hedges

As of June 29, 2019, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $3.190 billion to hedge its net investment in Euro-denominated subsidiaries and $44 million to hedge its net investment in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates between U.S. Dollar and these currencies. Under the terms of these contracts, which have maturity dates between January 2022 and June 2026, the Company will exchange the semi-annual fixed rate payments on U.S denominated debt for fixed rate payments of 0% to 1.674% in Euros and 0.89% in Japanese Yen. These contracts have been designated as net investment hedges.

When a cross-currency swap is used as a hedging instrument in a net investment hedge assessed under the spot method, the cross-currency basis spread is excluded from the assessment of hedge effectiveness and is recognized as a reduction in interest expense in the Company’s consolidated statements of operations and comprehensive income. Accordingly, the Company recorded a reduction in interest expense of $15 million and $1 million, respectively, during the three months ended June 29, 2019 and June 30, 2018.

The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the consolidated balance sheets as of June 29, 2019 and March 30, 2019 (in millions):



					Fair Values
	Notional Amounts				Assets						Liabilities
	June 29, 2019		March 30, 2019		June 29, 2019			March 30, 2019			June 29, 2019			March 30, 2019
Designated forward foreign currency exchange contracts	$	156	$	166	$	2	⁽¹⁾	$	5	⁽¹⁾	$	—		$	—
Designated net investment hedge	3,234		2,234		12		⁽²⁾	37		⁽²⁾	24		⁽³⁾	—
Total designated hedges	$	3,390	$	2,400	$	14		$	42		$	24		$	—
Undesignated derivative contracts ⁽⁵⁾	191		199		1		⁽¹⁾	—			4		⁽⁴⁾	5		⁽⁴⁾
Total	$	3,581	$	2,599	$	15		$	42		$	28		$	5


⁽¹⁾	Recorded within prepaid expenses and other current assets in the Company’s consolidated balance sheets.


⁽²⁾	Recorded within other assets in the Company’s consolidated balance sheets.


⁽³⁾	Recorded within other long-term liabilities in the Company’s consolidated balance sheets.


⁽⁴⁾	Recorded within accrued expenses and other current liabilities in the Company’s consolidated balance sheets.


⁽⁵⁾	Primarily includes undesignated hedges of foreign currency denominated intercompany balances and inventory purchases.

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, as shown in the above table. However, if the Company were to offset and record the asset and liability balances for its derivative instruments on a net basis in accordance with the terms of its master netting arrangements, which provide for the right to setoff amounts for similar transactions denominated in the same currencies, the resulting impact as of June 29, 2019 and March 30, 2019 would be as follows (in millions):



	Forward Currency Exchange Contracts				Net Investment Hedges
	June 29, 2019		March 30, 2019		June 29, 2019		March 30, 2019
Assets subject to master netting arrangements	$	3	$	5	$	12	$	37
Liabilities subject to master netting arrangements	$	4	$	5	$	24	$	—
Derivative assets, net	$	3	$	5	$	7	$	37
Derivative liabilities, net	$	4	$	5	$	19	$	—

The Company’s master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties.

Changes in the fair value of the Company’s forward foreign currency exchange contracts that are designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income (loss), and are reclassified from accumulated other comprehensive income (loss) into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of cost of sales within the Company’s consolidated statements of operations and comprehensive income (loss). The net gain or loss on net investment hedges are reported within foreign currency translation gains and losses (“CTA”) as a component of accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets. Upon discontinuation of the hedge, such amounts remain in CTA until the related investment is sold or liquidated.

The following table summarizes the pre-tax impact of the gains and losses on the Company’s designated forward foreign currency exchange contracts and net investment hedges (in millions):



	Three Months Ended
	June 29, 2019			June 30, 2018
	Pre-Tax Losses Recognized in OCI			Pre-Tax Gains Recognized in OCI
Designated forward foreign currency exchange contracts	$	—		$	9
Designated net investment hedges	$	(25	)	$	5

The following tables summarize the impact of the gains and losses within the consolidated statements of operations and comprehensive income related to the designated forward foreign currency exchange contracts for the three months ended June 29, 2019 and June 30, 2018 (in millions):



	Three Months Ended
	Pre-Tax (Gain) Loss Reclassified from Accumulated OCI					Location of (Gain) Loss recognized	Total Cost of Sales
	June 29, 2019			June 30, 2018		Location of (Gain) Loss recognized	June 29, 2019		June 30, 2018
Designated forward currency exchange contracts	$	(3	)	$	5	Cost of Sales	$	512	$	452

The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive income (loss) for its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and turnover.

Undesignated Hedges

During the three months ended June 29, 2019 and June 30, 2018, the net impact of changes in the fair value of undesignated forward foreign currency exchange contracts recognized within foreign currency loss (gain) in the Company’s consolidated statement of operations and comprehensive income was not material.