Financial Instruments

Derivative Financial Instruments

The Company is exposed to changes in foreign currency exchange rates relating to certain anticipated cash flows from its international operations and potential changes in the value of reported net assets of certain of its foreign operations. Consequently, the Company periodically uses derivative financial instruments to manage 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 the consolidated balance sheets as of December 28, 2013 and March 30, 2013:



	Notional Amounts				Derivative Assets						Derivative Liabilities
Derivative Instrument^(a)	December 28, 2013		March 30, 2013		December 28, 2013			March 30, 2013			December 28, 2013				March 30, 2013
					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	$	386	$	366	PP	$	1	PP	$	14	^(c)	$	(7	)	AE	$	(2	)
FC — Other^(d)	102		25		PP	2		—	—		AE	(1		)	AE	(1		)
NI — Euro Debt	—		140		—	N/A		—	^(e)		—	N/A			—	^(e)
Total Designated Hedges	$	488	$	531		$	3		$	14		$	(8	)		$	(3	)
Undesignated Hedges:
FC — Other^(f)	$	171	$	270	^(g)	$	9	PP	$	1	AE	$	(1	)	AE	$	(2	)
Total Hedges	$	659	$	801		$	12		$	15		$	(9	)		$	(5	)


^(a)	FC = Forward foreign currency exchange contracts; NI = Net Investment Hedge; Euro Debt = Euro-denominated 4.5% notes that matured on October 4, 2013.


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


^(c)	$6 million included within accrued expenses and other current liabilities and $1 million included within other non-current liabilities.


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

^(e)

As of March 30, 2013, a portion of the previously outstanding Euro Debt's €209 million principal amount was designated as a hedge of the Company's net investment in certain of its European subsidiaries. The entire principal amount of this hedge was de-designated prior to the Euro Debt's maturity on October 4, 2013. See Note 13 for a summary of the carrying value and the estimated fair value of the Euro Debt as of March 30, 2013.


^(f)	Primarily related to undesignated hedges of foreign currency-denominated intercompany loans, the third-party Euro Debt obligation which was repaid in October 2013, and other net operational exposures.


^(g)	$3 million included within prepaid expenses and other current assets and $6 million included within other non-current assets.

The Company records and presents the fair values of all of its derivative assets and liabilities in the 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 December 28, 2013 and March 30, 2013 would be adjusted from the current gross presentation as detailed in the following table:



	December 28, 2013									March 30, 2013
Derivative Instrument	Gross Amounts Presented in the Consolidated Balance Sheet			Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Master Netting Agreements			Net Amount			Gross Amounts Presented in the Consolidated Balance Sheet			Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Master Netting Agreements			Net Amount
	(millions)
FC — Derivative assets	$	12		$	(3	)	$	9		$	15		$	(3	)	$	12
FC — Derivative liabilities	$	(9	)	$	3		$	(6	)	$	(5	)	$	3		$	(2	)

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 gross impact of the effective portion of gains and losses from the Company's derivative instruments on its unaudited interim consolidated financial statements for the three-month and nine-month periods ended December 28, 2013 and December 29, 2012:



	Gains (Losses) Recognized in OCI
	Three Months Ended						Nine Months Ended
Derivative Instrument	December 28, 2013			December 29, 2012			December 28, 2013			December 29, 2012
				(millions)
Designated Cash Flow Hedges:
FC — Inventory purchases	$	(4	)	$	—		$	(12	)	$	8
FC — Other	3			2			2			(2		)
	$	(1	)	$	2		$	(10	)	$	6
Designated Hedge of Net Investment:^(a)
Euro Debt	$	—		$	(7	)	$	—		$	3
Total Designated Hedges	$	(1	)	$	(5	)	$	(10	)	$	9



	Gains (Losses) Reclassified from AOCI to Earnings								Location of Gains (Losses) Reclassified from AOCI to Earnings
	Three Months Ended				Nine Months Ended
Derivative Instrument	December 28, 2013		December 29, 2012		December 28, 2013		December 29, 2012
			(millions)
Designated Cash Flow Hedges:
FC — Inventory purchases	$	3	$	11	$	9	$	22	Cost of goods sold
FC — Other	1		—		—		2		Foreign currency gains (losses)
	$	4	$	11	$	9	$	24


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

During the nine months ended December 28, 2013, 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 December 28, 2013, it is expected that approximately $3 million of net losses 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 periods presented.

The following table summarizes the impact of gains and losses from the Company's undesignated hedge contracts on its unaudited interim consolidated statements of income for the three-month and nine-month periods ended December 28, 2013 and December 29, 2012:



	Gains (Losses) Recognized in Earnings									Location of Gains (Losses) Recognized in Earnings
	Three Months Ended				Nine Months Ended
Derivative Instrument	December 28, 2013		December 29, 2012		December 28, 2013		December 29, 2012
	(millions)
Undesignated Hedges:
FC — Other	$	3	$	1	$	21	$	(4	)	Foreign currency gains (losses)
Total Undesignated Hedges	$	3	$	1	$	21	$	(4	)

Foreign Currency Risk Management

The Company primarily enters into forward foreign currency exchange contracts as hedges to reduce its risk from exchange rate fluctuations on inventory purchases made in a subsidiary's non-functional currency, intercompany royalty payments made by certain of its international operations, intercompany contributions to fund certain marketing efforts of its international operations, and other foreign currency-denominated operational 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 Hong Kong Dollar, the South Korean Won, the British Pound Sterling, the Australian Dollar, and the Vietnamese Dong, the Company hedges a portion of its foreign currency exposures anticipated over a two-year period. In doing so, the Company uses foreign currency exchange forward contracts that generally have maturities of three months to two years to provide continuing coverage throughout the hedging period.

Investments

The following table summarizes the Company’s short-term and non-current investments recorded in its consolidated balance sheets as of December 28, 2013 and March 30, 2013:



	December 28, 2013						March 30, 2013
Type of Investment	Short-term < 1 year		Non-current 1 - 3 years		Total		Short-term < 1 year		Non-current 1 - 3 years		Total
					(millions)
Available-for-Sale:
Government bonds — U.S.	$	11	$	3	$	14	$	21	$	8	$	29
Government bonds — non-U.S.	—		—		—		67		25		92
Corporate bonds — non-U.S.	—		—		—		36		46		82
Variable rate municipal securities — U.S.	—		—		—		17		—		17
Auction rate securities^(a)	—		2		2		—		2		2
Total available-for-sale investments	$	11	$	5	$	16	$	141	$	81	$	222
Other:
Time deposits	$	522	$	—	$	522	$	184	$	—	$	184
Total Investments	$	533	$	5	$	538	$	325	$	81	$	406


^(a)	Auction rate securities have characteristics similar to short-term investments. However, the Company has classified these securities as non-current investments in its consolidated balance sheets as current market conditions call into question its ability to redeem these investments for cash within the next twelve months.

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 17 for further detail.

See Note 3 to the Fiscal 2013 10-K for further discussion of the Company’s accounting policies relating to its investments.