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.

During the first quarter of Fiscal 2023, the Company modified multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $1.094 billion to hedge its net investment, of which $900 million was in Euro denominated subsidiaries and $194 million was in Japanese Yen denominated subsidiaries. The modification of these swaps resulted in the Company receiving $66 million in cash during the first quarter of Fiscal 2023. These contracts have been designated as net investment hedges.

As of July 2, 2022, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $4 billion to hedge its net investment in Euro denominated subsidiaries (the “Euro Net Investment Hedges”) and $194 million to hedge its net investment in Japanese Yen denominated subsidiaries (the “Japanese Yen Net Investment Hedges”). During the month of July 2022, the Euro Net Investment Hedges with aggregate notional amount of $4 billion outstanding as of July 2, 2022 were terminated resulting in the Company receiving $237 million in cash.

During the second quarter of Fiscal 2023, the Company also entered into, and subsequently terminated, additional Euro Net Investment Hedges with aggregate notional amount of $4 billion. The termination of these contracts resulted in the Company receiving additional $100 million in cash.

During the second quarter of Fiscal 2023, the Company modified certain Japanese Yen Net Investment Hedges with notional amounts of $100 million. The modification of these hedges resulted in the Company receiving $6 million in cash during the second quarter of Fiscal 2023. The Company entered into additional Japanese Net Investment Hedges with notional amount of $100 million. These contracts have been designated as net investment hedges.

During the second quarter of Fiscal 2023, the Company received $343 million from the termination of Euro Net Investment Hedges and the modification of Japanese Yen Net Investment Hedges.

During the third quarter of Fiscal 2023, the Company entered into multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of €1 billion (approximately $1.07 billion) to hedge its net investment in GBP denominated subsidiaries (the “GBP Net Investment Hedges”). Under the terms of these contracts, the Company will exchange the semi-annual fixed rate payments on GBP denominated debt for fixed rate payments of 0% in Euro. These contracts have maturity dates between November 2024 and November 2027 and are designated as net investment hedges.

As of December 31, 2022, the Company had Japanese Yen Net Investment Hedges with aggregate notional amounts of $294 million. Under the terms of these contracts, the Company will exchange the semi-annual fixed rate payments on U.S. denominated debt for fixed rate payments of 0% to 2.665% in Japanese Yen. These contracts have maturity dates between May 2027 and February 2051 and are designated as net investment hedges.

Certain of these contracts are supported by a credit support annex (“CSA”) which provides for collateral exchange with the earliest effective date being September 2027. If the outstanding position of a contract exceeds a certain threshold governed by the aforementioned CSA’s, either party is required to post cash collateral.

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 interest income of $4 million and $32 million during the three and nine months ended December 31, 2022, respectively. Additionally, the Company recorded interest income of $17 million and $44 million during the three and nine months ended December 25, 2021, respectively.

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 December 31, 2022 and April 2, 2022 (in millions):


					Fair Value
	Notional Amounts				Assets					Liabilities
	December 31, 2022		April 2, 2022		December 31, 2022		April 2, 2022			December 31, 2022			April 2, 2022
Designated forward foreign currency exchange contracts	$	18	$	119	$	—	$	4	(1)	$	—		$	—
Designated net investment hedges	1,364		4,194		—		44		(2)	41		(3)	37		(3)

Total designated hedges	1,382		4,313		—		48			41			37
Undesignated derivative contracts (4)	—		38		—		4			—			—
Total	$	1,382	$	4,351	$	—	$	52		$	41		$	37

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 previous 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 set-off amounts for similar transactions denominated in the same currencies, the resulting impact as of December 31, 2022 and April 2, 2022 would be as follows (in millions):


	Forward Currency Exchange Contracts				Net Investment Hedges
	December 31, 2022		April 2, 2022		December 31, 2022		April 2, 2022
Assets subject to master netting arrangements	$	—	$	8	$	—	$	44
Liabilities subject to master netting arrangements	$	—	$	—	$	41	$	37
Derivative assets, net	$	—	$	8	$	—	$	42
Derivative liabilities, net	$	—	$	—	$	41	$	35

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 and are reclassified from accumulated other comprehensive income into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of cost of goods sold within the Company’s consolidated statements of operations and comprehensive income. The net gain or loss on net investment hedges are reported within CTA as a component of accumulated other comprehensive income 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 on the Company’s designated forward foreign currency exchange contracts and net investment hedges (in millions):


	Three Months Ended				Nine Months Ended
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021
	Pre-Tax Losses Recognized in OCI		Pre-Tax Gains Recognized in OCI		Pre-Tax Gains Recognized in OCI		Pre-Tax Gains Recognized in OCI
Designated forward foreign currency exchange contracts	$	(3)	$	5	$	8	$	7
Designated net investment hedges	$	(33)	$	155	$	332	$	327
Designated interest rate swaps	$	—	$	1	$	—	$	1

The following tables summarize the pre-tax 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 and nine months ended December 31, 2022 and December 25, 2021 (in millions):

Three Months Ended

Pre-Tax (Gain) Loss Reclassified from
Accumulated OCI

Location of (Gain) Loss Recognized

December 31,
2022

December 25, 2021

Designated forward foreign currency exchange contracts

(3)

—

Cost of goods sold

Nine Months Ended

Pre-Tax (Gain) Loss Reclassified from
Accumulated OCI

Location of (Gain) Loss Recognized

December 31,
2022

December 25, 2021

Designated forward foreign currency exchange contracts

(10)

Cost of goods sold

The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive income 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.

During the three months ended December 31, 2022, there was no gain recognized within foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income, while during the nine months ended December 31, 2022, a $2 million gain was recognized within foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income as a result of the changes in the fair value of undesignated forward foreign currency exchange contracts. During the three and nine months ended December 25, 2021, a $1 million gain was recognized within foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income as a result of the changes in the fair value of undesignated forward foreign currency exchange contracts.