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, Japanese Yen, and British Pound. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional

The Company also uses derivative and non-derivative instruments to manage the impact of currency exchange rate changes on net investments in foreign currency-denominated operations. 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 and statements of income.

Freestanding derivative contracts are primarily 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 foreign currencies. The gross notional amount of the Company's currency exchange rate contracts outstanding at April 26, 2019 and April 27, 2018 was $4.3 billion and $5.2 billion, respectively. The Company's freestanding currency exchange rate contracts 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 Company also entered into total return swaps in fiscal year 2018, which are used to hedge the liability of a non-qualified, deferred compensation plan. The gross notional amount of the Company's total return swaps outstanding at April 26, 2019 and April 27, 2018 was $191 million and $210 million, respectively. The Company's total return swaps are not designated as hedges, and therefore, changes in the value of these instruments are recognized in earnings. The cash flows related to the Company's freestanding derivative contracts are reported as operating activities in the consolidated statements of cash flows.

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. The gross notional amount of these contracts, designated as cash flow hedges, outstanding at April 26, 2019 and April 27, 2018 was $6.8 billion and $6.3 billion, respectively, and will mature within the subsequent two-year period. 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 operating expense, net in the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings. The cash flows related to all of the Company's derivative instruments designated as cash flow hedges are reported as operating activities in the consolidated statements of cash flows.

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 over the term of the related debt. Any portion of the gains or losses that are determined to be ineffective is immediately recognized in interest expense. For fiscal years 2019 and 2018, the reclassifications of the effective portion of net gains (losses) on forward starting interest rate derivative instruments from accumulated other comprehensive loss to interest expense were not significant.

No gains or losses related to the ineffectiveness of forward starting interest rate derivative instruments were recognized in interest expense during fiscal year 2017. Additionally, during fiscal year 2017, no components of the forward starting interest rate derivative instruments were excluded in the measurement of hedge ineffectiveness and no hedges were derecognized or discontinued. The reclassification of the effective portion of the net losses from accumulated other comprehensive loss to interest expense was not significant.

At April 26, 2019 and April 27, 2018, the Company had $194 million and $(207) 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 $175 million of after-tax net unrealized gains at April 26, 2019 will be recognized in the consolidated statements of income over the next 12 months.

The Company has designated Euro-denominated debt as a net investment hedge of certain of its European operations to manage the exposure to currency and exchange rate movements for foreign currency-denominated net investments in foreign operations. At April 26, 2019, the Company had $7.8 billion of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations. These non-derivative instruments will mature beginning fiscal year 2021 through fiscal year 2039.

Additionally, during the fourth quarter of fiscal year 2019, the Company entered into and settled forward currency exchange rate contracts to manage the exposure to exchange rate movements in anticipation of the issuance of the 2019 Senior Notes. Certain of these forward currency exchange rate contracts were designated as a net investment hedge of certain of the Company's European operations. These contracts were terminated in conjunction with the issuance of the 2019 Senior Notes. Historically, the Company utilized forward currency exchange rate contracts designated as net investment hedges, all of which were terminated effective in fiscal year 2009 or prior.

For instruments that are designated and qualify as net investment hedges, the effective portion of the gains or losses is reported as a component of accumulated other comprehensive loss. The effective portion of the gains or losses is reclassified into earnings in the same period as a liquidation event or upon deconsolidation of the foreign subsidiary. Amounts excluded from the assessment

At April 26, 2019 and April 27, 2018, the Company had $169 million and $257 million, respectively, in after-tax unrealized losses associated with net investment hedges recorded in accumulated other comprehensive loss. The Company does not expect any of the after-tax unrealized losses at April 26, 2019 to be recognized in the consolidated statements of income over the next 12 months.

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 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 over the remaining life of the related debt. The cash flows related to the Company's interest rate derivative instruments designated as fair value hedges are reported as operating activities in the consolidated statements of cash flows.

At both April 26, 2019 and April 27, 2018, the Company had interest rate swaps with 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 fiscal year 2021 and the $675 million 3.125 percent 2012 Senior Notes due fiscal year 2022.

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at April 26, 2019 and April 27, 2018. 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 designated and do not qualify as hedging instruments, and are further segregated by type of contract within those two categories.



	April 26, 2019
	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	Other current assets	$	234	Other accrued expenses	$	1
Interest rate contracts	Other assets	9		Other liabilities	—
Currency exchange rate contracts	Other assets	78		Other liabilities	1
Total derivatives designated as hedging instruments		321			2
Derivatives not designated as hedging instruments
Currency exchange rate contracts	Other current assets	23		Other accrued expenses	17
Total return swaps	Other current assets	15		Other accrued expenses	—
Cross-currency interest rate contracts	Other current assets	6		Other accrued expenses	—
Total derivatives not designated as hedging instruments		44			17
Total derivatives		$	365		$	19

	April 27, 2018
	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	Other current assets	$	37	Other accrued expenses	$	162
Interest rate contracts	Other assets	8		Other liabilities	14
Currency exchange rate contracts	Other assets	11		Other liabilities	51
Total derivatives designated as hedging instruments		56			227
Derivatives not designated as hedging instruments
Currency exchange rate contracts	Other current assets	31		Other accrued expenses	25
Total return swaps	Other current assets	4		Other accrued expenses	—
Stock warrants	Other assets	21		Other liabilities	—
Cross-currency interest rate contracts	Other assets	6		Other liabilities	6
Total derivatives not designated as hedging instruments		62			31
Total derivatives		$	118		$	258

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 cash flows related to collateral posted and received are reported gross as investing and financing activities, respectively, in the consolidated statements of cash flows. The following tables provide 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 26, 2019
				Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recognized Assets (Liabilities)			Financial Instruments			Cash Collateral (Received) Posted			Securities Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	335		$	(9	)	$	(43	)	$	—	$	283
Interest rate contracts	9			—			(1		)	—		8
Total return swaps	15			—			—			—		15
Cross-currency interest rate contracts	6			—			—			—		6
	365			(9		)	(44		)	—		312
Derivative liabilities:
Currency exchange rate contracts	(19		)	9			—			—		(10		)
	(19		)	9			—			—		(10		)
Total	$	346		$	—		$	(44	)	$	—	$	302



	April 27, 2018
				Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recognized Assets (Liabilities)			Financial Instruments			Cash Collateral (Received) Posted		Securities Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	79		$	(61	)	$	—	$	—	$	18
Interest rate contracts	8			(6		)	—		—		2
Total return swaps	4			—			—		—		4
Stock warrants	21			—			—		—		21
Cross-currency interest rate contracts	6			(4		)	—		—		2
	118			(71		)	—		—		47
Derivative liabilities:
Currency exchange rate contracts	(238		)	61			—		74		(103		)
Interest rate contracts	(14		)	6			—		2		(6		)
Cross-currency interest rate contracts	(6		)	4			—		—		(2		)
	(258		)	71			—		76		(111		)
Total	$	(140	)	$	—		$	—	$	76	$	(64	)

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 26, 2019, the Company received net cash collateral of $44 million from its counterparties. At April 27, 2018, the Company posted net securities collateral of $76 million to its counterparties. The cash 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 securities collateral posted remained in investments on the consolidated balance sheets.