The Company uses operational and economic hedges, including 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. Currencies of our derivative instruments include the Euro, Japanese Yen, Chinese Yuan, and others. The Company does not enter into currency exchange rate derivative contracts for speculative purposes. The gross notional amount of all currency exchange rate derivative instruments outstanding was $17.9 billion and $13.8 billion at October 28, 2022 and April 29, 2022, respectively.

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 freestanding currency exchange rate contracts outstanding at October 28, 2022 and April 29, 2022 was $5.1 billion and $4.9 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 uses total return swaps to hedge the liability of a non-qualified deferred compensation plan. The gross notional amount of the Company's total return swaps outstanding at October 28, 2022 and April 29, 2022 was $208 million and $226 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 or financing activities, depending on the nature of the underlying hedged item, 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 October 28, 2022 and April 29, 2022 was $8.3 billion and $8.8 billion, respectively, and will mature within the subsequent three-year period. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the

derivative instrument is reported as a component of accumulated other comprehensive loss. The gain or loss on the derivative instrument is reclassified into earnings and is included in other operating (income) expense, net or cost of products sold in the consolidated statements of income in the same period or periods during which the hedged transaction affects earnings. Amounts excluded from the measurement of hedge effectiveness are recognized in earnings on a straight-line basis over the term of the hedge. 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.

At October 28, 2022 and April 29, 2022, the Company had $852 million and $474 million in after-tax net unrealized gains, respectively, associated with cash flow hedging instruments recorded in accumulated other comprehensive loss. The Company expects that $617 million of after-tax net unrealized gains at October 28, 2022 will be recognized in the consolidated statements of income over the next 12 months.

The Company has designated Euro-denominated and Yen-denominated debt as net investment hedges of certain of its European and Japanese operations to manage the exposure to currency and exchange rate movements for foreign currency-denominated net investments in foreign operations. At October 28, 2022, the Company had €16.0 billion, or $15.9 billion, of outstanding Euro-denominated debt designated as a hedge of its net investment in certain of its European operations, and ¥297 billion, or $2.0 billion, of outstanding Yen-denominated debt designated as a hedge of its net investment in certain of its Japanese operations. The Euro-denominated debt will mature in fiscal years 2023 through 2051, and the Yen-denominated debt will mature in fiscal year 2024.

The Company may also use derivative instruments to hedge the currency risk associated with its net investment in foreign operations. Foreign currency forward contracts may be used on a standalone basis or in combination with option collars. At October 28, 2022, the Company had foreign currency contracts with a notional value of €4.5 billion, or $4.5 billion, hedging a portion of its net investment in certain of its European operations. The foreign exchange contracts mature in fiscal years 2024 and 2025.

For instruments that are designated and qualify as net investment hedges, the gains or losses are reported as a component of accumulated other comprehensive loss. The gains or losses are reclassified into earnings upon a liquidation event or deconsolidation of the foreign subsidiary. Amounts excluded from the assessment of effectiveness are recognized in interest expense on a straight-line basis over the term of the hedge. During the three and six months ended October 28, 2022, the Company recognized $27 million and $47 million in after-tax unrealized gains representing excluded components in interest expense. The cash flows related to the Company's derivative instruments designated as net investment hedges are reported as investing activities in the consolidated statements of cash flows.

The amount of the gains and losses on our hedging instruments and the classification of those gains and losses within our consolidated financial statements for the three and six months ended October 28, 2022 and October 29, 2021 were as follows:


	(Gain) Loss Recognized in Accumulated Other Comprehensive Loss								(Gain) Loss Reclassified into Income

	Three months ended				Six months ended				Three months ended				Six months ended				Location of (Gain) Loss in Income Statement
(in millions)	October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021
Cash flow hedges
Currency exchange rate contracts	$	(266)	$	(158)	$	(608)	$	(322)	$	(205)	$	(14)	$	(343)	$	5	Other operating (income) expense, net
Currency exchange rate contracts	(133)		39		(167)		43		3		14		21		26		Cost of products sold
Net investment hedges
Non-derivative instruments	(405)		(356)		(1,350)		(780)		—		—		—		—		N/A
Currency exchange rate contracts	(2)		—		(59)		—		—		—		—		—		N/A
Total	$	(806)	$	(475)	$	(2,184)	$	(1,059)	$	(202)	$	—	$	(322)	$	31

The amount of the gains and losses on our derivative instruments not designated as hedging instruments and the classification of those gains and losses within our consolidated financial statements during the three and six months ended October 28, 2022 and October 29, 2021 were as follows:


	(Gain) Loss Recognized in Income				(Gain) Loss Recognized in Income
	Three months ended				Six months ended				Location of (Gain) Loss in Income Statement
(in millions)	October 28, 2022		October 29, 2021		October 28, 2022		October 29, 2021
Derivatives not designated as hedging instruments
Currency exchange rate contracts	$	21	$	(16)	$	47	$	(34)	Other operating (income) expense, net
Total return swaps	13		(12)		13		(25)		Other operating (income) expense, net
Total	$	34	$	(28)	$	60	$	(59)

The following tables summarize the balance sheet classification and fair value of derivative instruments included in the consolidated balance sheets at October 28, 2022 and April 29, 2022. 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.


	Fair Value - Assets					Fair Value - Liabilities
(in millions)	October 28, 2022		April 29, 2022		Balance Sheet Classification	October 28, 2022		April 29, 2022		Balance Sheet Classification
Derivatives designated as hedging instruments
Currency exchange rate contracts	$	742	$	481	Other current assets	$	5	$	43	Other accrued expenses

Currency exchange rate contracts	318		168		Other assets	8		16		Other liabilities
Total derivatives designated as hedging instruments	1,060		649			13		60
Derivatives not designated as hedging instruments
Currency exchange rate contracts	22		46		Other current assets	23		49		Other accrued expenses
Total return swaps	—		—		Other current assets	14		20		Other accrued expenses



Total derivatives not designated as hedging instruments	22		46			37		69
Total derivatives	$	1,082	$	695		$	51	$	129

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.


	October 28, 2022
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recognized Assets (Liabilities)		Financial Instruments		Cash Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	1,082	$	(31)	$	(704)	$	347




Derivative liabilities:
Currency exchange rate contracts	(36)		31		1		(4)


Total return swaps	(14)		—		—		(14)
	(51)		31		1		(18)
Total	$	1,031	$	—	$	(703)	$	329


	April 29, 2022
			Gross Amount Not Offset on the Balance Sheet
(in millions)	Gross Amount of Recognized Assets (Liabilities)		Financial Instruments		Cash Collateral (Received) Posted		Net Amount
Derivative assets:
Currency exchange rate contracts	$	695	$	(109)	$	(254)	$	332




Derivative liabilities:
Currency exchange rate contracts	(109)		109		—		—


Total return swaps	(20)		—		—		(20)
	(129)		109		—		(20)
Total	$	566	$	—	$	(254)	$	312