Derivatives and Foreign Exchange Risk Management

6 Months Ended

Oct. 28, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Foreign Exchange Risk Management

Note 9 – Derivatives and Foreign Exchange Risk Management

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 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, liabilities, and probable commitments. At inception of the forward contract, the derivative is designated as either a freestanding derivative or cash flow hedge. The primary currencies of the derivative instruments are the Euro and the Japanese Yen. 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 as ofOctober 28, 2011 and April 29, 2011was $5.226billion and $6.834 billion, respectively.The aggregate currency exchange rate (losses)/gainsfor the three and six months endedOctober 28, 2011were $(77)million and $ (133) million, respectively. The aggregate currency exchange rate gains/(losses) for the three and six months endedOctober 29, 2010 were $53million and $107 million, respectively. These (losses)/gains represent the net impact to the condensed consolidated statements of earnings for the derivative instruments presented below, offset by remeasurement losses on foreign currency denominated assets and liabilities.

The information that follows explains the various types of derivatives and financial instruments used by the Company, how and why the Company uses such instruments, how such instruments are accounted for, and how such instruments impact the Company's condensed consolidated balance sheets and statements of earnings.

Freestanding Derivative Forward Contracts

Freestanding derivative forward contracts are used to offset the Company's exposure to the change in value of specific foreign currency denominated assets and liabilities. These derivatives are not designated as hedges, and therefore, changes in the value of these forward contracts are recognized currently in earnings, thereby offsetting the current earnings effect of the related change in U.S. dollar value of foreign currency denominated assets and liabilities. The cash flows from these contracts are reported as operating activities in thecondensed consolidated statements of cash flows. The gross notional amount of these contracts, not designated as hedging instruments, outstanding as ofOctober 28, 2011 and April 29, 2011 was $1.895billionand $2.453 billion, respectively.

The amount of gains/(losses)and location of the gains/(losses) in the condensed consolidated statements of earnings related to derivative instruments not designated as hedging instrumentsfor the three and six months endedOctober 28, 2011 and October 29, 2010were as follows:

(in millions)		Three months ended
Derivatives Not Designated as Hedging Instruments	Location	October 28, 2011		October 29, 2010
Foreign currency exchange rate contracts	Other expense	$	37	$	(42)
(in millions)		Six months ended
Derivatives Not Designated as Hedging Instruments	Location	October 28, 2011		October 29, 2010
Foreign currency exchange rate contracts	Other expense	$	20	$	(21)

Cash Flow Hedges

Foreign Currency Exchange Rate Risk

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. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive lossand reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. No gains or losses relating to ineffectiveness of cash flow hedges were recognized in earnings during the three and six months endedOctober 28, 2011orOctober 29, 2010. No components of the hedge contracts were excluded in the measurement of hedge ineffectiveness and no hedges were derecognized or discontinued during the three and six months endedOctober 28, 2011orOctober 29, 2010. The cash flows from these contracts are reported as operating activities in the condensed consolidated statements of cash flows. The gross notional amount of these contracts, designated as cash flow hedges,outstanding as ofOctober 28, 2011and April 29, 2011 was $3.331 billion and $4.381 billion, respectively, and will mature within the subsequent 29-month period.

The amount of gains/(losses) and location of the gains/(losses) in the condensed consolidated statements of earnings and other comprehensive income (OCI) related to derivative instruments designated as cash flow hedgesfor the three and six months endedOctober 28, 2011 and October 29, 2010are as follows:

Three months ended
October 28, 2011
(in millions)	Gross Gains/(Losses) Recognized in OCI on Effective Portion of Derivative		Effective Portion of Gains/(Losses) on Derivative Reclassified from Accumulated Other Comprehensive Loss into Income
Derivatives in Cash Flow Hedging Relationships		Amount	Location		Amount
Foreign currency exchange rate contracts	$	111	Other expense	$	(55)
			Cost of products sold		7
Total	$	111		$	(48)
Three months ended
October 29, 2010
(in millions)	Gross Gains/(Losses) Recognized in OCI on Effective Portion of Derivative		Effective Portion of Gains/(Losses) on Derivative Reclassified from Accumulated Other Comprehensive Loss into Income
Derivatives in Cash Flow Hedging Relationships		Amount	Location		Amount
Foreign currency exchange rate contracts	$	(261)	Other income	$	16
			Cost of products sold		6
Total	$	(261)		$	22
Six months ended
October 28, 2011
(in millions)	Gross Gains/(Losses) Recognized in OCI on Effective Portion of Derivative		Effective Portion of Gains/(Losses) on Derivative Reclassified from Accumulated Other Comprehensive Loss into Income
Derivatives in Cash Flow Hedging Relationships		Amount	Location		Amount
Foreign currency exchange rate contracts	$	131	Other expense	$	(109)
			Cost of products sold		15
Total	$	131		$	(94)
Six months ended
October 29, 2010
(in millions)	Gross Gains/(Losses) Recognized in OCI on Effective Portion of Derivative		Effective Portion of Gains/(Losses) on Derivative Reclassified from Accumulated Other Comprehensive Loss into Income
Derivatives in Cash Flow Hedging Relationships		Amount	Location		Amount
Foreign currency exchange rate contracts	$	(336)	Other income	$	70
			Cost of products sold		5
Total	$	(336)		$	75

Forecasted Debt Issuance Interest Rate Risk

Forward starting interest rate derivative instruments designated as cash flowhedges are designed to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. For forward starting interest rate derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and beginning in the period or periods in which the planned debt issuance occurs, the gain or loss is then reclassifiedinto interest expense, net over the term of the related debt. In the second quarter of fiscal year 2012, the Company entered into $750 million of pay fixed, forward starting interest rate swaps with a weighted average fixed rate of 2.84 percent in advance of a planned debt issuance.

The market value of outstanding forward starting interest rate swap derivative instruments at October 28, 2011 was a $10 million unrealized loss. This unrealized loss was recorded in other long-term liabilities with the offset recorded in OCI in the condensed consolidated balance sheet.

As of October 28, 2011 and April 29, 2011, the Company had a balance of $177 million and $257 million in after-tax net unrealized losses associated with cash flow hedging instruments recorded in OCI. The Company expects that $141 million of this balance will be reclassified into the consolidated statement of earnings over the next 12 months.

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings.

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.

As of October 28, 2011 and April 29, 2011, the Company had interest rate swaps in gross notional amounts of $1.950 billion and $3.500 billion, respectively, designated as fair value hedges of underlying fixed rate obligations. As of October 28, 2011, outstanding interest rate swap agreements were designated as fair value hedges of underlying fixed rate obligations including the Company's $1.250billion 3.000 percent 2010 Senior Notes due 2015, $600 million 4.750 percent 2005 Senior Notes due 2015, $500 million 2.625 percent 2011 Senior Notes due 2016, and the $500 million 4.125 percent 2011 Senior Notes due 2021. For additional information regarding the terms of the Company's interest rate swap agreements, refer to Note 9 of the Company's Annual Report on Form 10-K for the year ended April 29, 2011.

In July 2011, the Company terminated interest rate swap agreements with a consolidated notional amount of $900 million that were designated as fair value hedges of the fixed interest rate obligation under the Company's $2.200 billion 1.625 percent 2013 Senior Convertible Notes and $550 million 4.500 percent Senior Notes due 2014. Upon termination, the contracts were in an asset position, resulting in cash receipts of $46 million, which included $10 million of accrued interest. The gain from terminating the interest rate swap agreements increased the outstanding balance of the 2013 Senior Convertible Notes and the Senior Notes and is being amortized as a reduction of interest expense over the remaining life of the 2013 Senior Convertible Notes and the Senior Notes. The cash flows from the termination of these interest rate swap agreements have been reported as operating activities in the condensed consolidated statements of cash flows.

In August 2011, the Company terminated interest rate swap agreements with a consolidated notional amount of $650 million that were designated as fair value hedges of the fixed interest rate obligation under the Company's $1.250billion 3.000 percent 2010 Senior Notes due 2015. Upon termination, the contracts were in an asset position, resulting in cash receipts of $42 million, which included $7 million of accrued interest. The gain from terminating the interest rate swap agreement increased the outstanding balance of the 2015 Senior Notes and is being amortized as a reduction of interest expense over the remaining life of the notes. The cash flows from the termination of this interest rate swap agreement has been reported as operating activities in the condensed consolidated statements of cash flows

The market value of outstanding interest rate swap agreements was a $136 million unrealized gain and the market value of the hedged item was a $136 millionunrealized loss at October 28, 2011, which were recorded in other assets with the offset recorded in long-term debtin the condensed consolidated balance sheet. No hedge ineffectiveness was recorded as a result of these fair value hedges for the three months ended October 28, 2011 and less than $1 million was recorded for the six months ended October 28, 2011. Hedge ineffectiveness was not material for the three months ended October 29, 2010 and $2 million of hedge ineffectiveness was recorded for the six months ended October 29, 2010, which were recorded as an increase in interest expense, net in the condensed consolidated statement of earnings.

During the three and six months endedOctober 28, 2011 and October 29, 2010, the Company did not have any ineffective fair value hedging instruments. In addition, the Company did not recognize any gains or losses during thethree and six months ended October 28, 2011 and October 29, 2010on firm commitments that no longer qualify as fair value hedges.

Balance Sheet Presentation

The following table summarizes the location and fair value amounts of derivative instruments reported in the condensed consolidated balance sheets as of October 28, 2011 and April 29, 2011. 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, and are further segregated by type of contract within those two categories.

October 28, 2011
	Asset Derivatives			Liability Derivatives
(in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign currency exchange rate contracts	Prepaid expenses and other current assets	$	34	Other accrued expenses	$	140
Interest rate contracts	Other assets		136	Other long-term liabilities		10
Foreign currency exchange rate contracts	Other assets		7	Other long-term liabilities		38
Total derivatives designated as hedging instruments		$	177		$	188
Derivatives not designated as hedging instruments
Foreign currency exchange rate contracts	Prepaid expenses and other current assets	$	-	Other accrued expenses	$	2
Total derivatives not designated as hedging instruments		$	0		$	2
Total derivatives		$	177		$	190
April 29, 2011
	Asset Derivatives			Liability Derivatives
(in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign currency exchange rate contracts	Prepaid expenses and other current assets	$	19	Other accrued expenses	$	235
Interest rate contracts	Other assets		109
Foreign currency exchange rate contracts	Other assets		1	Other long-term liabilities		64
Total derivatives designated as hedging instruments		$	129		$	299
Derivatives not designated as hedging instruments
Foreign currency exchange rate contracts	Prepaid expenses and other current assets	$	1	Other accrued expenses	$	4
Total derivatives not designated as hedging instruments		$	1		$	4
Total derivatives		$	130		$	303

Concentrations of Credit Risk

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.

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. As of October 28, 2011,no collateral was posted by either the Company or its counterparties. As of April 29, 2011, the Company had $8 million in securities pledged as collateral to its counterparties, respectively. The securities pledged as collateral are included in cash and cash equivalents in the condensed consolidated balance sheets.

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. However, a significant amount of trade receivables are with hospitals that are dependent upon governmental healthcare systems in many countries. The current economic conditionsin many foreign countries, particularly the recent deterioration of conditions in Portugal, Italy, Greece, and Spain, have increased, and may continue to increase, the average length of time it takes the Company to collect on its outstanding accounts receivable in these countries. As of October 28, 2011, the Company's accounts receivable net of the allowance for doubtful accounts in Portugal, Italy, Greece, and Spain was $1.004billion. The Company continues to monitor the creditworthiness of customers located in these and other geographic areas. Although the Company does not currently foresee a significant credit risk associated with these receivables, repayment is dependent upon the financial stability of the economies of these countries. As of October 28, 2011 and April 29, 2011, no one customernor any one national healthcare system represented more than 10 percent of the Company's outstanding accounts receivable. See “Operations Outside of the United States” in management's discussion and analysis for further details regarding the concentrations of credit risk in the Company's trade accounts receivable.