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foreign currency financial instruments is not material. (See Note 12, “Derivative Financial
Instruments and Hedging Activities” in Item 8—“Financial Statements and Supplementary Data.”)
Interest Rate Sensitivity: The Company is exposed to changes in interest rates primarily as a
result of its borrowing and investing activities used to maintain liquidity and fund business
operations. The nature and amount of the Company’s long-term and short-term debt can be
expected to vary as a result of future business requirements, market conditions and other factors.
The Company’s debt obligations totaled $4.61 billion (including $151 million relating to hedge
accounting adjustments) and $4.62 billion (including $207 million relating to hedge accounting
adjustments) at April 27, 2011 and April 28, 2010, respectively. The Company’s debt obligations are
summarized in Note 7, “Debt and Financing Arrangements” in Item 8—“Financial Statements and
Supplementary Data.”
In order to manage interest rate exposure, the Company utilizes interest rate swaps to convert
fixed-rate debt to floating. These derivatives are primarily accounted for as fair value hedges.
Accordingly, changes in the fair value of these derivatives, along with changes in the fair value of
the hedged debt obligations that are attributable to the hedged risk, are recognized in current period
earnings. Based on the amount of fixed-rate debt converted to floating as of April 27, 2011, a variance
of 1/8% in the related interest rate would cause annual interest expense related to this debt to change
by approximately $2 million. The following table presents additional information related to interest
rate contracts designated as fair value hedges by the Company:
April 27, 2011 April 28, 2010
(Dollars in millions)
Pay floating swaps—notional amount . . . . . . . . . . . . . . . . . . . $1,510 $1,516
Net unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55 $ 109
Weighted average maturity (years) . . . . . . . . . . . . . . . . . . . . . 1.4 2.5
Weighted average receive rate . . . . . . . . . . . . . . . . . . . . . . . . . 6.30% 6.30%
Weighted average pay rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.32% 1.47%
During Fiscal 2010, the Company terminated its $175 million notional total rate of return swap
that was being used as an economic hedge to reduce a portion of the interest cost related to the
Company’s DRS. The unwinding of the total rate of return swap was completed in conjunction with
the exchange of $681 million of DRS discussed in Note 7, “Debt and Financing Arrangements” in Item
8-“Financial Statements and Supplementary Data.” Upon termination of the swap, the Company
received net cash proceeds of $48 million, in addition to the release of the $193 million of restricted
cash collateral that the Company was required to maintain with the counterparty for the term of the
swap. Prior to termination, the swap was being accounted for on a full mark-to-market basis through
earnings, as a component of interest income. The Company recorded a benefit in interest income of
$28 million for the year ended April 28, 2010, and $28 million for the year ended April 29, 2009,
representing changes in the fair value of the swap and interest earned on the arrangement, net of
transaction fees.
The Company had outstanding cross-currency interest rate swaps with a total notional amount
of $377 million and $160 million as of April 27, 2011 and April 28, 2010, respectively, which were
designated as cash flow hedges of the future payments of loan principal and interest associated with
certain foreign denominated variable rate debt obligations. Net unrealized gains/(losses) related to
these swaps totaled $9 million and $(12) million as of April 27, 2011 and April 28, 2010, respectively.
The swaps that were entered into in Fiscal 2010 are scheduled to mature in Fiscal 2013 and the swaps
that were entered into in the third quarter of Fiscal 2011 are scheduled to mature in Fiscal 2014.
Effect of Hypothetical 10% Fluctuation in Market Prices: As of April 27, 2011, the
potential gain or loss in the fair value of the Company’s outstanding foreign currency contracts,
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