7.	DERIVATIVE FINANCIAL INSTRUMENTS

We held the following derivative and non-derivative instruments that were accounted for pursuant to ASC 815, Derivatives and Hedging (ASC 815):

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interest rate swap agreements, which are used to protect us against changes in the fair values of certain of our fixed-rate borrowings attributable to the movements in benchmark interest rates. We have designated these swap agreements as qualifying hedging instruments and are accounting for them as fair value hedges pursuant to ASC 815;

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cross-currency interest rate swap agreements, which are used to protect us against changes in the fair values of certain of our fixed-rate Euro-denominated borrowings attributable to the movements in benchmark interest rates and foreign currency exchange rates by effectively converting the fixed-rate, Euro-denominated borrowings, including the annual interest payments and the payment of principal at maturity, to variable-rate, U.S. Dollar denominated debt based on LIBOR. We have designated these swap agreements as qualifying hedging instruments and are accounting for them as fair value hedges pursuant to ASC 815. As a result of our adoption of ASU 2017-12, we have elected to exclude the portion of the change in fair value of these swap agreements attributable to the related cross-currency basis spread in our assessment of hedge effectiveness. The change in fair value of these swap agreements attributable to the cross-currency basis spread is included in accumulated other comprehensive loss;

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cross-currency swap agreements, which are used to manage foreign currency exchange risk by converting certain of our fixed-rate Euro-denominated borrowings to fixed-rate U.S. Dollar denominated debt and are accounted for as cash flow hedges pursuant to ASC 815; and

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foreign currency borrowings, which were used to reduce the volatility in stockholders’ equity caused by the changes in the foreign currency exchange rates of the Euro with respect to the U.S. Dollar and were accounted for as net investment hedges pursuant to ASC 815 in the first quarter of fiscal 2018. In the fourth quarter of fiscal 2018, we de-designated the foreign currency borrowings as a net investment hedge.

We also held certain foreign currency contracts that were not designated as hedges pursuant to ASC 815. As of August 31, 2018 and May 31, 2018, the notional amounts of such forward contracts we held to purchase U.S. Dollars in exchange for other major international currencies were $2.9 billion and $3.4 billion, respectively, and the notional amount of forward contracts we held to sell U.S. Dollars in exchange for other major international currencies were $1.5 billion and $1.4 billion, respectively. The fair values of our outstanding foreign currency forward contracts were nominal as of August 31, 2018 and May 31, 2018. The cash flows related to these foreign currency contracts are classified as operating activities. Net gains or losses related to these forward contracts are included in non-operating income, net.

The adoption of ASU-2017-12 did not have a material impact on our previously existing hedge designations. See Note 10 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2018 for additional information regarding the purpose, accounting and classification of our derivative and non-derivative instruments. None of our derivative instruments are used for trading purposes. The effects of derivative and non-derivative instruments designated as hedges on certain of our condensed consolidated financial statements were as follows as of or for each of the respective periods presented below (amounts presented exclude any income tax effects):

Fair Values of Derivative Instruments Designated as Hedges in Condensed Consolidated Balance Sheets

		Fair Value as of
(in millions)	Balance Sheet Location	August 31, 2018		May 31, 2018
Derivative assets:
Interest rate swap agreements designated as fair value hedges	Other non-current assets	$	15	$	24
Cross-currency interest rate swap agreements designated as fair value hedges	Other non-current assets		1		5
Total derivative assets		$	16	$	29
Derivative liabilities:
Interest rate swap agreements designated as fair value hedges	Other current liabilities	$	4	$	7
Interest rate swap agreements designated as fair value hedges	Other non-current liabilities		49		48
Cross-currency swap agreements designated as cash flow hedges	Other non-current liabilities		117		103
Total derivative liabilities		$	170	$	158

Effects of Fair Value Hedging Relationships on Hedged Items in Condensed Consolidated Balance Sheet

(in millions)	August 31, 2018			May 31, 2018
Notes payable and other borrowings, current:
Carrying amount of hedged item	$	1,495		$	1,492
Cumulative hedging adjustments included in the carrying amount		(4	)		(7	)
Notes payable and other borrowings, non-current:
Carrying amounts of hedged items		5,570			5,584
Cumulative hedging adjustments included in the carrying amount		(34	)		(19	)

Effects of Derivative Instruments Designated as Hedges on Income

	Three Months Ended August 31,
	2018						2017
(in millions)	Non-operating income, net			Interest expense			Non-operating income, net		Interest expense
Condensed consolidated statements of income line amounts in which the hedge effects were recorded	$	291		$	(529	)	$	220	$	(469	)
Gain (loss) on hedges recognized in income:
Interest rate swaps designated as fair value hedges:
Derivative instruments	$	—		$	(7	)	$	—	$	—
Hedged items		—			7			—		—
Cross-currency interest rate swaps designated as fair value hedges:
Derivative instruments		(4	)		—			—		—
Hedged items		5			—			—		—
Cross-currency swap agreements designated as cash flow hedges:
Amount reclassified from accumulated OCI or OCL		12			—			107		—
Total gain (loss) on hedges recognized in income	$	13		$	—		$	107	$	—

Gain (Loss) on Derivative and Non-Derivative Instruments Designated as Hedges included in Other Comprehensive Income (OCI) or Loss (OCL)

	Three Months Ended August 31,
(in millions)	2018			2017
Cross-currency swap agreements designated as cash flow hedges	$	(14	)	$	85
Foreign currency borrowings designated as net investment hedge		—			(64	)