Financial instruments

6 Months Ended

Feb. 29, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial instruments

Financial instruments

The Company uses derivative instruments to manage its exposure to interest rate and foreign currency exchange risks.

The Company has non-U.S. dollar denominated net investments and uses foreign currency denominated financial instruments, specifically foreign currency derivatives and foreign currency denominated debt, to hedge its foreign currency risk.

The Company utilizes foreign currency forward contracts and other foreign currency derivatives to hedge significant committed and highly probable future transactions and cash flows denominated in currencies other than the functional currency of the Company or its subsidiaries.

The Company uses interest rate swaps from time to time to manage the interest rate exposure associated with some of its fixed-rate debt and designates them as fair value hedges. From time to time, the Company uses forward starting interest rate swaps to hedge its interest rate exposure of some of its anticipated debt issuances.

The notional amounts and fair value of derivative instruments outstanding were as follows (in millions):

February 29, 2020	Notional		Fair value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Cross currency interest rate swaps	$	851	$	42	Other non-current assets
Foreign currency forwards	378		7		Other current assets
Cross currency interest rate swaps	100		1		Other current assets
Cross currency interest rate swaps	206		4		Other non-current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	2,873		52		Other current assets
Foreign currency forwards	1,265		9		Other current liabilities

August 31, 2019	Notional		Fair value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Cross currency interest rate swaps	$	800	$	73	Other non-current assets
Foreign currency forwards	18		1		Other current assets
Derivatives not designated as hedges:
Foreign currency forwards	3,485		87		Other current assets
Foreign currency forwards	707		6		Other current liabilities

Net investment hedges

The Company uses cross currency interest rate swaps and foreign currency forwards as hedges of net investments in subsidiaries with non-U.S. dollar functional currencies. For qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the currency translation adjustment within accumulated other comprehensive income (loss).

Derivatives not designated as hedges

The Company enters into derivative transactions that are not designated as accounting hedges. These derivative instruments are economic hedges of foreign currency risks. The income (expenses) due to changes in fair value of these derivative instruments were recognized in earnings as follows (in millions):

		Three months ended				Six months ended
	Location in Consolidated Condensed Statements of Earnings	February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Foreign currency forwards	Selling, general and administrative expenses	$	13	$	(106)	$	(61)	$	(60)
Foreign currency forwards	Other income	(7)		(6)		4		(2)

Derivatives credit risk

Counterparties to derivative financial instruments expose the Company to credit-related losses in the event of counterparty nonperformance, and the Company regularly monitors the credit worthiness of each counterparty.

Derivatives offsetting

The Company does not offset the fair value amounts of derivative instruments subject to master netting agreements in the Consolidated Condensed Balance Sheets.