Financial instruments

9 Months Ended

May 31, 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 notional amounts and fair value of derivative instruments outstanding were as follows (in millions):

May 31, 2020	Notional		Fair value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Cross currency interest rate swaps	$	1,000	$	88	Other non-current assets
Foreign currency forwards	100		9		Other current assets
Cross currency interest rate swaps	150		9		Other current assets
Interest rate swaps	1,000		8		Other non-current liabilities
Foreign currency forwards	278		7		Other current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	2,831		102		Other current assets
Foreign currency forwards	1,025		21		Other current liabilities
Total return swap	185		—		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).

Cash flow hedges

The Company uses interest rate swaps to hedge the variability in forecasted cash flows of certain floating-rate debt. For qualifying cash flow hedges, changes in the fair value of the derivatives are recorded in accumulated other comprehensive income (loss), and released to the Consolidated Statements of Earnings when the hedged cash flows affect earnings.

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 Company also utilizes total return swaps to economically hedge variability in compensation charges related to certain deferred compensation obligations. The income (expenses) due to changes in fair value of these derivative instruments were recognized in earnings as follows (in millions):

		Three months ended May 31,				Nine months ended May 31,
	Location in Consolidated Condensed Statements of Earnings	2020		2019		2020		2019
Foreign currency forwards	Selling, general and administrative expenses	$	72	$	140	$	11	$	80
Total return swap	Selling, general and administrative expenses	5		—		5		—
Foreign currency forwards	Other income (expense)	2		(8)		6		(10)

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.