Financial instruments

9 Months Ended

May 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses derivative instruments to hedge its exposure to market risks, including interest rate and currency risks, arising from operating and financing 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 economically hedges a portion of its exposure to equity price risk related to its investment in AmerisourceBergen through variable prepaid forward derivative contracts.

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


May 31, 2023	Notional		Fair Value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards	$	493	$	3	Other current assets
Cross currency interest rate swaps	100		—		Other current assets
Cross currency interest rate swaps	650		44		Other non-current assets
Foreign currency forwards	418		4		Other current liabilities
Foreign currency forwards	8		—		Other non-current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	$	1,909	$	13	Other current assets
Total return swap	133		1		Other current assets
Foreign currency forwards	2,483		15		Other current liabilities
Total return swap	53		1		Other current liabilities
Variable prepaid forward	787		670		Other non-current liabilities


August 31, 2022	Notional		Fair Value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards	$	448	$	19	Other current assets
Cross currency interest rate swaps	150		12		Other current assets
Cross currency interest rate swaps	750		83		Other non-current assets
Foreign currency forwards	3		—		Other non-current assets
Foreign currency forwards	221		1		Other current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	$	2,874	$	49	Other current assets
Foreign currency forwards	1,098		6		Other current liabilities
Total return swap	183		6		Other current liabilities

Net investment hedges

The Company uses cross currency interest rate swaps and foreign currency forward contracts to hedge 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 Currency translation adjustments within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets.

Cash flow hedges

The Company may use foreign currency forwards and interest rate swaps to hedge the variability in forecasted transactions and cash flows of certain floating-rate debt. For qualifying cash flow hedges, changes in the fair value of the derivatives are recorded in Unrealized gain (loss) on cash flow hedges within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets, and released to the Consolidated Condensed 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 and equity price risk. The Company also utilizes total return swaps to economically hedge variability in compensation charges related to certain deferred compensation obligations.

On May 11, 2023, the Company entered into variable prepaid forward transactions (“May 2023 VPF transactions”) with third-party financial institutions and received an upfront prepayment of $644 million related to the forward sale of up to 4.6 million shares of AmerisourceBergen common stock. The upfront prepayment is recorded within Other non-current liabilities in the Consolidated Condensed Balance Sheet as a derivative. The Company has pledged 4.6 million shares of AmerisourceBergen common stock as collateral upon entering into the May 2023 VPF transactions. The May 2023 VPF transactions provide the Company with current liquidity while allowing it to maintain voting and dividend rights in the AmerisourceBergen common stock, as well as the ability to participate in future stock price appreciation during the term of the contracts up to a cap price specified in the contracts. The May 2023 VPF transactions are expected to be settled in the fourth quarter of fiscal 2025, at which time the Company will be obligated, unless it elects to settle otherwise as described below, to deliver the full number of shares of AmerisourceBergen common stock to which the VPF transactions related and may receive additional cash payments to be determined based on the price of the AmerisourceBergen common stock at the maturity of the transactions relative to the forward floor and cap price. Subject to certain conditions, the Company may elect to net settle the contract by delivery of shares (or payment of the cash value thereof) in lieu of receiving any additional cash. The aggregate number of AmerisourceBergen shares to be delivered in connection with the May 2023 VPF transactions will not exceed 4.6 million shares.

On June 15, 2023, the Company entered into additional variable prepaid forward transactions (“June 2023 VPF transactions”) with third-party financial institutions and received an upfront prepayment of $325 million related to the forward sales of up to 2.2 million shares of AmerisourceBergen common stock. The Company pledged 2.2 million shares of AmerisourceBergen common stock as collateral upon entering into June 2023 VPF transactions. The June 2023 VPF transactions are expected to be settled in the third quarter of fiscal 2025, at which time the Company will be obligated, unless it elects to settle otherwise as described below, to deliver the full number of shares of AmerisourceBergen common stock to which the VPF transactions relate and may receive additional cash payments to be determined based on the price of the AmerisourceBergen common stock at the maturity of the transactions relative to the forward floor and cap price. Subject to certain conditions, the Company may elect to net settle the contract by delivery of shares (or payment of the cash value thereof) in lieu of receiving any additional cash. The aggregate number of AmerisourceBergen shares to be delivered in connection with the June 2023 VPF transactions will not exceed 2.2 million shares.

The income (expenses) due to changes in fair value of the derivative instruments were recognized in Consolidated Condensed Statements of Earnings as follows (in millions):


		Three months ended May 31,				Nine months ended May 31,
	Location in Consolidated Condensed Statements of Earnings	2023		2022		2023		2022

Total return swap	Selling, general and administrative expenses	$	2	$	(14)	$	2	$	(24)
Foreign currency forwards	Other income, net 1	(112)		319		(203)		322

Variable prepaid forward	Other income, net	(26)		—		(26)		—

1.Excludes remeasurement gains and losses on economically hedged assets and liabilities.

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.