Financial instruments

3 Months Ended

Nov. 30, 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 Cencora through VPF derivative contracts.

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


November 30, 2023	Notional		Fair Value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards	$	1	$	—	Other current assets
Cross currency interest rate swaps	350		12		Other current assets
Cross currency interest rate swaps	300		18		Other non-current assets
Foreign currency forwards	778		6		Other current liabilities
Cross currency interest rate swaps	101		1		Other current liabilities
Foreign currency forwards	1		—		Other non-current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	$	352	$	1	Other current assets
Total return swaps	186		8		Other current assets
Foreign currency forwards	3,454		19		Other current liabilities

Variable prepaid forward contracts	3,726		3,338		Other non-current liabilities


August 31, 2023	Notional		Fair Value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards	$	31	$	1	Other current assets
Cross currency interest rate swaps	650		28		Other non-current assets
Foreign currency forwards	805		2		Other current liabilities
Cross currency interest rate swaps	102		2		Other current liabilities
Foreign currency forwards	4		—		Other non-current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	$	3,139	$	6	Other current assets
Total return swaps	168		1		Other current assets
Foreign currency forwards	817		2		Other current liabilities
Total return swaps	26		1		Other current liabilities
Variable prepaid forward contracts	3,195		2,548		Other non-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 Cumulative 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 in Accumulated other comprehensive loss within 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.

The Company entered into VPF transactions with third-party financial institutions and received upfront prepayments related to the forward sale of shares of Cencora common stock. The upfront prepayments are recorded within Other non-current liabilities in the Consolidated Condensed Balance Sheets as derivatives. The Company has pledged shares of Cencora common stock as collateral upon entering into the VPF transactions. The VPF transactions provide the Company with current liquidity while allowing it to maintain voting and dividend rights in the Cencora 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 VPF transactions are expected to settle per their respective forward settlement dates, 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 Cencora common stock specified in the contracts to settle the agreements. The Company may receive additional cash payments to be determined based on the price of the Cencora common stock at the forward settlement dates relative to the forward floor and cap price specified in the contracts. 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 Cencora shares to be delivered in connection with the VPF transactions will not exceed the shares subject to forward sale.

The terms of the VPF transactions were as follows (in millions):


Transaction date	Shares pledged and maximum shares subject to forward sale	Prepayment amount		Forward settlement date
May 11, 2023	4.6	$	644	Fourth quarter, fiscal 2025
June 15, 2023	2.2	325		Third quarter, fiscal 2025
August 3, 2023	5.3	801		First quarter, fiscal 2026
August 4, 2023	5.3	797		Third quarter, fiscal 2026
November 9, 2023	2.7	424		Fourth quarter, fiscal 2026
	20.0	$	2,991

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


		Three months ended November 30,
	Location in Consolidated Condensed Statements of Earnings	2023		2022
Total return swap	Selling, general and administrative expenses	$	(1)	$	4
Foreign currency forwards	Other (expense) income, net 1	59		(18)
Variable prepaid forward	Other (expense) income, net	(366)		—

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. The Company and its counterparties are subject to collateral requirements for certain derivative instruments which mitigates credit risk for both parties.

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.