Derivative Financial Instruments

6 Months Ended

Mar. 03, 2016

Derivative Instrument Detail [Abstract]

Derivative Financial Instruments

Derivative Instruments

We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities denominated in currencies other than the U.S. dollar. We have also had convertible note settlement obligations which were accounted for as derivative instruments as a result of our elections to settle conversions in cash. We do not use derivative instruments for speculative purpose.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: To hedge our exposures of monetary assets and liabilities to changes in currency exchange rates, we generally utilize a rolling hedge strategy with currency forward contracts that mature within 35 days.  At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and the associated outstanding forward contracts are marked-to-market.  Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2 fair value measurements). To mitigate the risk of the yen strengthening against the U.S. dollar on the MMJ creditor installment payments due in December 2014 and December 2015, we entered into forward contracts to purchase 20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In the first quarters of 2016 and 2015, we paid $21 million and $33 million, respectively, upon settlement of the forward contracts.

The following summarizes our derivative instruments without hedge accounting designation, which consisted of forward contracts to purchase the noted currencies as a hedge of our net position in monetary assets:

	Notional Amount (in U.S. dollars)		Fair Value of
			Current Assets(1)		Current Liabilities(2)
As of March 3, 2016
Yen	$	1,241	$	3	$	—
Singapore dollar	244		1		—
New Taiwan dollar	88		—		—
Other	93		—		(1		)
	$	1,666	$	4	$	(1	)
As of September 3, 2015
Yen	$	928	$	—	$	(24	)
Singapore dollar	282		—		—
New Taiwan dollar	89		—		—
Other	107		1		—
	$	1,406	$	1	$	(24	)

⁽¹⁾  Included in receivables – other.

⁽²⁾  Included in accounts payable and accrued expenses – other.

Realized and unrealized gains and losses on currency derivatives without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-operating income (expense), net. Net gains (losses) for derivative instruments without hedge accounting designation were as follows:

	Quarter ended					Six months ended
	March 3, 2016		March 5, 2015			March 3, 2016		March 5, 2015
Foreign exchange contracts	$	92	$	(15	)	$	71	$	(73	)
Convertible notes settlement obligations	—		—			—		6

Derivative Instruments with Cash Flow Hedge Accounting Designation

Currency Derivatives: We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures.  Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rate, and credit risk spread (Level 2 fair value measurements). 

For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income (loss).  Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same line items of the consolidated statements of operations and in the same periods in which the underlying transactions affect earnings. The ineffective or excluded portion of the realized and unrealized gain or loss is included in other non-operating income (expense), net.  Total notional amounts and gross fair values for derivative instruments with cash flow hedge accounting designation were as follows:

	Notional Amount (in U.S. Dollars)		Fair Value of
			Current Assets(1)		Current Liabilities(2)
As of March 3, 2016
Euro	$	110	$	—	$	(2	)
Yen	86		3		—
	$	196	$	3	$	(2	)
As of September 3, 2015
Euro	$	12	$	—	$	—
Yen	81		3		—
	$	93	$	3	$	—

⁽¹⁾  Included in receivables – other.

⁽²⁾  Included in accounts payable and accrued expenses – other.

We recognized gains from the effective portion of cash flow hedges in accumulated other comprehensive income (loss) of $5 million and $1 million for the second quarter and first six months of 2016, respectively, and losses of $15 million in the first six months of 2015. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income (expense) were not significant in the second quarters and first six months of 2016 and 2015.  We reclassified gains from accumulated other comprehensive income (loss) to earnings of $1 million and $2 million for the second quarter and first six months of 2016, respectively, and $2 million and $4 million for the second quarter and first six months of 2015, respectively.