Derivative Instruments

6 Months Ended

Feb. 27, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]


	Gross Notional Amount		Fair Value of
							Current Assets ⁽¹⁾	Current Liabilities ⁽²⁾

As of February 27, 2020
Derivative instruments with hedge accounting designation
Cash flow currency hedges	$	586	$	—	$	(16)

Derivative instruments without hedge accounting designation
Non-designated currency hedges	1,240		1		(3)
Convertible notes settlement obligation ⁽³⁾			—		(4)
			1		(7)

			$	1	$	(23)

As of August 29, 2019
Derivative instruments with hedge accounting designation
Cash flow currency hedges	$	146	$	1	$	—

Derivative instruments without hedge accounting designation
Non-designated currency hedges	1,871		1		(9)
Convertible notes settlement obligation ⁽³⁾			—		(179)
			1		(188)

			$	2	$	(188)

⁽¹⁾Included in receivables – other.

⁽²⁾Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations.

⁽³⁾Notional amounts of convertible notes settlement obligations were not significant as of February 27, 2020 and were 4 million shares of our common stock as of August 29, 2019.

Derivative Instruments with Hedge Accounting Designation

We utilize currency forward contracts that generally mature within 13 months to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.

Cash Flow Hedges: We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures and manufacturing costs. We recognized losses of $17 million and $14 million in the second quarter and first six months of 2020, respectively, and gains of $7 million and losses of $6 million in the second quarter and first six months of 2019, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were significant in the second quarters or first six months of 2020 or 2019. The amounts from cash flow hedges included in accumulated other comprehensive income that are expected to be reclassified into earnings in the next 12 months were also not significant.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into 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). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, we recognized losses of $1 million and gains of $4 million in the second quarter and first six months of 2020, respectively, and gains of $11 million in the second quarter of 2019 and losses of $11 million in the first quarter of 2019.

Convertible Notes Settlement Obligations: For settlement obligations associated with our convertible notes subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts were based on the volume-weighted-average trading price of our common stock (Level 2). (See “Debt” note.) We recognized losses of $12 million in the first six months of 2020, and losses of $82 million and $66 million in the second quarter and first six months of 2019, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations. The gains recognized in the second quarter of 2020 were not significant.