Derivative Instruments

9 Months Ended

May 28, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]


	Gross Notional Amount		Fair Value of
							Current Assets⁽¹⁾	Current Liabilities⁽²⁾		Noncurrent Liabilities⁽³⁾

As of May 28, 2020
Derivative instruments with hedge accounting designation
Cash flow currency hedges	$	1,884	$	2	$	(21)		$	(1)

Derivative instruments without hedge accounting designation
Non-designated currency hedges	1,155		2		(2)			—
			$	4	$	(23)		$	(1)

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⁽⁴⁾			—		(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⁾Included in other noncurrent liabilities.

⁽⁴⁾As of August 29, 2019, the notional amount of our settlement obligation for notes that had been converted was 4 million shares of our common stock.

Derivative Instruments with Hedge Accounting Designation

We utilize currency forward contracts that generally mature within two years 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 $6 million and $20 million in the third quarter and first nine months of 2020, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. The amounts for the third quarter and first nine months of 2019 were not significant. We recognized losses of $8 million and $10 million in the third quarter and first nine months of 2020, respectively, in cost of goods sold from the amounts excluded from hedge effectiveness. The amounts for the third quarter and first nine months of 2019 were not significant. The reclassifications from accumulated other comprehensive income to earnings were not significant in the third quarters or first nine months of 2020 or 2019. As of May 28, 2020, we expect to reclassify $18 million of losses related to cash flow hedges from accumulated other comprehensive income into earnings in the next 12 months.

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), net. For derivative instruments without hedge accounting designation, we recognized losses of $6 million in the third quarter of 2020, and losses of $23 million in the third quarter and first nine months of 2019. The amounts recognized in the first nine months of 2020 were not significant.

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.”) We recognized losses of $14 million in the first nine months of 2020 and gains of $11 million and losses of $55 million in the third quarter and first nine months of 2019, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations. The amounts recognized in the third quarter of 2020 were not significant.