Derivative Instruments

12 Months Ended

Sep. 03, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]


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

As of September 3, 2020
Derivative instruments with hedge accounting designation
Cash flow currency hedges	$	1,845	$	41	$	(2)

Derivative instruments without hedge accounting designation
Non-designated currency hedges	1,587		4		(1)
			$	45	$	(3)

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 and other noncurrent assets.

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

⁽³⁾As of August 29, 2019, the notional amount of 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 gains of $51 million and losses of $3 million and $17 million for 2020, 2019, and 2018, respectively, in accumulated other comprehensive income from cash flow hedges. The reclassifications from accumulated other comprehensive income to earnings were not significant in 2020, 2019, or 2018. As of September 3, 2020, we expect to reclassify $24 million of pre-tax gains 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 gains of $21 million, and losses of $32 million and $38 million for 2020, 2019, and 2018, respectively.

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, $58 million, and $124 million for 2020, 2019 and 2018, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations.

Derivative Counterparty Credit Risk and Master Netting Arrangements

Our derivative instruments expose us to credit risk to the extent counterparties may be unable to meet the terms of the contracts. Our maximum exposure to loss due to credit risk if counterparties fail completely to perform according to the terms of the contracts would generally equal the fair value of assets for these contracts as listed in the tables above. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple financial institutions. As of September 3, 2020 and August 29, 2019, amounts netted under our master netting arrangements were not material.