Derivative Instruments

3 Months Ended

Dec. 01, 2016

Derivative Instrument Detail [Abstract]

Derivative 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 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. In addition, to mitigate the risk of the yen strengthening against the U.S. dollar on MMJ creditor installment payments due in December 2017 and 2018, we entered into forward contracts to purchase 18 billion yen on December 1, 2017 and 28 billion yen on December 3, 2018. 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).

In connection with the Inotera Acquisition, we borrowed 80 billion New Taiwan dollars. To hedge our currency exposure of this borrowing, in December 2016, subsequent to the end of our first quarter of 2017, we entered into a series of currency forward contracts to purchase an aggregate of 80 billion New Taiwan dollars under a rolling hedge strategy. The forward contracts expire at various dates through June 2017.

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 and liabilities:

	Notional Amount (in U.S. Dollars)		Fair Value
			Current Liabilities(1)			Noncurrent Liabilities(2)
As of December 1, 2016
Yen	$	1,396	$	(18	)	$	(4	)
Singapore dollar	204		(1		)	—
Euro	175		—			—
Other	48		(1		)	—
	$	1,823	$	(20	)	$	(4	)
As of September 1, 2016
Yen	$	1,668	$	(10	)	$	—
Singapore dollar	206		—			—
Euro	93		—			—
Other	85		(1		)	—
	$	2,052	$	(11	)	$	—

⁽¹⁾  Included in accounts payable and accrued expenses – other.

⁽²⁾  Included in other noncurrent liabilities.

Realized and unrealized gains and losses on derivative instruments 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 losses for foreign exchange contracts without hedge accounting designation were $178 million and $21 million for the first quarters of 2017 and 2016, respectively.

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 rates, and credit-risk spreads (Level 2).

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 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). 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
			Current Assets(1)		Current Liabilities(2)
As of December 1, 2016
Yen	$	62	$	—	$	(6	)
Euro	10		—		(1		)
	$	72	$	—	$	(7	)
As of September 1, 2016
Yen	$	107	$	2	$	(1	)
Euro	65		—		(1		)
	$	172	$	2	$	(2	)

⁽¹⁾  Included in receivables – other.

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

For the first quarters of 2017 and 2016, we recognized losses of $9 million and $4 million, respectively, in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income (expense) were not material in the first quarters of 2017 and 2016. For the first quarter of 2016, we reclassified gains of $1 million from accumulated other comprehensive income (loss) to earnings. As of December 1, 2016, $2 million of net gains from cash flow hedges included in accumulated other comprehensive income (loss) is expected to be reclassified into earnings in the next 12 months.