Derivative Instruments

9 Months Ended

Jun. 03, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]


	Notional or Contractual Amount		Fair Value of
			Assets(1)		Liabilities(2)

As of June 3, 2021
Derivative instruments with hedge accounting designation
Cash flow currency hedges	$	3,842	$	30	$	(65)
Cash flow commodity hedges	41		3		—
Fair value interest rate hedges	900		—		(2)

Derivative instruments without hedge accounting designation
Non-designated currency hedges	877		1		(1)
Convertible notes settlement obligation	3		—		(25)
			$	34	$	(93)

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)

(1)Included in receivables – other and other noncurrent assets.

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

Derivative Instruments with Hedge Accounting Designation

Cash Flow Hedges: We utilize forward and swap contracts that generally mature within two years designated as cash flow hedges for our exposure to changes in currency exchange rates or commodity prices for certain capital expenditures and manufacturing costs. Forward and swap contracts are measured at fair value based on market-based observable inputs including market spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes. We recognized losses of $25 million and $8 million for the third quarter and first nine months of 2021, respectively, and losses of $6 million and $20 million for the third quarter and first nine months of 2020, respectively, in accumulated other comprehensive income from cash flow hedges. We recognized losses of $11 million and $10 million for the first nine months of 2021 and 2020, respectively, in cost of goods sold related to the amounts excluded from hedge effectiveness testing. The amounts for the third quarters of 2021 and 2020 were not significant. We reclassified $20 million and $30 million of gains for the third quarter and first nine months of 2021, respectively, from accumulated other comprehensive income to earnings, primarily to cost of goods sold. The amounts for the third quarter and first nine months of 2020 were not significant. As of June 3, 2021, we expect to reclassify $18 million of pre-tax gains related to cash flow hedges from accumulated other comprehensive income into earnings in the next 12 months. Substantially all of the cash flow hedging relates to foreign currency contracts for all periods presented, the commodity hedges had an immaterial impact.

Fair Value Hedges: We utilize fixed-to-floating interest rate swaps designated as fair value hedges to minimize certain exposures to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates. Interest rate swaps are measured at fair value based on market-based observable inputs including interest rates and credit-risk spreads (Level 2). The changes in the fair values of derivatives designated as fair value hedges and the offsetting changes in the fair values of the hedged items are recognized in earnings. Any difference is reflected in earnings. When a derivative is no longer designated as a fair value hedge for any reason, including termination and maturity, the remaining unamortized difference between the carrying value of the hedged item at that time and the face value of the hedged item is amortized to earnings over the remaining life of the hedged item, or immediately if the hedged item has matured or been extinguished. The effects of fair value hedges on our

consolidated statements of operations, recognized in interest expense, were not significant for the periods presented.

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. Gains and losses for derivative instruments without hedge accounting designation were not significant for the periods presented.