Derivative Instruments

12 Months Ended

Sep. 02, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]


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

As of September 2, 2021
Derivative instruments with hedge accounting designation
Cash flow currency hedges	$	3,601	$	10	$	(66)
Cash flow commodity hedges	45		2		—
Fair value interest rate hedges	900		5		—

Derivative instruments without hedge accounting designation
Non-designated currency hedges	996		3		(2)
			$	20	$	(68)

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 $52 million and gains of $51 million for 2021 and 2020, respectively, in accumulated other comprehensive income from cash flow hedges. The amounts recognized in 2019 were not significant. We recognized losses of $14 million in 2021 in cost of goods sold related to the amounts excluded from hedge effectiveness testing. The amounts recognized in 2020 and 2019 were not significant. We reclassified $41 million of gains in 2021 from accumulated other comprehensive income to earnings, primarily to cost of goods sold. The reclassifications were not significant in 2020 or 2019. As of September 2, 2021, we expect to reclassify $12 million of pre-tax losses 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, and 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 underlying fair values of the hedged items are both recognized 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. For derivative instruments without hedge accounting designation, we recognized gains of $21 million and losses of $32 million for 2020 and 2019, respectively. The amounts recognized in 2021 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 $14 million and $58 million for 2020 and 2019, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations. The amounts recognized in 2021 were not significant.

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 2, 2021 and September 3, 2020, amounts netted under our master netting arrangements were not significant.