Derivative Instruments (Notes)

3 Months Ended

May 02, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

We manage our economic and transaction exposure to certain risks through the use of foreign currency derivative instruments. Our objective in holding these derivatives is to reduce the volatility of net earnings and cash flows, as well as net asset value associated with changes in foreign currency exchange rates. We do not hold derivative instruments for trading or speculative purposes. We have no derivatives that have credit risk-related contingent features, and we mitigate our credit risk by engaging with major financial institutions as our counterparties.

We record all foreign currency derivative instruments on our Condensed Consolidated Balance Sheets at fair value and evaluate hedge effectiveness prospectively and retrospectively when electing to apply hedge accounting. We formally document all hedging relations at inception for derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transaction. In addition, we have derivatives which are not designated as hedging instruments.

Net Investment Hedges

We use foreign exchange forward contracts to hedge against the effect of Canadian dollar exchange rate fluctuations on a portion of our net investment in our Canadian operations. The contracts have terms up to 12 months. For a net investment hedge, we recognize changes in the fair value of the derivative as a component of foreign currency translation within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. We limit recognition in net earnings of amounts previously recorded in other comprehensive income to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. We report the ineffective portion of the gain or loss, if any, in net earnings.

Interest Rate Swaps

We use "receive fixed-rate, pay variable-rate" interest rate swaps to mitigate the effect of interest rate fluctuations on our 2018 Notes and 2021 Notes. Our interest rate swap contracts are considered perfect hedges because the critical terms and notional amounts match those of our fixed-rate debt being hedged and are therefore accounted as a fair value hedge using the shortcut method. Under the shortcut method, we recognize the change in the fair value of the derivatives with an offsetting change to the carrying value of the debt. Accordingly, there is no impact on our Consolidated Statements of Earnings from the fair value of the derivatives.

Derivatives Not Designated as Hedging Instruments

We use foreign currency forward contracts to manage the impact of fluctuations in foreign currency exchange rates relative to recognized receivable and payable balances denominated in non-functional currencies and on certain forecast inventory purchases denominated in non-functional currencies. The contracts generally have terms of up to 12 months. These derivative instruments are not designated in hedging relationships and, therefore, we record gains and losses on these contracts directly to net earnings.

Summary of Derivative Balances

The following table presents the gross fair values for outstanding derivative instruments and the corresponding classification at May 2, 2015, January 31, 2015 and May 3, 2014:

	May 2, 2015				January 31, 2015				May 3, 2014
Contract Type	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Derivatives designated as net investment hedges(1)	$	8	$	2	$	19	$	—	$	—	$	—
Derivatives designated as interest rate swaps(2)	7		2		1		—		—		—
No hedge designation (foreign exchange forward contracts)(1)	5		3		11		—		—		8
Total	$	20	$	7	$	31	$	—	$	—	$	8

(1) The fair value is recorded in other current assets or accrued liabilities.

(2) The fair value is recorded in other assets or long-term liabilities.

The following table presents the effects of derivative instruments on Other Comprehensive Income ("OCI") and on our Consolidated Statements of Earnings for the first quarter of fiscal 2016 and 2015:

	Three Months Ended					Three Months Ended
	May 2, 2015					May 3, 2014
Contract Type	Pre-tax Gain(Loss) Recognized in OCI			Gain(Loss) Reclassified from Accumulated OCI to Earnings (Effective Portion)		Pre-tax Gain(Loss) Recognized in OCI		Gain(Loss) Reclassified from Accumulated OCI to Earnings (Effective Portion)
Derivatives designated as net investment hedges	$	(9	)	$	—	$	—	$	—

The following tables present the effects of derivative instruments on our Consolidated Statements of Earnings for the first quarter of fiscal 2016 and 2015:

	Gain (Loss) Recognized within SG&A
	Three Months Ended			Three Months Ended
Contract Type	May 2, 2015			May 3, 2014
No hedge designation (foreign exchange forward contracts)	$	(5	)	$	(3	)

	Gain (Loss) Recognized within Interest Expense
	Three Months Ended			Three Months Ended
Contract Type	May 2, 2015			May 3, 2014
Interest rate swap gain	$	4		$	—
Long-term debt loss	(4		)	—
Net impact on Consolidated Statements of Earnings	$	—		$	—

The following table presents the notional amounts of our derivative instruments at May 2, 2015, January 31, 2015 and May 3, 2014:

	Notional Amount
Contract Type	May 2, 2015		January 31, 2015		May 3, 2014
Derivatives designated as net investment hedges	$	222	$	197	$	—
Derivatives designated as interest rate swaps	750		145		—
No hedge designation (foreign exchange forward contracts)	199		212		131
Total	$	1,171	$	554	$	131