Derivative Instruments (Notes)

12 Months Ended

Jan. 28, 2017

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 and interest rate swaps. Our objective in holding derivatives is to reduce the volatility of net earnings, cash flows and net asset value associated with changes in foreign currency exchange rates and interest 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 financial institutions with investment grade credit ratings as our counterparties.

We record all derivative instruments on our Consolidated Balance Sheet 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 a portion of 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. 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 January 28, 2017, and January 30, 2016:

	January 28, 2017				January 30, 2016
Contract Type	Assets		Liabilities		Assets		Liabilities
Derivatives designated as net investment hedges(1)	$	2	$	2	$	15	$	1
Derivatives designated as interest rate swaps(2)	13		—		25		—
No hedge designation (foreign exchange forward contracts)(1)	—		1		3		—
Total	$	15	$	3	$	43	$	1

(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 fiscal 2017 and 2016:

	2017					2016
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	$	(14	)	$	—	$	21	$	—

The following table presents the effects of derivatives on our Consolidated Statements of Earnings for fiscal2017and2016:

	Gain (Loss) Recognized within SG&A
Contract Type	2017			2016
No hedge designation (foreign exchange forward contracts)	$	(3	)	$	4

The following table presents the effects of interest rate derivatives on our Consolidated Statements of Earnings for fiscal 2017 and 2016:

	Gain (Loss) Recognized within Interest Expense
Contract Type	2017			2016
Interest rate swap gain (loss)	$	(12	)	$	23
Adjustments to carrying value of long-term debt	12			(23		)
Net impact on consolidated statement of earnings	$	—		$	—

The following table presents the notional amounts of our derivative instruments at January 28, 2017, and January 30, 2016:

	Notional Amount
Contract Type	January 28, 2017		January 30, 2016
Derivatives designated as net investment hedges	$	205	$	208
Derivatives designated as interest rate swaps	750		750
No hedge designation (foreign exchange forward contracts)	43		94
Total	$	998	$	1,052