Financial Instruments

The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates, and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include instruments that qualify and others that do not qualify for hedge accounting treatment.

Concentration of Credit Risk

We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and distribute contracts among several financial institutions to reduce the concentration of credit risk. We do not have credit-risk-related contingent features in our derivative instruments as of January 31, 2016. During 2015, our largest customer accounted for approximately 20% of consolidated net sales. We closely monitor credit risk associated with counterparties and customers.

Foreign Currency Exchange Risk

We are exposed to foreign currency exchange risk related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. Principal currencies hedged include the Canadian dollar, Australian dollar and U.S. dollar. We utilize foreign exchange forward purchase and sale contracts, as well as cross-currency swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. As of January 31, 2016, cross-currency swap contracts mature between 6 and 18 months. The notional amount of foreign exchange forward and cross-currency swap contracts accounted for as cash-flow hedges was $57 at January 31, 2016, and $53 at August 2, 2015. The effective portion of the changes in fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the Consolidated Statements of Earnings on the same line item and the same period in which the underlying hedged transaction affects earnings. The notional amount of foreign exchange forward and cross-currency swap contracts that are not designated as accounting hedges was $410 and $480 at January 31, 2016, and August 2, 2015, respectively.

Interest Rate Risk

We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. Receive fixed rate/pay variable rate interest rate swaps are accounted for as fair-value hedges. We manage our exposure to interest rate volatility on future debt issuances by entering into forward starting interest rate swaps to lock in the rate on the interest payments related to the anticipated debt issuances. These pay fixed rate/receive variable rate forward starting interest rate swaps are accounted for as cash-flow hedges. The effective portion of the changes in fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the Consolidated Statements of Earnings over the life of the debt. The notional amount of outstanding forward starting interest rate swaps totaled $300 at January 31, 2016, and August 2, 2015, which relates to an anticipated debt issuance in 2018.

Commodity Price Risk

We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, soybean oil, natural gas, aluminum, cocoa, butter, corn and cheese, which impact the cost of raw materials. Commodity futures, options, and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. There were no commodity contracts accounted for as cash-flow hedges as of January 31, 2016, or August 2, 2015. The notional amount of commodity contracts not designated as accounting hedges was $91 at January 31, 2016, and $95 at August 2, 2015.

Equity Price Risk

We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return of the Vanguard Institutional Index, and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either the total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. These contracts were not designated as hedges for accounting purposes. We enter into these contracts for periods typically not exceeding 12 months. The notional amount of the contracts as of January 31, 2016, and August 2, 2015, was $48 and $49, respectively.

The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of January 31, 2016, and August 2, 2015:



	Balance Sheet Classification	January 31, 2016		August 2, 2015
Asset Derivatives
Derivatives designated as hedges:
Foreign exchange forward contracts	Other current assets	$	2	$	3
Total derivatives designated as hedges		$	2	$	3
Derivatives not designated as hedges:
Commodity derivative contracts	Other current assets	$	1	$	1
Cross-currency swap contracts	Other current assets	22		18
Deferred compensation derivative contracts	Other current assets	2		1
Foreign exchange forward contracts	Other current assets	9		9
Cross-currency swap contracts	Other assets	30		22
Total derivatives not designated as hedges		$	64	$	51
Total asset derivatives		$	66	$	54



	Balance Sheet Classification	January 31, 2016		August 2, 2015
Liability Derivatives
Derivatives designated as hedges:
Forward starting interest rate swaps	Other liabilities	$	26	$	8
Total derivatives designated as hedges		$	26	$	8
Derivatives not designated as hedges:
Commodity derivative contracts	Accrued liabilities	$	10	$	10
Deferred compensation derivative contracts	Accrued liabilities	1		—
Foreign exchange forward contracts	Accrued liabilities	2		2
Total derivatives not designated as hedges		$	13	$	12
Total liability derivatives		$	39	$	20

We do not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if we were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheets as of January 31, 2016, and August 2, 2015, would be adjusted as detailed in the following table:



	January 31, 2016							August 2, 2015
Derivative Instrument	Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements			Net Amount		Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements			Net Amount
Total asset derivatives	$	66	$	(31	)	$	35	$	54	$	(13	)	$	41
Total liability derivatives	$	39	$	(31	)	$	8	$	20	$	(13	)	$	7

We do not offset fair value amounts recognized for exchange-traded commodity derivative instruments and cash margin accounts executed with the same counterparty that are subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of open positions. At January 31, 2016, and August 2, 2015, a cash margin account balance of $12 was included in Other current assets in the Consolidated Balance Sheets.

The following tables show the effect of our derivative instruments designated as cash-flow hedges for the three- and six-month periods ended January 31, 2016, and February 1, 2015, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:



		Total Cash-Flow Hedge OCI Activity
Derivatives Designated as Cash-Flow Hedges		January 31, 2016			February 1, 2015
Three Months Ended
OCI derivative gain (loss) at beginning of quarter		$	(20	)	$	(4	)
Effective portion of changes in fair value recognized in OCI:
Foreign exchange forward contracts		8			10
Forward starting interest rate swaps		(10		)	(42		)
Amount of (gain) loss reclassified from OCI to earnings:	Location in Earnings
Foreign exchange forward contracts	Cost of products sold	(4		)	—
Foreign exchange forward contracts	Other expenses / (income)	(1		)	(1		)
Forward starting interest rate swaps	Interest expense	1			1
OCI derivative gain (loss) at end of quarter		$	(26	)	$	(36	)

Six Months Ended
OCI derivative gain (loss) at beginning of year		$	(10	)	$	(4	)
Effective portion of changes in fair value recognized in OCI:
Foreign exchange forward contracts		8			13
Forward starting interest rate swaps		(18		)	(46		)
Amount of (gain) loss reclassified from OCI to earnings:	Location in Earnings
Foreign exchange forward contracts	Cost of products sold	(6		)	—
Foreign exchange forward contracts	Other expenses / (income)	(2		)	(1		)
Forward starting interest rate swaps	Interest expense	2			2
OCI derivative gain (loss) at end of quarter		$	(26	)	$	(36	)

Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a gain of $8. The ineffective portion and amount excluded from effectiveness testing were not material.

The following table shows the effects of our derivative instruments not designated as hedges in the Consolidated Statements of Earnings:



		Amount of Gain (Loss) Recognized in Earnings on Derivatives
Derivatives not Designated as Hedges	Location of Gain (Loss) Recognized in Earnings	Three Months Ended						Six Months Ended
Derivatives not Designated as Hedges	Location of Gain (Loss) Recognized in Earnings	January 31, 2016			February 1, 2015			January 31, 2016			February 1, 2015
Foreign exchange forward contracts	Cost of products sold	$	(1	)	$	(1	)	$	(1	)	$	—
Foreign exchange forward contracts	Other expenses / (income)	(1		)	—			(1		)	—
Cross-currency swap contracts	Other expenses / (income)	12			38			12			52
Commodity derivative contracts	Cost of products sold	(7		)	(13		)	(9		)	(18		)
Deferred compensation derivative contracts	Administrative expenses	—			1			—			3
Total		$	3		$	25		$	1		$	37