Derivative Instruments

We manage our economic and transaction exposure to certain risks by using 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 Sheets at fair value and evaluate hedge effectiveness prospectively or 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 of 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 gains and losses, if any, related to the amount excluded from the assessment of hedge effectiveness in net earnings.

Interest Rate Swaps

We utilized "receive fixed-rate, pay variable-rate" interest rate swaps to mitigate the effect of interest rate fluctuations on our 2018 Notes, prior to their maturity, and currently have swaps outstanding on our 2021 Notes and 2028 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 for as fair value hedges 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 of our outstanding derivative instruments and the corresponding classification at February 2, 2019, and February 3, 2018 ($ in millions):



		Assets
Contract Type	Balance Sheet Location	February 2, 2019		February 3, 2018
Derivatives designated as net investment hedges	Other current assets	$	—	$	2
Derivatives designated as interest rate swaps	Other assets	26		—
Total		$	26	$	2



		Liabilities
Contract Type	Balance Sheet Location	February 2, 2019		February 3, 2018
Derivatives designated as net investment hedges	Accrued liabilities	$	—	$	7
Derivatives designated as interest rate swaps	Accrued liabilities and Long-term liabilities	1		5
No hedge designation (foreign exchange forward contracts)	Accrued liabilities	—		1
Total		$	1	$	13

The following table presents the effects of derivative instruments on other comprehensive income ("OCI") for fiscal 2019 and fiscal 2018 ($ in millions):



Derivatives designated as net investment hedges	2019		2018
Pre-tax gain (loss) recognized in OCI	$	21	$	(14	)

The following table presents the effects of derivatives not designated as hedging instruments on our Consolidated Statements of Earnings for fiscal 2019 and fiscal 2018 ($ in millions):



		Gain (Loss) Recognized
Contract Type	Statement of Earnings Location	2019		2018
No hedge designation (foreign exchange contracts)	SG&A	$	4	$	(3	)

The following table presents the effects of interest rate derivatives and adjustments to the carrying value of long-term debt on our Consolidated Statements of Earnings for fiscal 2019 and fiscal 2018 ($ in millions):



		Gain (Loss) Recognized
Contract Type	Statement of Earnings Location	2019			2018
Interest rate swap contracts	Interest expense	$	31		$	(18	)
Adjustments to carrying value of long-term debt	Interest expense	(31		)	18
Total		$	—		$	—

The following table presents the notional amounts of our derivative instruments at February 2, 2019, and February 3, 2018 ($ in millions):



	Notional Amount
Contract Type	February 2, 2019		February 3, 2018
Derivatives designated as net investment hedges	$	15	$	462
Derivatives designated as interest rate swap contracts	1,150		1,150
No hedge designation (foreign exchange forward contracts)	9		33
Total	$	1,174	$	1,645