Derivative instruments and hedging activities

9 Months Ended

Oct. 29, 2011

Derivative instruments and hedging activities [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

3. Derivative instruments and hedging activities

We are exposed to market risk from potential changes in interest rates and foreign currency exchange rates. We regularly evaluate our exposure and enter into derivative financial instruments to economically manage these risks. We record all derivatives as either assets or liabilities on the Condensed Consolidated Balance Sheets measured at estimated fair value and we do not offset assets and liabilities with the same counterparty. We recognize the changes in fair value as unrealized gains and losses. The recognition of these gains and losses depends on our intended use of the derivatives and the resulting designation. In certain defined conditions, we may designate a derivative as a hedge for a particular exposure.

Interest Rate Contracts

We and our subsidiaries have a variety of fixed and variable rate debt instruments and are exposed to market risks resulting from interest rate fluctuations. We enter into interest rate swaps and/or caps to reduce our exposure to variability in expected future cash outflows and changes in the fair value of certain Long-term debt, attributable to the changes in LIBOR, EURIBOR, GBP LIBOR and TIBOR rates. Some of our interest rate contracts contain credit-risk related contingent features and are subject to master netting arrangements. As of October 29, 2011, our interest rate contracts have various maturity dates through September 2016. A portion of our interest rate swaps and caps as of October 29, 2011 are designated as cash flow and fair value hedges in accordance with Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging.”

The hedge accounting for a designated cash flow hedge requires that the effective portion be recorded to Accumulated other comprehensive income (loss); the ineffective portion of a cash flow hedge is recorded to Interest expense. We evaluate the effectiveness of our cash flow hedging relationships on an ongoing basis. For our derivatives that are designated as cash flow hedges, no material ineffectiveness was recorded for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010, respectively. Reclassifications from Accumulated other comprehensive income (loss) to Interest expense primarily relate to realized Interest expense on interest rate swaps and the amortization of gains (losses) recorded on previously terminated or de-designated swaps. We expect to reclassify a nominal amount of net losses over the next 12 months to Interest expense from Accumulated other comprehensive income (loss).

The hedge accounting for a designated fair value hedge requires that the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk be recognized in Interest expense. We evaluate the effectiveness of our fair value hedging relationship on an ongoing basis and recalculate the changes in fair values of the derivatives and the underlying hedged item separately. For our derivative that is designated as a fair value hedge, we recorded approximately a $1 million and $4 million gain in earnings related to ineffectiveness for the thirteen and thirty-nine weeks ended October 29, 2011, respectively.

Certain of our agreements with credit-risk related contingent features contain provisions where we could be declared in default on our derivative obligations if we default on certain specified indebtedness. Additionally, we had one agreement, which expired in December 2010, with a provision which required that we maintain an investment grade credit rating from each of the major credit rating agencies. As our ratings were below investment grade during this agreement, we were required to post collateral for this contract. At October 29, 2011, January 29, 2011 and October 30, 2010, derivative liabilities related to agreements that contain credit-risk related contingent features had a fair value of $9 million, $17 million and $19 million, respectively. As of October 30, 2010, we had a minimum collateral posting threshold with certain derivative counterparties and posted collateral of $7 million, which was recorded as Restricted cash on our Condensed Consolidated Balance Sheet. As of October 29, 2011 and January 29, 2011, respectively, we were not required to post collateral with any derivative counterparties.

Foreign Exchange Contracts

We occasionally enter into foreign currency forward contracts to economically hedge the U.S. dollar merchandise purchases of our foreign subsidiaries and our short-term, cross-currency intercompany loans with our foreign subsidiaries. We enter into these contracts in order to reduce our exposure to the variability in expected cash outflows attributable to changes in foreign currency rates. These derivative contracts are not designated as hedges and are recorded on our Condensed Consolidated Balance Sheets at fair value with a gain or loss recorded on the Condensed Consolidated Statements of Operations in Interest expense.

Our foreign exchange contracts typically mature within 12 months. Some of these contracts contain credit-risk related contingent features and are subject to master netting arrangements. Some of these agreements contain provisions where we could be declared in default on our derivative obligations if we default on certain specified indebtedness. At October 29, 2011, January 29, 2011 and October 30, 2010 derivative liabilities related to agreements that contain credit-risk related contingent features had a fair value of $1 million, $2 million and $5 million, respectively. We are not required to post collateral for these contracts.

The following table sets forth the net impact of the effective portion of derivatives designated as cash flow hedges on Accumulated other comprehensive income (loss) on our Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the thirty-nine weeks ended October 29, 2011 and October 30, 2010:

	39 Weeks Ended
(In millions)	October 29, 2011			October 30, 2010
Derivatives designated as cash flow hedges:
Beginning balance	$	—		$	(15	)
Derivative loss - Interest Rate Contracts	(1		)	(4		)
Gain (loss) reclassified from Accumulated other comprehensive income (loss) - effective portion - Interest Rate Contracts	—			17
	(1		)	13
Ending balance	$	(1	)	$	(2	)

The following table sets forth the impact of derivatives on Interest expense on our Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010:

	13 Weeks Ended						39 Weeks Ended
(In millions)	October 29, 2011			October 30, 2010			October 29, 2011			October 30, 2010
Derivatives not designated for hedge accounting:
Loss on the change in fair value - Interest Rate Contracts	$	—		$	(8	)	$	(1	)	$	(12	)
(Loss) gain on the change in fair value - Intercompany Loan
Foreign Exchange Contracts (1)	(9		)	2			(3		)	(8		)
Gain (loss) on the change in fair value - Merchandise Purchases
Program Foreign Exchange Contracts	6			(4		)	(7		)	4
	(3		)	(10		)	(11		)	(16		)
Derivatives designated as cash flow hedges:
Loss reclassified from Accumulated other comprehensive
income (loss) (effective portion) - Interest Rate Contracts	(1		)	(9		)	(1		)	(28		)
Gain amortized from terminated cash flow hedges - Interest
Rate Contracts	1			—			1			1
	—			(9		)	—			(27		)
Derivative designated as fair value hedge:
Amortization of swap basis adjustment - Interest Rate Contract	(1		)	—			(1		)	—
Gain on the change in fair value (ineffective portion) - Interest
Rate Contract	1			—			4			—
	—			—			3			—
Total Interest expense	$	(3	)	$	(19	)	$	(8	)	$	(43	)

⁽¹⁾  Gains and losses related to our short-term, intercompany loan foreign exchange contracts are recorded in Interest expense, in addition to the corresponding foreign exchange gains and losses related to our short-term, cross-currency intercompany loans.

The following table contains the notional amounts and the related fair values of our derivatives included within our Condensed Consolidated Balance Sheets as of October 29, 2011, January 29, 2011 and October 30, 2010:

	October 29, 2011					January 29, 2011					October 30, 2010
	Notional		Fair Value Assets/			Notional		Fair Value Assets/			Notional		Fair Value Assets/
(In millions)	Amount		(Liabilities)			Amount		(Liabilities)			Amount		(Liabilities)
Interest Rate Contracts designated as cash flow hedges:
Other assets	$	700	$	—		$	700	$	2		$	700	$	1
Other non-current liabilities	155		(2		)	143		(2		)	3		—
Interest Rate Contract designated as fair value hedge:
Other assets	$	350	$	12		$	—	$	—		$	—	$	—
Other non-current liabilities	—		—			350		(5		)	—		—
Interest Rate Contracts not designated for hedge accounting:
Other assets	$	1,611	$	1		$	1,611	$	4		$	1,611	$	2
Accrued expenses and other current liabilities	—		—			—		—			1,300		(4		)
Other non-current liabilities	362		(9		)	353		(10		)	361		(15		)
Foreign Currency Contracts not designated for hedge accounting:
Prepaid expenses and other current assets	$	180	$	4		$	81	$	—		$	34	$	1
Accrued expenses and other current liabilities	241		(7		)	210		(2		)	292		(5		)
Total derivative contracts outstanding
Prepaid expenses and other current assets	$	180	$	4		$	81	$	—		$	34	$	1
Other assets	2,661		13			2,311		6			2,311		3
Total derivative assets(1)	$	2,841	$	17		$	2,392	$	6		$	2,345	$	4
Accrued expenses and other current liabilities	$	241	$	(7	)	$	210	$	(2	)	$	1,592	$	(9	)
Other non-current liabilities	517		(11		)	846		(17		)	364		(15		)
Total derivative liabilities(1)	$	758	$	(18	)	$	1,056	$	(19	)	$	1,956	$	(24	)

⁽¹⁾  Refer to Note 4 entitled “Fair value measurements” for the fair value of our derivative instruments classified within the fair value hierarchy.