DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Jan. 28, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

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 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 or 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 and TIBOR. As of January 28, 2017, we had two interest rate caps which are designated as cash flow hedges in accordance with ASC 815.

The hedge accounting for a designated cash flow hedge requires that the effective portion be recorded to Accumulated other comprehensive 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 fiscals 2016, 2015 and 2014, respectively. Reclassifications from Accumulated other comprehensive loss to Interest expense primarily relate to realized Interest expense on interest rate swaps and caps and the amortization of gains recorded on de-designated caps. We expect to reclassify a net loss of less than $1 million in fiscal 2017 to Interest expense from Accumulated other comprehensive 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 change in the fair value of the derivative and the underlying hedged item separately. During fiscals 2016 and 2015, we held no interest rate contracts which were designated for fair value hedging. During fiscal 2014, the $350 million notional amount interest rate swap that we designated as a fair value hedge failed to meet the effectiveness assessment thresholds required to qualify for hedge accounting. In conjunction with the de-designation of the fair value hedge, we no longer adjusted the hedged debt for changes in fair value attributable to changes in the benchmark interest rate. We extinguished the previously hedged debt and recognized a $4 million gain in Interest expense. The associated interest rate swap, which was originally scheduled to expire in September 2016, was terminated on November 26, 2014. As a result, we received cash proceeds of $10 million, which included $1 million of accrued interest receivable.

The following table presents our outstanding interest rate contracts as of January 28, 2017 and January 30, 2016:

			January 28, 2017		January 30, 2016
(In millions)	Effective Date	Maturity Date	Notional Amount		Notional Amount
Interest Rate Caps
3 Month EURIBOR Interest Rate Cap (1)	February 2013	February 2018	$	49	$	50
1 Month USD LIBOR Interest Rate Cap (1)(2)	November 2016	November 2019	511		—

(1) These derivatives were designated for hedge accounting.

(2) On October 31, 2016, in connection with the Propco II Mortgage Loan, TRU Propco II entered into an interest rate cap agreement maturing on November 15, 2019, capping LIBOR at 2.50%, with an initial notional amount of $512 million which amortizes in conjunction with the principal of the Propco II Mortgage Loan.

Foreign Exchange Contracts

We enter into foreign currency forward contracts to economically hedge the USD merchandise purchases of our foreign subsidiaries and our short-term, cross-currency intercompany loans with and between 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 Consolidated Balance Sheets at fair value with a gain or loss recorded on the 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 which provide that we could be declared in default on our derivative obligations if we default on certain specified indebtedness. As of January 28, 2017, derivative liabilities related to agreements that contain credit-risk related contingent features had fair values of $1 million. As of January 30, 2016, there were no foreign exchange derivative liabilities related to agreements that contain credit-risk related contingent features. We were not required to post collateral for any of these derivative contracts.

The following table presents our outstanding foreign exchange contracts as of January 28, 2017 and January 30, 2016:

			January 28, 2017		January 30, 2016
(In millions)	Effective Date	Maturity Date	Notional  Amount		Notional  Amount
Foreign-Exchange Forwards
Intercompany loans	Varies	Varies	$	210	$	128
Merchandise purchases	Varies	Varies	245		18

The following table sets forth the net impact of the effective portion of derivatives designated as cash flow hedges on Accumulated other comprehensive loss on our Consolidated Statements of Stockholders’ Deficit for the fiscal years ended January 28, 2017, January 30, 2016 and January 31, 2015:

	Fiscal Years Ended
(In millions)	January 28, 2017		January 30, 2016		January 31, 2015
Derivatives designated as cash flow hedges:
Beginning balance	$	1	$	—	$	(1	)
Change in fair value recognized in Accumulated other comprehensive loss - Interest Rate Contracts	1		—		—
Reclassifications from Accumulated other comprehensive loss - Interest Rate Contracts	—		1		1
Ending balance	$	2	$	1	$	—

The following table sets forth the impact of derivatives on Interest expense on our Consolidated Statements of Operations for the fiscal years ended January 28, 2017, January 30, 2016 and January 31, 2015:

	Fiscal Years Ended
(In millions)	January 28, 2017		January 30, 2016			January 31, 2015
Derivatives not designated for hedge accounting:
Loss on the change in fair value - Interest Rate Contracts	$	—	$	—		$	(2	)
Loss on the change in fair value - Intercompany Loan Foreign Exchange Contracts (1)	—		(5		)	(9		)
Gain on the change in fair value - Merchandise Purchases Program Foreign Exchange Contracts	2		9			9
	2		4			(2		)
Derivatives designated as cash flow hedges:
Amortization of hedged Interest Rate Contracts	—		(1		)	(2		)
	—		(1		)	(2		)
Derivative designated as a fair value hedge:
Loss on the change in fair value - Interest Rate Contract	—		—			(2		)
Gain recognized in Interest expense on hedged item	—		—			2
	—		—			—
Total Interest expense	$	2	$	3		$	(4	)

(1) 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. For further details related to gains and losses resulting from foreign currency transactions, refer to Note 1 entitled “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.”

The following table contains the notional amounts and related fair values of our derivatives included within our Consolidated Balance Sheets as of January 28, 2017 and January 30, 2016:

	January 28, 2017					January 30, 2016
(In millions)	Notional Amount		Fair Value Assets/ (Liabilities)			Notional Amount		Fair Value Assets/ (Liabilities)
Interest Rate Contracts designated as cash flow hedges:
Other assets	$	560	$	1		$	50	$	—
Foreign Currency Contracts not designated for hedge accounting:
Prepaid expenses and other current assets	229		7			53		1
Accrued expenses and other current liabilities	226		(2		)	93		—
Total derivative contracts outstanding:
Prepaid expenses and other current assets	229		7			53		1
Other assets	560		1			50		—
Total derivative assets (1)	$	789	$	8		$	103	$	1
Accrued expenses and other current liabilities	226		(2		)	93		—
Total derivative liabilities (1)	$	226	$	(2	)	$	93	$	—

(1) Refer to Note 4 entitled “FAIR VALUE MEASUREMENTS” for the classification of our derivative instruments within the fair value hierarchy.