Derivative Financial Instruments

6 Months Ended

Aug. 01, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis. Note 4 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

As of August 1, 2020, and August 3, 2019, we were party to interest rate swaps with notional amounts totaling $1.5 billion. We pay a variable rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were perfectly effective during the three and six months ended August 1, 2020, and August 3, 2019.

As of August 1, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $250 million to hedge the interest rate exposure of anticipated future debt issuances. We designated these derivative financial instruments as cash flow hedges. We assess, both at inception and on an ongoing basis, whether the derivative financial instrument is highly effective in offsetting changes in cash flows of the hedged item and whether it is probable that the hedged forecasted transaction will occur. As of August 1, 2020, a $12 million loss was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense when the forecasted transaction affects earnings.

Effect of Hedges on Debt
(millions)	August 1, 2020		February 1, 2020		August 3, 2019
Long-term debt and other borrowings
Carrying amount of hedged debt	$	1,732	$	1,630	$	1,600
Cumulative hedging adjustments, included in carrying amount	239		137		108

Effect of Hedges on Net Interest Expense	Three Months Ended				Six Months Ended
(millions)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges	$	11	$	86	$	102	$	101
Hedged debt	(11)		(86)		(102)		(101)
Total	$	—	$	—	$	—	$	—