Debt and Derivative Instruments

3 Months Ended

May 03, 2020

Debt Disclosure [Abstract]

Debt and Derivative Instruments

DEBT AND DERIVATIVE INSTRUMENTS

Short-Term Debt

In March 2020, we expanded our commercial paper programs from $3.0 billion to $6.0 billion. All of our short-term borrowings in the first three months of fiscal 2020 were under these commercial paper programs, and the maximum amount outstanding at any time was $1.0 billion. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings up to $6.5 billion, which consist of (1) a 364-day $3.5 billion credit facility that was entered into in March 2020 in connection with the expanded commercial paper program and is scheduled to expire in March 2021, (2) a five-year $2.0 billion credit facility scheduled to expire in December 2022, and (3) a 364-day $1.0 billion credit facility scheduled to expire in December 2020.

Long-Term Debt

March 2020 Issuance. In March 2020, we issued four tranches of senior notes.

•The first tranche consisted of $750 million of 2.50% senior notes due April 15, 2027 (the “2027 notes”) at a discount of $4 million. Interest on the 2027 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.

•The second tranche consisted of $1.5 billion of 2.70% senior notes due April 15, 2030 (the “2030 notes”) at a discount of $8 million. Interest on the 2030 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.

•The third tranche consisted of $1.25 billion of 3.30% senior notes due April 15, 2040 (the "2040 notes") at a discount of $11 million. Interest on the 2040 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.

•The fourth tranche consisted of $1.5 billion of 3.35% senior notes due April 15, 2050 (the "2050 notes") at a discount of $17 million (together with the 2027 notes, the 2030 notes and the 2040 notes, the "March 2020 issuance"). Interest on the 2050 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.

•Issuance costs totaled $36 million. The net proceeds of the March 2020 issuance will be used for general corporate purposes, including the repayment of outstanding senior notes maturing in June and September 2020.

Redemption. The 2027 notes, 2030 notes, 2040 notes and 2050 notes may be redeemed by us at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. The redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Par Call Date, as defined in the respective notes. Additionally, if a Change in Control Triggering Event, as defined in the notes, occurs, holders of all notes have the right to require us to redeem those notes at 101% of the aggregate principal amount of the notes plus accrued interest up to the redemption date. We are generally not limited under the indentures governing the notes in our ability to incur additional indebtedness or required to maintain financial ratios or specified levels of net worth or liquidity. The indentures governing the notes contain various customary covenants; however, none are expected to impact our liquidity or capital resources.

Derivative Instruments

We use derivative and nonderivative financial instruments in the management of our exposure to fluctuations in foreign currency exchange rates and interest rates on certain long-term debt.

We had outstanding interest rate swap agreements with combined notional amounts of $2.1 billion at May 3, 2020 and February 2, 2020. These agreements were accounted for as fair value hedges that swap fixed for variable rate interest to hedge changes in the fair values of certain senior notes. The fair values of these agreements were $244 million at May 3, 2020 and $120 million at February 2, 2020.

We had outstanding foreign currency forward contracts during the quarter, accounted for as cash flow hedges, which hedge the variability of forecasted cash flows associated with certain payments made in our foreign operations. At May 3, 2020 and February 2, 2020, the notional amounts and the fair values of these agreements were not material.

We had outstanding foreign currency forward contracts accounted for as net investment hedges, with a combined notional amount of $1.2 billion at February 2, 2020. These agreements hedged against foreign currency exposure on our net investment in certain subsidiaries. At February 2, 2020, the fair values of these agreements were not material. These foreign currency forward contracts settled during the first quarter of fiscal 2020, resulting in an immaterial gain.

In addition to our forward contracts, we also hedge a portion of our foreign currency risk by designating nonderivative foreign-currency-denominated intercompany debt as hedges of our net investment in certain of our foreign operations. We had outstanding intercompany debt with a combined notional value of $1.2 billion as of May 3, 2020 that was designated as hedges of our net investment in our foreign operations. During the quarter, approximately $75 million of foreign currency gains associated with this debt were recorded as foreign currency translation adjustments in accumulated other comprehensive income (loss). As of February 2, 2020, the notional value of our nonderivative hedges and related foreign currency translation adjustments were immaterial.

We generally enter into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit credit risk, we enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain derivative instruments exceeds or falls below contractually established thresholds. Derivative assets and derivative liabilities are presented at their gross fair values in the Consolidated Balance Sheets. As of May 3, 2020, the cash collateral received by the Company related to derivative instruments under our collateral security arrangements was $157 million, which was recorded in other current liabilities in the Consolidated Balance Sheets. We did not receive any cash collateral as of February 2, 2020 or have any cash collateral posted with counterparties as of May 3, 2020 or February 2, 2020.