Derivative Financial Instruments

6 Months Ended

Jul. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We use derivative financial instruments to manage our exposure to foreign currency exchange rate risk and do not enter into derivative financial contracts for trading purposes. Consistent with our risk management guidelines, we hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. These contracts are entered into with large, reputable, financial institutions that are monitored for counterparty risk. The currencies hedged against changes in the U.S. dollar are Canadian dollar, Japanese yen, British pound, Euro, Mexican peso, Taiwan dollar, and Chinese yuan. Cash flows from derivative financial instruments are classified as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

Cash Flow Hedges

We designate the following foreign exchange forward contracts as cash flow hedges: (1) forward contracts used to hedge forecasted merchandise purchases and related costs denominated in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies; and (2) forward contracts used to hedge forecasted intercompany revenue transactions related to merchandise sold from our regional purchasing entity, whose functional currency is the U.S. dollar, to certain international subsidiaries in their local currencies. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs, and intercompany revenue transactions generally have terms of up to 24 months. The effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income and is recognized into net income (loss) during the period in which the underlying transaction impacts the Condensed Consolidated Statements of Operations.

Other Derivatives Not Designated as Hedging Instruments

We use foreign exchange forward contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance. The gain or loss on the derivative financial instruments that represent economic hedges, as well as the remeasurement impact of the underlying intercompany balances, is recorded in operating expenses on the Condensed Consolidated Statements of Operations in the same period and generally offset each other.

Outstanding Notional Amounts

We had foreign exchange forward contracts outstanding in the following notional amounts:


($ in millions)	July 31, 2021		January 30, 2021		August 1, 2020
Derivatives designated as cash flow hedges	$	673	$	508	$	214
Derivatives not designated as hedging instruments	733		811		727
Total	$	1,406	$	1,319	$	941

Quantitative Disclosures about Derivative Financial Instruments

The fair values of foreign exchange forward contracts are as follows:


($ in millions)	July 31, 2021		January 30, 2021		August 1, 2020
Derivatives designated as cash flow hedges:
Other current assets	$	3	$	—	$	3

Accrued expenses and other current liabilities	10		12		1
Other long-term liabilities	1		—		—







Derivatives not designated as hedging instruments:
Other current assets	6		5		3
Accrued expenses and other current liabilities	5		9		18

Total derivatives in an asset position	$	9	$	5	$	6
Total derivatives in a liability position	$	16	$	21	$	19

The majority of the unrealized gains and losses from designated cash flow hedges as of July 31, 2021 will be recognized into net income within the next twelve months at the then-current values, which may differ from the fair values as of July 31, 2021 shown above.

Our foreign exchange forward contracts are subject to master netting arrangements with each of our counterparties and such arrangements are enforceable in the event of default or early termination of the contract. We do not elect to offset the fair values of our derivative financial instruments on the Condensed Consolidated Balance Sheets, and as such, the fair values shown above represent gross amounts. The amounts subject to enforceable master netting arrangements were not material for all periods presented.

See Note 4 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.

The pre-tax amounts recognized in net income (loss) related to derivative instruments are as follows:


	Location and Amount of (Gain) Loss Recognized in Net Income (Loss)
	13 Weeks Ended July 31, 2021				13 Weeks Ended August 1, 2020
($ in millions)	Cost of goods sold and occupancy expenses		Operating expenses		Cost of goods sold and occupancy expenses		Operating expenses
Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded	$	2,388	$	1,414	$	2,126	$	1,076

(Gain) loss recognized in net income (loss)
Derivatives designated as cash flow hedges	6		—		(7)		—

Derivatives not designated as hedging instruments	—		(6)		—		32
Total (gain) loss recognized in net income (loss)	$	6	$	(6)	$	(7)	$	32


	Location and Amount of (Gain) Loss Recognized in Net Income (Loss)
	26 Weeks Ended July 31, 2021				26 Weeks Ended August 1, 2020
($ in millions)	Cost of goods sold and occupancy expenses		Operating expenses		Cost of goods sold and occupancy expenses		Operating expenses
Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded	$	4,749	$	2,804	$	3,965	$	2,588

(Gain) loss recognized in net income (loss)
Derivatives designated as cash flow hedges	9		—		(11)		—

Derivatives not designated as hedging instruments	—		5		—		(11)
Total (gain) loss recognized in net income (loss)	$	9	$	5	$	(11)	$	(11)