Derivative Financial Instruments

9 Months Ended

Oct. 27, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. Our risk management policy is to hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. The principal currencies hedged against changes in the U.S. dollar are the Euro, British pound, Japanese yen, and Canadian dollar. We do not enter into derivative financial contracts for trading purposes. Cash flows from derivative financial instruments are classified as cash flows from operating activities in 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 primarily in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies; (2) forward contracts used to hedge forecasted intercompany royalty payments denominated in Japanese yen and Canadian dollars received by entities whose functional currencies are U.S. dollars; and (3) 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 of Euro and British pounds. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs, intercompany royalty payments, and intercompany revenue transactions generally have terms of up to 18 months.

During the thirteen weeks ended April 30, 2011, we entered into and settled treasury rate lock agreements in anticipation of issuing the 5.95 percent fixed-rate Notes of $1.25 billion in April 2011. Prior to the issuance of the Notes, we were subject to changes in interest rates, and we therefore locked into fixed-rate coupons to hedge against the interest rate fluctuations. The gain related to the treasury rate lock agreements is reported as a component of other comprehensive income (“OCI”) and is recognized in income over the life of the Notes.

There were no material amounts recorded in the Condensed Consolidated Statements of Income for the thirteen and thirty-nine weeks endedOctober 27, 2012 or October 29, 2011 as a result of hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or the discontinuance of cash flow hedges because the forecasted transactions were no longer probable.

Net Investment Hedges

We also use foreign exchange forward contracts to hedge the net assets of international subsidiaries to offset the foreign currency translation and economic exposures related to our investment in the subsidiaries.

There were no amounts recorded in the Condensed Consolidated Statements of Income for the thirteen and thirty-nine weeks endedOctober 27, 2012 or October 29, 2011 as a result of hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or the discontinuance of net investment hedges.

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, as well as the remeasurement of the underlying intercompany balances, is recorded in operating expenses in the Condensed Consolidated Statements of Income in the same period and generally offset. We generally enter into foreign exchange forward contracts as needed to hedge intercompany balances that bear foreign exchange risk.

Outstanding Notional Amounts

As of October 27, 2012, January 28, 2012, and October 29, 2011, we had foreign exchange forward contracts outstanding in the following notional amounts:

(notional amounts in millions)	October 27, 2012		January 28, 2012		October 29, 2011
U.S. dollars (1)	$	1,091	$	873	$	1,042
British pounds	£	9	£	31	£	41
Japanese yen	¥	945	¥	2,564	¥	6,238
Euro	€	26	€	16	€	—

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(1) The principal currencies hedged against changes in the U.S. dollar were the Euro, British pound, Japanese yen, and Canadian dollar.

Contingent Features

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of October 27, 2012, January 28, 2012, or October 29, 2011.

Quantitative Disclosures about Derivative Financial Instruments

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

($ in millions)	October 27, 2012		January 28, 2012		October 29, 2011
Derivatives designated as cash flow hedges:
Other current assets	$	9	$	9	$	3
Other long-term assets	$	1	$	1	$	1
Accrued expenses and other current liabilities	$	8	$	10	$	24
Lease incentives and other long-term liabilities	$	3	$	—	$	4
Derivatives designated as net investment hedges:
Other current assets	$	—	$	—	$	1
Other long-term assets	$	—	$	—	$	—
Accrued expenses and other current liabilities	$	—	$	—	$	2
Lease incentives and other long-term liabilities	$	—	$	—	$	—
Derivatives not designated as hedging     instruments:
Other current assets	$	2	$	3	$	2
Other long-term assets	$	—	$	—	$	—
Accrued expenses and other current liabilities	$	3	$	4	$	7
Lease incentives and other long-term liabilities	$	—	$	—	$	—
Total derivatives in an asset position	$	12	$	13	$	7
Total derivatives in a liability position	$	14	$	14	$	37

Substantially all of the unrealized gains and losses from designated cash flow hedges as of October 27, 2012 will be recognized in income within the next 12 months at the then-current values, which may differ from the fair values as of October 27, 2012 shown above.

See Note 5 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.

The effective portion of gains and losses on foreign exchange forward contracts in cash flow hedging and net investment hedging relationships recorded in OCI and the Condensed Consolidated Statements of Income, on a pre-tax basis, are as follows:

	13 Weeks Ended						39 Weeks Ended
($ in millions)	October 27, 2012			October 29, 2011			October 27, 2012		October 29, 2011
Derivatives in cash flow hedging relationships:
Gain (loss) recognized in other comprehensive income	$	(5	)	$	16		$	3	$	(38	)
Gain (loss) reclassified into cost of goods sold and      occupancy expenses	$	2		$	(16	)	$	3	$	(37	)
Gain (loss) reclassified into operating expenses	$	—		$	(1	)	$	—	$	(4	)
Derivatives in net investment hedging relationships:
Gain (loss) recognized in other comprehensive income	$	(1	)	$	(1	)	$	2	$	(3	)

For the thirteen and thirty-nine weeks endedOctober 27, 2012 and October 29, 2011, there were no amounts of gain or loss reclassified from OCI into income for derivative financial instruments in net investment hedging relationships, as we did not sell or liquidate (or substantially liquidate) any of our hedged subsidiaries during the periods.

During the thirty-nine weeks endedOctober 29, 2011, there was a gain of $1 million recognized in OCI related to treasury rate lock agreements, which is recognized in income over the life of the 5.95 percent Notes.

Gains and losses on foreign exchange forward contracts not designated as hedging instruments recorded in the Condensed Consolidated Statements of Income, on a pre-tax basis are as follows:

	13 Weeks Ended					39 Weeks Ended
($ in millions)	October 27, 2012			October 29, 2011		October 27, 2012		October 29, 2011
Gain (loss) recognized in operating expenses	$	(3	)	$	6	$	1	$	4