Derivative Financial Instruments

9 Months Ended

Oct. 29, 2022

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 the Canadian dollar, Japanese yen, New Taiwan dollar, Mexican peso, British pound, and Euro. Cash flows from derivative financial instruments are classified as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

Derivative financial instruments are recorded at fair value on the Condensed Consolidated Balance Sheets as other current assets, other long-term assets, accrued expenses and other current liabilities, or other long-term liabilities.

Cash Flow Hedges

We designate foreign exchange 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 as cash flow hedges. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs generally have terms of 12 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 (loss) 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)	October 29, 2022		January 29, 2022		October 30, 2021
Derivatives designated as cash flow hedges	$	491	$	524	$	532
Derivatives not designated as hedging instruments	583		702		717
Total	$	1,074	$	1,226	$	1,249

Quantitative Disclosures about Derivative Financial Instruments

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


($ in millions)	October 29, 2022		January 29, 2022		October 30, 2021
Derivatives designated as cash flow hedges:
Other current assets	$	25	$	10	$	3
Other long-term assets	4		—		1
Accrued expenses and other current liabilities	—		—		6
Other long-term liabilities	—		—		1







Derivatives not designated as hedging instruments:
Other current assets	17		6		6
Accrued expenses and other current liabilities	2		2		6

Total derivatives in an asset position	$	46	$	16	$	10
Total derivatives in a liability position	$	2	$	2	$	13

Substantially all of the unrealized gains and losses from designated cash flow hedges as of October 29, 2022 will be recognized in income (loss) within the next 12 months at the then-current values, which may differ from the fair values as of October 29, 2022 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 Income (Loss)
	13 Weeks Ended October 29, 2022				13 Weeks Ended October 30, 2021
($ 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	$	2,530	$	1,323	$	2,282	$	1,508

(Gain) loss recognized in net income (loss)
Derivatives designated as cash flow hedges	(14)		—		5		—

Derivatives not designated as hedging instruments	—		(51)		—		(7)
Total (gain) loss recognized in net income (loss)	$	(14)	$	(51)	$	5	$	(7)


	Location and Amount of (Gain) Loss Recognized in Income (Loss)
	39 Weeks Ended October 29, 2022				39 Weeks Ended October 30, 2021
($ 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	$	7,438	$	3,974	$	7,031	$	4,312

(Gain) loss recognized in net income (loss)
Derivatives designated as cash flow hedges	(22)		—		14		—
Derivatives not designated as hedging instruments	—		(80)		—		(2)
Total (gain) loss recognized in net income (loss)	$	(22)	$	(80)	$	14	$	(2)