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DERIVATIVE FINANCIAL INSTRUMENTS
 6 Months Ended
Jul. 31, 2016
Notes to Financial Statements [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges

The Company has exposure to changes in foreign currency exchange rates related to anticipated cash flows associated with certain international inventory purchases. The Company periodically uses foreign currency forward exchange contracts to hedge against a portion of this exposure.

The Company also has exposure to interest rate volatility related to its term loans under the 2016 facilities. The Company has entered into interest rate swap agreements to hedge against a portion of this exposure. The Company had also entered into an interest rate cap agreement, which expired on February 17, 2016. Please see Note 9, “Debt,” for a further discussion of the Company’s facilities and these agreements.

The Company records the foreign currency forward exchange contracts and interest rate contracts at fair value in its Consolidated Balance Sheets, and does not net the related assets and liabilities. Changes in fair value of the foreign currency forward exchange contracts associated with certain international inventory purchases and the interest rate contracts that are designated as effective hedging instruments (collectively referred to as “cash flow hedges”) are recorded in equity as a component of accumulated other comprehensive loss (“AOCL”). The cash flows from such hedges are presented in the same category in the Company’s Consolidated Statements of Cash Flows as the items being hedged. No amounts were excluded from effectiveness testing. There was no ineffective portion of cash flow hedges during the twenty-six weeks ended July 31, 2016 and August 2, 2015.

Net Investment Hedge

The Company has exposure to changes in foreign currency exchange rates related to the value of its investments in foreign subsidiaries denominated in a currency other than the United States dollar. To hedge against a portion of this exposure, during the second quarter of 2016, the Company designated the carrying amount of its €350.0 million euro-denominated principal amount of 3 5/8% senior notes due 2024 (the “foreign currency borrowings”) that it had issued in the United States as a net investment hedge of its investments in certain of its foreign subsidiaries that use the euro as their functional currency. Please see Note 9, “Debt,” for a further discussion of the Company’s foreign currency borrowings.

The Company records the foreign currency borrowings at carrying value in its Consolidated Balance Sheets. The carrying value of the foreign currency borrowings is remeasured as of the end of each reporting period to reflect changes in the foreign currency exchange spot rate. Since the foreign currency borrowings are designated as a net investment hedge, such remeasurement is recorded in equity as a component of AOCL. As of July 31, 2016, the fair value and the carrying value of the foreign currency borrowings designated as a net investment hedge was $406.5 million and $381.9 million, respectively. The Company evaluates the effectiveness of its net investment hedge as of the beginning of each quarter. No amounts were excluded from effectiveness testing. There was no ineffective portion of the net investment hedge during the twenty-six weeks ended July 31, 2016.

Undesignated Contracts

The Company records immediately in earnings changes in the fair value of hedges that are not designated as effective hedging instruments (“undesignated contracts”), including all of the foreign currency forward exchange contracts related to intercompany loans that are not of a long-term investment nature. Any gains and losses that are immediately recognized in earnings on such contracts related to intercompany loans are largely offset by the remeasurement of the underlying intercompany loan balances.

In addition, the Company has exposure to changes in foreign currency exchange rates related to the translation of the earnings of its subsidiaries denominated in a currency other than the United States dollar. To hedge against a portion of this exposure, the Company entered into several foreign currency option contracts during the second quarter of 2016. These contracts represent the Company’s purchase of euro put/United States dollar call options. In connection with the foreign currency option contracts, the Company paid a cash premium of $1.1 million during the second quarter of 2016.

The Company’s foreign currency option contracts are also undesignated contracts. As such, the changes in the fair value of these foreign currency option contracts are recognized immediately in earnings. This mitigates the effect of a strengthening United States dollar against the euro on the reporting of the Company’s euro-denominated earnings.

The Company does not use derivative or non-derivative financial instruments for trading or speculative purposes.

The following table summarizes the fair value and presentation of the Company’s derivative financial instruments in its Consolidated Balance Sheets:
(In millions)
Assets (Classified in Other Current Assets and Other Assets)
Liabilities (Classified in Accrued Expenses and Other Liabilities)
 
7/31/16
 
1/31/16
 
8/2/15
 
7/31/16
 
1/31/16
 
8/2/15
Contracts designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts (inventory purchases)
$
6.8

 
$
24.9

 
$
46.6

 
$
12.5

 
$
1.7

 
$
3.2

Interest rate contracts
—

 
—

 
0.3

 
17.0

 
20.6

 
14.4

Total contracts designated as cash flow hedges
6.8

 
24.9

 
46.9

 
29.5

 
22.3

 
17.6

 
 
 
 
 
 
 
 
 
 
 
 
Undesignated contracts:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
1.8

 
19.3

 
18.2

 
0.7

 
0.1

 
0.4

Foreign currency option contracts
1.0

 
—

 
—

 
—

 
—

 
—

Total undesignated contracts
2.8

 
19.3

 
18.2

 
0.7

 
0.1

 
0.4

Total
$
9.6

 
$
44.2

 
$
65.1

 
$
30.2

 
$
22.4

 
$
18.0



At July 31, 2016, the notional amount outstanding of foreign currency forward exchange contracts and foreign currency option contracts was $925.9 million and $50.0 million, respectively. Such contracts expire principally between August 2016 and January 2018.

The following table summarizes the effect of the Company’s hedges designated as cash flow and net investment hedging instruments:
 
 
Gain (Loss) Recognized in Other Comprehensive (Loss) Income
 
Gain (Loss) Reclassified from AOCL into Income (Expense)       
(In millions)
 
 
Location
Amount
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
7/31/16
 
8/2/15
 
 
7/31/16
 
8/2/15
Foreign currency forward exchange contracts     (inventory purchases)
 
$
21.2

 
$
23.1

 
Cost of goods sold
$
3.5

 
$
27.5

Interest rate contracts    
 
(1.4
)
 
(2.6
)
 
Interest expense
(2.7
)
 
(1.1
)
Foreign currency borrowings (net investment hedge)
 
7.8

 
—

 
N/A
—

 
—

Total    
 
$
27.6

 
$
20.5

 
 
$
0.8

 
$
26.4

 
 
 
 
 
 
 
 
 
 
Twenty-Six Weeks Ended
 
7/31/16
 
8/2/15
 
 
7/31/16
 
8/2/15
Foreign currency forward exchange contracts     (inventory purchases)
 
$
(37.2
)
 
$
23.7

 
Cost of goods sold
$
8.2

 
$
48.1

Interest rate contracts
 
(1.5
)
 
(1.5
)
 
Interest expense
(5.1
)
 
(2.2
)
Foreign currency borrowings (net investment hedge)
 
7.8

 
—

 
N/A
—

 
—

Total
 
$
(30.9
)
 
$
22.2

 
 
$
3.1

 
$
45.9



A net loss in AOCL on foreign currency forward exchange contracts at July 31, 2016 of $1.6 million is estimated to be reclassified in the next 12 months in the Company’s Consolidated Income Statement to costs of goods sold as the underlying inventory hedged by such forward exchange contracts is sold. In addition, a net loss in AOCL for interest rate contracts at July 31, 2016 of $12.5 million is estimated to be reclassified to interest expense within the next 12 months. Amounts recognized in AOCL for foreign currency borrowings would be recognized in earnings only upon the sale or liquidation of the hedged net investment.

The following table summarizes the effect of the Company’s undesignated contracts:
(In millions)

 
(Loss) Gain Recognized in (Expense) Income
Thirteen Weeks Ended
 
Location
 
7/31/16
 
8/2/15
Foreign currency forward exchange contracts
 
Selling, general and administrative expenses
 
$
(2.9
)
 
$
1.8

Foreign currency option contracts
 
Selling, general and administrative expenses

 
(0.2
)
 
—

 
 
 
 
 
 
 
Twenty-Six Weeks Ended
 
Location
 
7/31/16
 
8/2/15
Foreign currency forward exchange contracts
 
Selling, general and administrative expenses
 
$
(6.7
)
 
$
4.5

Foreign currency option contracts
 
Selling, general and administrative expenses

 
(0.2
)
 
—



The Company had no derivative financial instruments with credit risk-related contingent features underlying the related contracts as of July 31, 2016.