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DERIVATIVE FINANCIAL INSTRUMENTS
 12 Months Ended
Feb. 02, 2020
Derivative Instruments and Hedging Activities Disclosure [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 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 2019 facilities. The Company has entered into interest rate swap agreements to hedge against a portion of this exposure. Please see Note 9, “Debt,” for further discussion of the 2019 facilities and these agreements.

The Company records the foreign currency forward exchange contracts and interest rate swap agreements at fair value in its Consolidated Balance Sheets and does not net the related assets and liabilities. The foreign currency forward exchange contracts associated with certain international inventory purchases and the interest rate swap agreements are designated as effective hedging instruments (collectively, “cash flow hedges”). The changes in the fair value of the cash flow hedges are recorded in equity as a component of AOCL. No amounts were excluded from effectiveness testing.

Net Investment Hedges

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, the Company designated the carrying amounts of its €600.0 million euro-denominated principal amount of 3 1/8% senior notes due 2027 and €350.0 million euro-denominated principal amount of 3 5/8% senior notes due 2024 (collectively, “foreign currency borrowings”), that it had issued in the United States, as net investment hedges of its investments in certain of its
foreign subsidiaries that use the euro as their functional currency. Please see Note 9, “Debt,” for 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 at the end of each reporting period to reflect changes in the foreign currency exchange spot rate. Since the foreign currency borrowings are designated as net investment hedges, such remeasurement is recorded in equity as a component of AOCL. The fair value and the carrying value of the foreign currency borrowings designated as net investment hedges were $1,178.6 million and $1,038.5 million, respectively, as of February 2, 2020 and $1,098.3 million and $1,076.0 million, respectively, as of February 3, 2019. The Company evaluates the effectiveness of its net investment hedges at inception and at the beginning of each quarter thereafter. No amounts were excluded from effectiveness testing.

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 transactions and intercompany loans that are not of a long-term investment nature. Any gains and losses that are immediately recognized in earnings on such contracts are largely offset by the remeasurement of the underlying intercompany 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 2017. These contracts represented the Company’s purchase of euro put/United States dollar call options and Chinese yuan renminbi put/United States dollar call options. All foreign currency option contracts expired in 2017.

The Company’s foreign currency option contracts were also undesignated contracts. As such, the changes in the fair value of these foreign currency option contracts were immediately recognized in earnings.

The Company does not use derivative or non-derivative financial instruments for trading or speculative purposes. The cash flows from the Company’s hedges are presented in the same category in the Company’s Consolidated Statements of Cash Flows as the items being hedged.

The following table summarizes the fair value and presentation of the Company’s derivative financial instruments in its Consolidated Balance Sheets:
 (In millions)
Assets
 
Liabilities
 
2019
 
2018
 
2019
 
2018
 
Other Current Assets
 
Other Assets
 
Other Current Assets
 
Other Assets
 
Accrued Expenses
 
Other Liabilities
 
Accrued Expenses
 
Other Liabilities
Contracts designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts (inventory purchases)
$
21.4

 
$
0.4

 
$
24.0

 
$
0.7

 
$
1.2

 
$
0.1

 
$
3.5

 
$
0.7

Interest rate swap agreements
0.1

 
—

 
1.4

 
—

 
5.5

 
0.4

 
1.2

 
1.6

Total contracts designated as cash flow hedges
21.5

 
0.4

 
25.4

 
0.7

 
6.7

 
0.5

 
4.7

 
2.3

Undesignated contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
1.5

 
—

 
0.1

 
—

 
0.9

 
—

 
2.0

 
—

Total
$
23.0

 
$
0.4

 
$
25.5

 
$
0.7

 
$
7.6

 
$
0.5

 
$
6.7

 
$
2.3


The notional amount outstanding of foreign currency forward exchange contracts was $1,308.1 million at February 2, 2020. Such contracts expire principally between February 2020 and June 2021.

The following tables summarize the effect of the Company’s hedges designated as cash flow and net investment hedging instruments:
 
 
Gain (Loss)
Recognized in Other
Comprehensive (Loss) Income
 
 
 
 
 
 
(In millions)
 
 
 
2019
 
2018
 
2017
Foreign currency forward exchange contracts (inventory purchases)
 
$
22.4

 
$
97.1

 
$
(122.0
)
Interest rate swap agreements
 
(5.8
)
 
(2.6
)
 
3.2

Foreign currency borrowings (net investment hedges)
 
39.3

 
95.6

 
(99.5
)
Total
 
$
55.9

 
$
190.1

 
$
(218.3
)


 
 
Amount of Gain (Loss) Reclassified from AOCL into Income (Expense), Consolidated Income Statement Location, and Total Amount of Consolidated Income Statement Line Item
(In millions)
 
Amount Reclassified
 
Location
 
Total Income Statement Amount
 
 
2019
 
2018
 
2017
 
 
 
2019
 
2018
 
2017
Foreign currency forward exchange contracts (inventory purchases)
 
$
23.1

 
$
(11.6
)
 
$
(13.6
)
 
Cost of goods sold
 
$
4,520.6

 
$
4,348.5

 
$
4,020.4

Interest rate swap agreements
 
(1.4
)
 
1.1

 
(6.2
)
 
Interest expense
 
120.0

 
120.8

 
128.5

Total
 
$
21.7

 
$
(10.5
)
 
$
(19.8
)
 
 
 
 
 
 
 
 



A net gain in AOCL on foreign currency forward exchange contracts at February 2, 2020 of $29.5 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 swap agreements at February 2, 2020 of $5.4 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 substantially complete liquidation of the hedged net investment.

The following table summarizes the effect of the Company’s undesignated contracts recognized in SG&A expenses in its Consolidated Income Statements:
 
 
Gain (Loss) Recognized in Income (Expense)
(In millions)
 
2019
 
2018
 
2017
Foreign currency forward exchange contracts
 
$
3.4

 
$
(1.5
)
 
$
(4.6
)
Foreign currency option contracts
 
—

 
—

 
(4.3
)


The Company had no derivative financial instruments with credit risk-related contingent features underlying the related contracts as of February 2, 2020.