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20. Derivative Financial Instruments
Historically our derivative instruments have primarily consisted of interest rate swaps, which are used to mitigate our interest rate risk. We have counterparty credit risk resulting from our derivative instruments, primarily with large global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis. See Note 8 for a description of the fair value measurement of our derivative instruments.
In July 2011, in conjunction with our $350 million fixed rate debt issuance, we entered into an interest rate swap with a matching notional amount, under which we pay a variable rate and receive a fixed rate. This swap has been designated as a fair value hedge for accounting purposes. At the inception of the hedge, we assessed whether the swap was highly effective in offsetting changes in fair value of the hedged item and concluded the hedge was perfectly effective. Therefore, no ineffectiveness was recorded in 2011. We had no derivative instruments designated as accounting hedges in 2010 or 2009.
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Outstanding Interest Rate Swap Summary
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January 28, 2012 |
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Designated Swap |
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De-designated Swaps |
(dollars in millions)
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Pay Floating
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Pay Floating
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Pay Fixed
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Weighted average rate: |
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Pay |
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three-month LIBOR |
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one-month LIBOR |
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2.6% |
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Receive |
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1.0% |
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5.0% |
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one-month LIBOR |
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Weighted average maturity |
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2.5 years |
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2.4 years |
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2.4 years |
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Notional |
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$350 |
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$1,250 |
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$1,250 |
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Derivative Contracts – Type, Statement of Financial Position Classification and Fair Value
(millions)
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Asset |
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Liability |
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Type of Contract
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Classification
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Jan. 28,
2012
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Jan. 29,
2011
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Classification
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Jan. 28,
2012
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Jan. 29,
2011
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Designated as hedging instrument: |
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Interest rate swap |
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Other noncurrent assets |
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$ |
3 |
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$ |
— |
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N/A |
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$ |
— |
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$ |
— |
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Not designated as hedging instruments: |
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Interest rate swaps |
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Other current assets |
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20 |
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— |
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Other current liabilities |
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7 |
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— |
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Interest rate swaps |
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Other noncurrent assets |
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111 |
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139 |
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Other noncurrent liabilities |
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69 |
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54 |
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Total |
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$ |
134 |
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$ |
139 |
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$ |
76 |
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$ |
54 |
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Periodic payments, valuation adjustments and amortization of gains or losses on our derivative contracts had the following impact on our Consolidated Statement of Operations:
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Derivative Contracts – Effect on Results of Operations
(millions)
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Type of Contract
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Classification of Income/(Expenses)
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2011
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2010
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2009
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Interest rate swaps |
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Other interest expense |
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$ |
41 |
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$ |
51 |
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$ |
65 |
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The amount remaining on unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the underlying debt totaled $111 million, $152 million and $197 million, at the end of 2011, 2010 and 2009, respectively. |