Quantitative and Qualitative Disclosures About Market Risk
−Removed: As of February 1, 2020, our exposure to market risk was primarily from interest rate changes on our debt obligations, some of which are at a London Interbank Offered Rate (LIBOR).
+Added: As of January 30, 2021, our exposure to market risk was primarily from interest rate changes on our debt obligations, some of which are at a London Interbank Offered Rate (LIBOR).
Our interest rate exposure is primarily due to differences between our floating rate debt obligations compared to our floating rate short-term investments.
−Removed: As of February 1, 2020, our floating rate short-term investments exceeded our floating rate debt by approximately $300 million.
−Removed: Based on our balance sheet position as of February 1, 2020, the annualized effect of a 0.1 percentage point increase in floating interest rates on our floating rate debt obligations, net of our floating rate short-term investments, would not be significant.
−Removed: In general, we expect our floating rate debt to exceed our floating rate short-term investments over time, but that may vary in different interest rate environments.
+Added: As of January 30, 2021, our floating rate short-term investments exceeded our floating rate debt by approximately $6.1 billion.
+Added: Based on our balance sheet position as of January 30, 2021, the annualized effect of a 0.1 percentage point increase in floating interest rates on our floating rate debt obligations, net of our floating rate short-term investments, would increase our earnings before income taxes by $6 million.
+Added: In general, we expect our floating rate debt to exceed our floating rate short-term investments over time, but that may vary in different interest rate and economic environments.
+Added: For example, our short-term investments as of January 30, 2021, exceeded our floating rate debt due to operating cash flow acceleration driven by strong operating results, as well as the temporary suspension of share repurchases and reduced capital expenditures in the uncertain environment.
See further description of our debt and derivative instruments in Notes 16 and 17 to the Financial Statements.
−Removed: In 2017, the United Kingdom's Financial Conduct Authority announced the intent to phase out LIBOR by the end of 2021.
−Removed: As a result, we may amend our contracts that use LIBOR as a benchmark, but do not expect these changes will have a material impact on our financial statements, liquidity and access to capital markets.
+Added: The United Kingdom's Financial Conduct Authority has announced the intent to phase out LIBOR over the next several years.
+Added: We do not expect the phase out to materially impact our financial statements, liquidity or access to capital markets.
We record our general liability and workers' compensation liabilities at net present value;
therefore, these liabilities fluctuate with changes in interest rates.
−Removed: Based on our balance sheet position as of February 1, 2020, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by $6 million.
+Added: Based on our balance sheet position as of January 30, 2021, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by $5 million.
In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plan.
The value of our pension liabilities is inversely related to changes in interest rates.
−Removed: A 1 percentage point decrease to the weighted average discount rate would increase annual expense by $61 million.
−Removed: To protect against declines in interest rates, we hold high-quality, long-duration bonds and interest rate swaps in our pension plan trust.
+Added: A 1 percentage point decrease in the weighted average discount rate would increase annual expense by $59 million.
+Added: To protect against declines in interest rates, we hold high-quality, long-duration bonds and derivative instruments in our pension plan trust.
At year-end, we had hedged 65 percent of the interest rate exposure of our plan liabilities.
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