The company purchases forward exchange contracts to minimize and manage the foreign currency risks related to its import merchandise purchase program. The counter-parties to these contracts are highly rated financial institutions and the company does not have significant exposure to any counter-party. These forward exchange contracts are designated as dual purpose hedges, as defined by SFAS No. 133, and are effective as hedges. The forward exchange contracts are designated as cash flow hedges from the inception of the forward exchange contract until the import merchandise is received and the related accounts payable is recorded. Accordingly, changes in the effective portion of the fair value of these forward exchange contracts during this period are included in other comprehensive income. Once merchandise is received, these forward exchange contracts are then designated as fair value hedges until the settlement of the import merchandise accounts payable. Accordingly, related gains and losses on these forward contracts offset the foreign currency gains and losses on the underlying transactions. Once the hedged transactions are completed, or when merchandise is sold, the unrealized gains and losses on the forward contracts are reclassified from accumulated other comprehensive income to earnings. The company did not realize any material gain or loss related to these transactions in 2001. The unrealized loss recorded in other comprehensive income at February 2, 2002 was not material to the company’s consolidated financial condition.

The company is faced with interest rate risks resulting from interest rate fluctuations. The company has a variety of fixed and variable rate debt instruments. In an effort to manage interest rate exposures, the company strives to achieve an acceptable balance between fixed and variable rate debt and has entered into interest rate swaps to maintain that balance.

In July 2001, the company entered into interest rate swap agreements on its 7.625% $500 notes, due August 1, 2011, and its 6.875% $250 notes, due August 1, 2006. Under these agreements, the company will pay interest at a variable rate in exchange for fixed rate payments, effectively transforming the debentures to floating rate obligations. This swap is designated as a highly effective fair value hedge, as defined by SFAS No. 133. Changes in the fair value of the interest rate swap perfectly offset changes in the fair value of the fixed rate debt due to changes in market interest rates. As such, there was no ineffective hedge portion recognized in earnings during 2001.

On February 13, 2001, the company issued and sold 500 EURO through the public issuance of a EURO bond bearing interest at 6.375% per annum. The obligation was swapped into a $466 fixed rate obligation with an effective rate of 7.43% per annum with interest payments due annually and principal due February 13, 2004. This cross currency swap is designated as a cash flow hedge, as defined by SFAS No. 133, and is effective as a hedge. The portion of the fair value of the swap attributable to changes in the spot rate is matched in earnings against changes in the fair value of debt.

The company entered into a Swiss franc floating rate loan with a financial institution in January 1999, due January 2004. The company also entered into a contract to swap U.S. dollars to Swiss francs, within exact terms of the loan. This cross currency swap has been designated as a foreign currency fair value hedge, as defined by SFAS No. 133, and is effective as a hedge.

The company entered into a note payable for $147 with a syndicate of financial institutions in July 2000, repayable in semi-annual installments, with the final installment due August 2005. The company also entered into a contract to swap yen to U.S. dollars, within exact terms of the loan. This cross currency swap has been designated as a foreign currency cash flow hedge, as defined by SFAS No. 133, and is effective as a hedge.

The company has reduced the carrying amount of its long-term debt by $84 at February 2, 2002, representing the carrying amount of the debt in excess of fair value on that date. Also at February 2, 2002, the company has recorded derivative assets of $42 and derivative liabilities of $122, representing the fair value of these derivatives at that date.

These transactions did not have a material impact on the company’s results of operations or cash flows.

LEASES

The company leases a portion of the real estate used in its operations. Most leases require the company to pay real estate taxes and other expenses; some require additional amounts based on percentages of sales.

Minimum rental commitments under noncancelable operating leases having a term of more than one year as of February 2, 2002 are as follows:

Total rent expense, net of sublease income, was $261, $291 and $350 in 2001, 2000 and 1999, respectively.

The company’s new corporate headquarters facility, located in Wayne, New Jersey, which the company intends to fully occupy by the summer of 2003, is being financed under a lease arrangement commonly referred to as a “synthetic lease.” Under this lease, unrelated third parties, arranged by Wachovia Development Corporation, a multi-purpose real estate investment company, will fund up to $125 for the acquisition and construction of the facility. Upon completion of the construction, which is expected to be in 2003, the company will begin paying rent on the facility until the lease expires in 2011. The rent will be based on a mix of fixed and variable interest rates which will be applied against the final amount funded. Upon expiration of the lease, the company would expect to either: renew the lease arrangement; purchase the facility from the lessor; or remarket the property on behalf of the owner. Under accounting principles generally accepted in the United States, this arrangement is required to be treated as an operating lease for accounting purposes and will be treated as a financing for tax purposes.