v2.4.0.6
Fair Value Measurements and Financial Instruments
 12 Months Ended
Feb. 02, 2013
Fair Value Measurements and Financial Instruments
6. Fair Value Measurements and Financial Instruments

Recurring Fair Value Measurements and Derivative Financial Instruments

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting guidance applies to our Foreign Currency Contracts, Company-owned life insurance policies with a cash surrender value and certain nonqualified deferred compensation liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition.

Fair value accounting guidance requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.

 

We value our Foreign Currency Contracts, Company-owned life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations provided by major market news services, such as Bloomberg and The Wall Street Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

The following table provides the fair value of our assets and liabilities measured on a recurring basis and recorded on our consolidated balance sheets (in millions):

 

     February 2, 2013
Level 2		      January 28, 2012
Level 2		  

Assets

      

Foreign Currency Contracts

    $ 8.2       $ 17.0   

Company-owned life insurance

      3.5         3.1   
  

 

 

     

 

 

  

Total assets

    $ 11.7       $ 20.1   
  

 

 

     

 

 

  

Liabilities

      

Foreign Currency Contracts

    $ 13.5       $ 2.5   

Nonqualified deferred compensation

      0.9         0.8   
  

 

 

     

 

 

  

Total liabilities

    $ 14.4       $ 3.3   
  

 

 

     

 

 

  

The Company uses Foreign Currency Contracts to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. These Foreign Currency Contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. The total gross notional value of derivatives related to our Foreign Currency Contracts was $669.9 million and $507.1 million as of February 2, 2013 and January 28, 2012, respectively. The total net notional value of derivatives related to our Foreign Currency Contracts was $102.7 million and $228.6 million as of February 2, 2013 and January 28, 2012, respectively.

Activity related to the trading of derivative instruments and the offsetting impact of related intercompany loans and foreign currency assets and liabilities recognized in selling, general and administrative expense is as follows (in millions):

 

     53 Weeks
Ended
February 2,
2013		     52 Weeks
Ended
January 28,
2012		     52 Weeks
Ended
January 29,
2011		  

Gains (losses) on the changes in fair value of derivative instruments

    $ (19.8 )    $ 13.5      $ (7.1 ) 

Gains (losses) on the re-measurement of related intercompany loans and foreign currency assets and liabilities

      22.3        (14.1 )      9.6   
  

 

 

    

 

 

    

 

 

  

Total

    $ 2.5      $ (0.6 )    $ 2.5   
  

 

 

    

 

 

    

 

 

  

 

We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. The Company manages counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.

The fair values of derivative instruments not receiving hedge accounting treatment in the consolidated balance sheets presented herein were as follows (in millions):

 

     February 2, 2013     January 28, 2012  

Assets

     

Foreign Currency Contracts

     

Other current assets

    $ 7.3      $ 12.3   

Other noncurrent assets

      0.9        4.7   

Liabilities

     

Foreign Currency Contracts

     

Accrued liabilities

      (9.1 )      (2.0 ) 

Other long-term liabilities

      (4.4 )      (0.5 ) 
  

 

 

    

 

 

  

Total derivatives

    $ (5.3 )    $ 14.5   
  

 

 

    

 

 

  

Nonrecurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible property and equipment, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our consolidated balance sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded within operating earnings in our consolidated statements of operations. During fiscal 2012, the Company recorded a $680.7 million impairment charge related to assets measured at fair value on a nonrecurring basis, comprised of $627.0 million of goodwill impairments, $44.9 million of trade name impairment and $8.8 million of property and equipment impairments. During fiscal 2011, the Company recorded a $71.7 million impairment charge related to assets measured at fair value on a nonrecurring basis, comprised of $37.8 million of trade name impairment, $22.7 million of the impairment of investments in non-core businesses and $11.2 million of property and equipment impairments.

The fair value remeasurements included in the goodwill, trade name and property and equipment impairments were primarily based on significant unobservable inputs (Level 3) developed using company-specific information. Refer to Note 9, Goodwill, Intangible Assets and Deferred Financing Fees, for further information associated with the goodwill and trade name impairments, as well as Note 2, Asset Impairments and Restructuring Charges, for further information associated with the property and equipment impairments.

Other Fair Value Disclosures

The Company’s carrying value of financial instruments such as cash and cash equivalents, receivables, net and accounts payable approximates their fair value, except for differences with respect to the Company’s senior notes that were outstanding until December 2011. As of January 28, 2012, there were no senior notes payable.