

3.	Fair Value Measurements and Financial Instruments

Fair value is defined 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. Applicable accounting standards require 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.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis include our foreign currency contracts, life insurance policies we own that have a cash surrender value, contingent consideration payable associated with acquisitions, and certain nonqualified deferred compensation liabilities.

We value our foreign currency contracts, our 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 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, all of which are observable in active markets. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

In connection with our acquisition of certain assets from Cellular World and Red Skye Wireless during the fiscal year ended January 28, 2017 ("fiscal 2016"), we recognized an acquisition-date liability of $43.2 million representing the total estimated fair value of the contingent consideration. The fair value was estimated based on Level 3 inputs which include future sales projections derived from our historical experience with comparable acquired stores and a discount rate commensurate with the risks and inherent uncertainty in the business. There was no material change in the fair value of the contingent consideration from the date of acquisition through July 29, 2017.

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



	July 29, 2017				July 30, 2016				January 28, 2017
	Level 2		Level 3		Level 2		Level 3		Level 2		Level 3
Assets
Foreign currency contracts
Other current assets	$	4.5	$	—	$	15.7	$	—	$	13.3	$	—
Other noncurrent assets	0.3		—		—		—		0.1		—
Company-owned life insurance⁽¹⁾	12.8		—		10.4		—		12.4		—
Total assets	$	17.6	$	—	$	26.1	$	—	$	25.8	$	—
Liabilities
Foreign currency contracts
Accrued liabilities	$	6.5	$	—	$	6.1	$	—	$	4.3	$	—
Other long-term liabilities	0.4		—		—		—		0.1		—
Nonqualified deferred compensation⁽²⁾	1.1		—		1.0		—		1.0		—
Contingent consideration⁽³⁾	—		43.2		—		—		—		43.2
Total liabilities	$	8.0	$	43.2	$	7.1	$	—	$	5.4	$	43.2

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(1)	Recognized in other non-current assets in our unaudited condensed consolidated balance sheets.


(2)	Recognized in accrued liabilities in our unaudited condensed consolidated balance sheets.


(3)	As of July 29, 2017, $43.2 million was included in accrued liabilities in our unaudited condensed consolidated balance sheets. As of January 28, 2017, the current portion of $20.0 million was included in accrued liabilities and the noncurrent portion of $23.2 million was included in other long-term liabilities in our unaudited condensed consolidated balance sheets.

We use forward exchange contracts, foreign currency options and cross-currency swaps (together, the “foreign currency contracts”) to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. The 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 $480.2 million, $792.2 million and $586.0 million as of July 29, 2017, July 30, 2016 and January 28, 2017, respectively.

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



	13 Weeks Ended						26 Weeks Ended
	July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
(Losses) gains on the change in fair value of derivative instruments	$	(2.1	)	$	3.5		$	(10.1	)	$	5.5
Gains (losses) on the re-measurement of related intercompany loans and foreign currency assets and liabilities	4.2			(2.9		)	12.5			(3.4		)
Total	$	2.1		$	0.6		$	2.4		$	2.1

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. We manage counterparty risk according to the guidelines and controls established under our 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.

Assets that are Measured at Fair Value on a Nonrecurring Basis

Assets that are measured at fair value on a nonrecurring basis relate primarily to property and equipment, goodwill and other intangible assets, which are remeasured when the estimated fair value is below its carrying value. For these assets, we do not periodically adjust carrying value to fair value; rather, when we determine that impairment has occurred, the carrying value of the asset is reduced to its fair value. We did not record any significant impairment charges related to assets measured at fair value on a nonrecurring basis during the 26 weeks ended July 29, 2017 or July 30, 2016.

Other Fair Value Disclosures

The carrying values of our cash equivalents, receivables, net, accounts payable and notes payable approximate the fair value due to their short-term maturities.

As of July 29, 2017, our unsecured 5.50% senior notes due in 2019 had a net carrying value of $347.2 million and a fair value of $360.7 million, and our unsecured 6.75% senior notes due in 2021 had a net carrying value of $469.2 million and a fair value of $494.7 million. The fair values of our senior notes were determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined this to be a Level 2 measurement as all significant inputs into the quote provided by our pricing source are observable in active markets.