| FAIR VALUE MEASUREMENTS | 9. FAIR VALUE MEASUREMENTS
GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy defined in the standards are as follows:
Level 1 — Quoted prices are available in active markets for identical assets or liabilities;
Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable;
Level 3 — Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability.
For items carried at (or adjusted to) fair value in the Consolidated Financial Statements, the following tables summarize the fair value of these instruments at August 13, 2016 and January 30, 2016:
August 13, 2016 Fair Value Measurements Using
Quoted Prices in
Significant Other
Significant
Total
Trading Securities
$
$
—
$
—
$
Long-Lived Assets
—
—
Interest Rate Hedges
—
)
—
)
Total
$
$
)
$
$
January 30, 2016 Fair Value Measurements Using
Quoted Prices in
Significant Other
Significant
Inputs
Total
Trading Securities
$
$
—
$
—
$
Available-For-Sale Securities
—
—
Long-Lived Assets
—
—
Interest Rate Hedges
—
)
—
)
Total
$
$
)
$
$
In the first two quarters of 2016, the Company sold all available-for-sale securities for a gain of $27, which was recorded to “Operating, general and administrative” within the Consolidated Statements of Operations.
The Company values interest rate hedges using observable forward yield curves. These forward yield curves are classified as Level 2 inputs.
During the second quarter of 2016, the Company entered into agreements with a third party. As part of the consideration for entering these agreements, we received a financial instrument that derives its value from the third party’s business operations. We used the Monte-Carlo simulation method to determine the fair value of this financial instrument. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of the fair value of this financial instrument. The assumptions used in the Monte-Carlo simulation are classified as Level 3 inputs. The financial instrument was valued at $335 and recorded in “Other assets” within the Consolidated Balance Sheets. As the financial instrument was obtained in exchange for certain obligations, we also recognized offsetting deferred revenue liabilities in “Other current liabilities” and “Other long-term liabilities” within the Consolidated Balance Sheets. The deferred revenue will be amortized to “Sales” within the Consolidated Statements of Operations over the term of the agreements.
Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of goodwill, other intangible assets, and long-lived assets, and in the valuation of store lease exit costs. The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each fiscal year, and as circumstances indicate the possibility of impairment. See Note 3 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended January 30, 2016 for further discussion related to the Company’s carrying value of goodwill. Long-lived assets and store lease exit costs were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. See Note 1 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended January 30, 2016 for further discussion of the Company’s policies regarding the valuation of long-lived assets and store lease exit costs. For the first two quarters of 2016, long-lived assets with a carrying amount of $13 were written down to their fair value of $2 resulting in an impairment charge of $11. For the first two quarters of 2015, long-lived assets with a carrying amount of $30 were written down to their fair value of $4 resulting in an impairment charge of $26. In fiscal year 2015, long-lived assets with a carrying amount of $53 were written down to their fair value of $7, resulting in an impairment charge of $46.
Fair Value of Other Financial Instruments
Current and Long-term Debt
The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar issues adjusted for illiquidity based on available market evidence. If quoted market prices were not available, the fair value was based upon the net present value of the future cash flow using the forward interest rate yield curve in effect at August 13, 2016 and January 30, 2016. At August 13, 2016, the fair value of total debt was $12,956 compared to a carrying value of $11,667. At January 30, 2016, the fair value of total debt was $12,344 compared to a carrying value of $11,396.
Cash and Temporary Cash Investments, Store Deposits In-Transit, Receivables, Prepaid and Other Current Assets, Trade Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities
The carrying amounts of these items approximated fair value.
Other Assets
The fair values of these investments were estimated based on quoted market prices for those or similar investments, or estimated cash flows, if appropriate. At August 13, 2016 and January 30, 2016, the carrying and fair value of long-term investments for which fair value is determinable was $132 and $128, respectively. At August 13, 2016 and January 30, 2016, the carrying value of notes receivable for which fair value is determinable was $184 and $145, respectively. |
