| Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows: • Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities • Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly • Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities Assets and Liabilities that are Measured at Fair Value on a Recurring Basis The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of November 3, 2023, October 28, 2022, and February 3, 2023: Fair Value Measurements at (In millions) Classification Measurement Level November 3, October 28, February 3, Available-for-sale debt securities: U.S. Treasury securities Short-term investments Level 1 $ 143 $ 216 $ 157 Corporate debt securities Short-term investments Level 2 62 51 78 Money market funds Short-term investments Level 1 49 133 43 Certificates of deposit Short-term investments Level 1 35 7 40 Commercial paper Short-term investments Level 2 30 43 52 Municipal obligations Short-term investments Level 2 2 — — Foreign government debt securities Short-term investments Level 2 — 14 14 U.S. Treasury securities Long-term investments Level 1 215 31 86 Corporate debt securities Long-term investments Level 2 23 30 12 Municipal obligations Long-term investments Level 2 — 2 2 Derivative instruments: Forward interest rate swaps Other current assets Level 2 $ — $ 303 $ 251 Fixed-to-floating interest rate swaps Other liabilities Level 2 92 98 88 Other financial instruments: Contingent consideration Long-term investments Level 3 $ — $ — $ 21 There were no transfers between Levels 1, 2, or 3 during any of the periods presented. When available, quoted prices were used to determine fair value. When quoted prices in active markets were available, financial assets were classified within Level 1 of the fair value hierarchy. When quoted prices in active markets were not available, fair values for financial assets and liabilities classified within Level 2 were determined using pricing models, and the inputs to those pricing models were based on observable market inputs. The inputs to the pricing models were typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others. The performance-based contingent consideration is related to the fiscal 2022 sale of the Canadian retail business and is classified as a Level 3 long-term investment. The Company determined the initial fair value of contingent consideration as of February 3, 2023, based on an income approach using an option pricing model, calculated using significant unobservable inputs such as total equity value, volatility, and expected term. Subsequent measurements of fair value of the contingent consideration are based on an income approach, which requires certain assumptions considering operating performance of the business and a risk-adjusted discount rate. Changes in the estimated fair value of the contingent consideration are recognized as gain or loss included within selling, general and administrative expenses (SG&A) in the consolidated statements of earnings. The rollforward of the fair value of contingent consideration for the three and nine months ended November 3, 2023, is as follows: Three Months Ended Nine Months Ended (In millions) November 3, 2023 November 3, 2023 Beginning balance $ — $ 21 Change in fair value — 102 Proceeds received — (123) Ending balance $ — $ — Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis During the three and nine months ended November 3, 2023, the Company had no material measurements of assets and liabilities at fair value on a nonrecurring basis subsequent to their initial recognition. During the three and nine months ended October 28, 2022, the Company’s only significant assets measured at fair value on a nonrecurring basis subsequent to their initial recognition were certain long-lived assets as further described below. The Company reviews the carrying amounts of long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. When evaluating long-lived assets for impairment, the asset group is generally at an individual location level, as that is the lowest level for which cash flows are identifiable. Cash flows for individual locations do not include an allocation of corporate overhead. The Company evaluates long-lived assets for triggering events on a quarterly basis to determine when assets may not be recoverable. An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds its fair value. The Company estimates the fair values of assets subject to long-lived asset impairment based on the Company’s own judgments about the assumptions that market participants would use in pricing the assets and on observable market data, when available. The Company classifies these fair value measurements as Level 3. During the three months ended October 28, 2022, the Company determined it was more likely than not that the assets within the Canadian retail business would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and these assets were evaluated for recoverability. Based on the proposed transaction, the Company reconsidered the appropriate asset grouping of long-lived assets attributable to the Company’s Canadian locations given the change in the Company’s expectations regarding use and disposition of its associated assets. The Company determined the total Canadian retail business (Canada asset group) to be the appropriate asset group for which the long-lived assets should be evaluated, as this represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The carrying value of the Canada asset group includes substantially all assets and liabilities of the Canadian retail business, including accounts receivable, inventory, property, operating and finance lease right-of-use assets, definite-lived intangible assets, operating liabilities including accounts payable and accrued compensation, and operating and finance lease liabilities. A market approach of an orderly transaction under current market conditions was used in determining the estimated fair value of the Canada asset group, which was based on the proposed transaction price, inclusive of performance-based contingent consideration. The estimated fair value of the Canada asset group was determined to be $421 million. As a result, the Company recorded $2.1 billion of long-lived asset impairment within SG&A in the consolidated statements of earnings, which reflected the full carrying value of the long-lived assets of the Canada asset group as of October 28, 2022. The following table presents the Company’s impairment losses resulting from non-financial assets measured at estimated fair value on a nonrecurring basis included in earnings for the three and nine months ended October 28, 2022: Three Months Ended Nine Months Ended (In millions) October 28, 2022 October 28, 2022 Canada asset group: Property, less accumulated depreciation $ 1,258 $ 1,258 Operating lease right-of-use assets 621 621 Other assets 182 182 Other 7 35 Total $ 2,068 $ 2,096 Other Fair Value Disclosures The Company’s financial assets and liabilities not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable, and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to their short-term nature. As further described in Note 7 , certain long-term debt is associated with a fair value hedge and the changes in fair value of the hedged debt is included in the carrying value of long-term debt in the consolidated balance sheets. The fair values of the Company’s unsecured notes were estimated using quoted market prices. The fair values of the Company’s mortgage notes were estimated using discounted cash flow analyses, based on the future cash outflows associated with these arrangements and discounted using the applicable incremental borrowing rate. Carrying amounts and the related estimated fair value of the Company’s long-term debt, excluding finance lease obligations, are as follows: November 3, 2023 October 28, 2022 February 3, 2023 (In millions) Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Unsecured notes (Level 1) $ 35,387 $ 30,207 $ 32,886 $ 27,879 $ 32,897 $ 30,190 Mortgage notes (Level 2) 2 2 4 4 2 2 Long-term debt (excluding finance lease obligations) $ 35,389 $ 30,209 $ 32,890 $ 27,883 $ 32,899 $ 30,192 |
