8. 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 February 1, 2014 and February 2, 2013:
February 1, 2014 Fair Value Measurements Using
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
Total |
| ||||
|
Available-for-Sale Securities |
|
$ |
36 |
|
$ |
— |
|
$ |
— |
|
$ |
36 |
|
|
Warrants |
|
— |
|
16 |
|
— |
|
16 |
| ||||
|
Long-Lived Assets |
|
— |
|
— |
|
29 |
|
29 |
| ||||
|
Interest Rate Hedges |
|
— |
|
(2 |
) |
— |
|
(2 |
) | ||||
|
Total |
|
$ |
36 |
|
$ |
14 |
|
$ |
29 |
|
$ |
79 |
|
February 2, 2013 Fair Value Measurements Using
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
Total |
| ||||
|
Available-for-Sale Securities |
|
$ |
8 |
|
$ |
— |
|
$ |
20 |
|
$ |
28 |
|
|
Long-Lived Assets |
|
— |
|
— |
|
8 |
|
8 |
| ||||
|
Interest Rate Hedges |
|
— |
|
6 |
|
— |
|
6 |
| ||||
|
Total |
|
$ |
8 |
|
$ |
6 |
|
$ |
28 |
|
$ |
42 |
|
In 2013, one of the Company’s available-for-sale securities began trading in an active market. Because of this, the Company transferred the $20 fair value of securities from a Level 3 asset to a Level 1 asset in 2013. In 2013, unrealized gains on the Level 1 available-for-sale securities totaled $8.
The Company values warrants using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model is classified as a Level 2 input.
The Company values interest rate hedges using observable forward yield curves. These forward yield curves are classified as Level 2 inputs.
Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of goodwill, other intangible assets, 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 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 for further discussion of the Company’s policies and recorded amounts for impairments of long-lived assets and valuation of store lease exit costs. In 2013, long-lived assets with a carrying amount of $68 were written down to their fair value of $29, resulting in an impairment charge of $39. In 2012, long-lived assets with a carrying amount of $26 were written down to their fair value of $8, resulting in an impairment charge of $18.
Mergers are accounted for using the acquisition method of accounting, which requires that the purchase price paid for an acquisition be allocated to the assets and liabilities acquired based on their estimated fair values as of the effective date of the acquisition, with the excess of the purchase price over the net assets being recorded as goodwill. See Note 2 for further discussion related to the merger with Harris Teeter.
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 respective year-ends. At February 1, 2014, the fair value of total debt was $11,547 compared to a carrying value of $10,780. At February 2, 2013, the fair value of total debt was $9,339 compared to a carrying value of $8,476.
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 February 1, 2014 and February 2, 2013, the carrying and fair value of long-term investments for which fair value is determinable were $51 and $44, respectively.