FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
We determine fair value of financial assets and liabilities based on the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:
Level 1 inputs – unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 inputs – inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.
Level 3 inputs – unobservable inputs for the asset or liability.
Accounts receivable, merchandise payables, short-term borrowings, accrued liabilities and domestic cash and cash equivalents are reflected in the Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. The fair value of our debt is disclosed in Note 3 to the Consolidated Financial Statements. The fair value of pension and other postretirement benefit plan assets is disclosed in Note 7 to the Consolidated Financial Statements. The following tables provide the fair value measurement amounts for other financial assets recorded in our Consolidated Balance Sheets at fair value at February 1, 2014 and February 2, 2013:
|
| | | | | | | | | | | | | | | |
| Total Fair Value Amounts at | | | | | | |
millions | February 1, 2014 | | Level 1 | | Level 2 | | Level 3 |
Cash equivalents(1) | $ | 346 |
| | $ | 346 |
| | $ | — |
| | $ | — |
|
Restricted cash(2) | 10 |
| | 10 |
| | — |
| | — |
|
Foreign currency derivative assets(3) | 8 |
| | — |
| | 8 |
| | — |
|
Total | $ | 364 |
| | $ | 356 |
| | $ | 8 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Total Fair Value Amounts at | | | | | | |
millions | February 2, 2013 | | Level 1 | | Level 2 | | Level 3 |
Cash equivalents(1) | $ | 181 |
| | $ | 181 |
| | $ | — |
| | $ | — |
|
Restricted cash(2) | 9 |
| | 9 |
| | — |
| | — |
|
Total | $ | 190 |
| | $ | 190 |
| | $ | — |
| | $ | — |
|
__________________
| |
(1) | Included within Cash and cash equivalents on the Consolidated Balance Sheets. |
| |
(2) | Included within Restricted cash on the Consolidated Balance Sheets. |
| |
(3) | Included within Prepaid expenses and other current assets on the Consolidated Balance Sheets. |
The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple inputs including interest rates, prices and indices to generate pricing and volatility factors. The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Our derivative instruments are valued using Level 2 measurements.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, 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, we measure the impairment and adjust the carrying value as discussed in Note 1. With the exception of the goodwill and fixed asset impairments described in Note 12 and Note 13, respectively, we had no significant remeasurements of such assets or liabilities to fair value during 2013 and 2012.
All of the fair value remeasurements were based on significant unobservable inputs (Level 3). Fixed asset fair values were derived based on discussions with real estate brokers, review of comparable properties, if available, and internal expertise related to the current marketplace conditions. Inputs for the goodwill included discounted cash flow analyses, comparable marketplace fair value data, as well as management's assumptions in valuing significant tangible and intangible assets, as described in Note 1, Summary of Significant Accounting Policies.
