Fair Value Measurements

6 Months Ended

Aug. 03, 2019

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale debt securities. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.

There were no purchases, sales, issuances, or settlements related to recurring level 3 measurements during the thirteen and twenty-six weeks ended August 3, 2019 or August 4, 2018. There were no transfers of financial assets or liabilities into or out of level 1, level 2, and level 3 during the thirteen and twenty-six weeks ended August 3, 2019 or August 4, 2018.

Financial Assets and Liabilities

Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents are as follows:



			Fair Value Measurements at Reporting Date Using
($ in millions)	August 3, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	312	$	31	$	281	$	—
Short-term investments	294		131		163		—
Derivative financial instruments	27		—		27		—
Deferred compensation plan assets	51		51		—		—
Other assets	2		—		—		2
Total	$	686	$	213	$	471	$	2
Liabilities:
Derivative financial instruments	$	9	$	—	$	9	$	—
			Fair Value Measurements at Reporting Date Using
($ in millions)	February 2, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	373	$	26	$	347	$	—
Short-term investments	288		125		163		—
Derivative financial instruments	20		—		20		—
Deferred compensation plan assets	48		48		—		—
Other assets	2		—		—		2
Total	$	731	$	199	$	530	$	2
Liabilities:
Derivative financial instruments	$	11	$	—	$	11	$	—
			Fair Value Measurements at Reporting Date Using
($ in millions)	August 4, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	481	$	21	$	460	$	—
Short-term investments	286		109		177		—
Derivative financial instruments	40		—		40		—
Deferred compensation plan assets	53		53		—		—
Total	$	860	$	183	$	677	$	—
Liabilities:
Derivative financial instruments	$	7	$	—	$	7	$	—

We have highly liquid investments classified as cash equivalents, which are placed primarily in time deposits, money market funds, and commercial paper. With the exception of our available-for-sale investments noted below, we value these investments at their original purchase prices plus interest that has accrued at the stated rate.

Our available-for-sale securities are comprised of investments in debt securities. These securities are recorded at fair value using market prices. As of August 3, 2019 and August 4, 2018, the Company held $294 million and $286 million, respectively, of available-for-sale debt securities with maturity dates greater than three months and less than two years within short-term investments on the Condensed Consolidated Balance Sheets. In addition, as of August 3, 2019 and August 4, 2018, the Company held $15 million and $14 million of available-for-sale debt securities with maturities of less than three months at the time of purchase within cash and cash equivalents on the Condensed Consolidated Balance Sheets. Unrealized gains or losses on available-for-sale debt securities included within accumulated other comprehensive income were immaterial as of August 3, 2019 and August 4, 2018.

The Company regularly reviews its available-for-sale debt securities for other-than-temporary impairment. For the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018, the Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment loss.

Derivative financial instruments primarily include foreign exchange forward contracts. The fair value of the Company’s derivative financial instruments is determined using pricing models based on current market rates. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for information regarding currencies hedged against the U.S. dollar.

We maintain the Gap Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees and non-employee directors to defer base compensation up to a maximum percentage. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets on the Condensed Consolidated Balance Sheets.

Nonfinancial Assets

We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level.

There were no material impairment charges recorded for long-lived assets for the thirteen and twenty-six weeks ended August 3, 2019, or August 4, 2018.

As discussed in Note 1, we recorded a decrease to fiscal year 2019 opening retained earnings due to the adoption of ASC 842 related to impairments as of the effective date.

We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.

There were no material impairment charges recorded for goodwill or other indefinite-lived intangible assets for the thirteen and twenty-six weeks ended August 3, 2019, or August 4, 2018.