Fair Value Measurements

12 Months Ended

Feb. 02, 2013

Fair Value Measurements

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.

Financial Instruments

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes this three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of February 2, 2013 and January 28, 2012, the Company held certain assets that are required to be measured at fair value on a recurring basis. These include cash equivalents and investments, as well as Auction Rate Securities (“ARS”) last year.

In accordance with ASC 820, the following tables represent the fair value hierarchy for the Company’s financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of February 2, 2013 and January 28, 2012:

	Fair Value Measurements at February 2, 2013
(In thousands)	Carrying Amount		Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents
Cash	$	257,191	$	257,191	$	—	$	—
Money-market		221,929		221,929		—		—
Commercial paper		29,999		29,999		—		—
Total cash and cash equivalents	$	509,119	$	509,119	$	—	$	—
Short-term investments
Treasury bills	$	109,305	$	109,305	$	—	$	—
Term-deposits		12,568		12,568		—		—
Total short-term investments	$	121,873	$	121,873	$	—	$	—
Total	$	630,992	$	630,992	$	—	$	—

	Fair Value Measurements at January 28, 2012
(In thousands)	Carrying Amount		Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents
Cash	$	548,728	$	548,728	$	—	$	—
Money-market		131,785		131,785		—		—
Commercial paper		29,998		29,998		—		—
Treasury bills		9,034		9,034		—		—
Total cash and cash equivalents	$	719,545	$	719,545	$	—	$	—
Short-term investments
Treasury bills	$	19,999	$	19,999	$	—	$	—
State and local government ARS		5,500		—		—		5,500
Total short-term investments	$	25,499	$	19,999	$	—	$	5,500
Long-term investments
ARS Call Option	$	847	$	—	$	—	$	847
Total long-term investments	$	847	$	—	$	—	$	847
Total	$	745,891	$	739,544	$	—	$	6,347

The Company uses a discounted cash flow (“DCF”) model to value its Level 3 investments. For Fiscal 2012, there were no Level 3 investments that required the use of a DCF model. For Fiscal 2011, the assumptions in the Company’s model for Level 3 investments, excluding the ARS Call Option, included a recovery period of five months, a discount factor for yield of 0.1% and illiquidity of 0.5%.These assumptions are subjective and are based on the Company’s current judgment and view of current market conditions. The use of different assumptions would not result in a material change to the valuation.

As a result of the discounted cash flow analysis, no impairment loss on investment securities was recorded for Fiscal 2012 or Fiscal 2011.

The fair value of the ARS Call Option described in Note 3 to the Consolidated Financial Statements was also estimated using a discounted cash flow model. The model considered potential changes in yields for securities with similar characteristics to the underlying ARS and evaluated possible future refinancing opportunities for the issuers of the ARS. The analysis then assessed the likelihood that the options would be exercisable as a result of the underlying ARS being redeemed or traded in a secondary market at an amount greater than the exercise price prior to the end of the option term. Changes in the fair values of the ARS Call Option were recorded within the Consolidated Statements of Operations.

The reconciliation of our assets measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

	Level 3 (Unobservable inputs)
(In thousands)	Total			Auction- Rate Municipal Securities			ARS Call Option
Balance at January 29, 2011	$	9,615		$	9,200		$	415
Settlements		(3,700	)		(3,700	)
Gains:
Reported in earnings		432						432
Balance at January 28, 2012	$	6,347		$	5,500		$	847
Settlements		(6,043	)		(5,500	)		(543	)
Losses:
Reported in earnings		(304	)		—			(304	)
Balance at February 2, 2013	$	—		$	—		$	—

Non-Financial Assets

The Company’s non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. As a result of the Company’s annual goodwill impairment test performed as of February 2, 2013, the Company concluded that its goodwill was not impaired.

Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. During Fiscal 2012 and Fiscal 2011, certain long-lived assets related to the Company’s retail stores were determined to be unable to recover their respective carrying values and were written down to their fair value, resulting in a loss of $34.9 million and $19.2 million, respectively, which is recorded as a loss on impairment of assets within the Consolidated Statements of Operations. The fair value of the impaired assets after the recorded loss is an immaterial amount.

The fair value of the Company’s stores were determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.