Fair Value Measurements
U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
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• | Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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• | Level 2 — inputs to the valuation methodology based on quoted prices for similar assets and liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable. |
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• | Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement. |
The following table summarizes the Company’s financial assets and liabilities that are measured and recorded at fair value on a recurring basis:
|
| | | | | | | | |
| | March 30,
2013 | | March 31,
2012 |
| | (millions) |
Financial assets recorded at fair value(a): | | | | |
Government bonds — U.S. | | $ | 28.8 |
| | $ | 59.4 |
|
Government bonds — non-U.S. | | 92.4 |
| | 96.0 |
|
Corporate bonds — non-U.S. | | 81.6 |
| | 99.0 |
|
Variable rate municipal securities — U.S. | | 16.6 |
| | 69.2 |
|
Auction rate securities | | 2.3 |
| | 2.3 |
|
Other securities | | — |
| | 0.5 |
|
Derivative financial instruments | | 15.0 |
| | 32.5 |
|
Total | | $ | 236.7 |
| | $ | 358.9 |
|
Financial liabilities recorded at fair value(b): | | | | |
Derivative financial instruments | | $ | 4.6 |
| | $ | 2.6 |
|
Total | | $ | 4.6 |
| | $ | 2.6 |
|
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(a) | Based on Level 1 measurements, except for auction rate securities and derivative financial instruments, which are based on Level 2 measurements. |
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(b) | Based on Level 2 measurements. |
Certain of the Company’s government bonds, and all of its corporate bonds and variable rate municipal securities (“VRMS”), are classified as available-for-sale securities and are recorded at fair value in the Company’s consolidated balance sheets based upon quoted prices in active markets.
The Company’s auction rate securities are classified as available-for-sale securities and are recorded at fair value in the Company’s consolidated balance sheets. Third-party pricing institutions may value auction rate securities at par, which may not necessarily reflect prices that would be obtained if sold in the current market. When quoted market prices are unobservable, fair value is estimated based on a number of known factors and external pricing data, including known maturity dates, the coupon rate based upon the most recent reset market clearing rate, the price/yield representing the average rate of recent successfully traded securities, and the total principal balance of each security.
The Company’s derivative financial instruments are recorded at fair value in the Company’s consolidated balance sheets and are valued using a pricing model, which is primarily based on market observable external inputs, including forward and spot exchange rates for foreign currencies, and considers the impact of the Company’s own credit risk, if any. Changes in counterparty credit risk are also considered in the valuation of derivative financial instruments.
The Company’s cash and cash equivalents, restricted cash, and held-to-maturity investments are recorded at carrying value, which approximates fair value based on Level 1 measurements.
The Company’s Euro Debt is recorded at carrying value in its consolidated balance sheets, adjusted for foreign currency fluctuations, any unamortized discount, and the unamortized fair value adjustment associated with the early termination of an interest rate swap that was designated as a fair value hedge, which may differ from its fair value (see Note 16). The fair value of the Euro Debt is estimated based on external pricing data, including available quoted market prices of the Euro Debt, and of comparable European debt instruments with similar interest rates, credit ratings, and trading frequency, among other factors. The following table summarizes the carrying value and the estimated fair value of the Company’s Euro Debt:
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| | | | | | | | | | | | | | | | |
| | March 30, 2013 | | March 31, 2012 |
| | Carrying Value | | Fair Value(a) | | Carrying Value | | Fair Value(a) |
| | (millions) |
Euro Debt | | $ | 266.6 |
| | $ | 271.6 |
| | $ | 274.4 |
| | $ | 289.4 |
|
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(a) | Based on Level 2 measurements. |
Unrealized gains or losses on the Company’s Euro Debt do not result in the realization or expenditure of cash, unless the debt is retired prior to its maturity.
Non-financial Assets and Liabilities
The Company’s non-financial instruments, which primarily consist of goodwill, other intangible assets, and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering external market participant assumptions.
During Fiscal 2013, Fiscal 2012, and Fiscal 2011, the Company recorded non-cash impairment charges to reduce the carrying value of certain long-lived assets to their fair value. These charges related to assets of certain underperforming retail stores that were planned for closure, as well as certain stores closed in connection with the Rugby Closure Plan in Fiscal 2013. The fair values of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements included estimates of the amount and the timing of the stores' net future discounted cash flows based on historical experience, current trends, and market conditions. The following table summarizes the impairment charges recorded during Fiscal 2013, Fiscal 2012, and Fiscal 2011:
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| | | | | | | | | | | | |
| | Fiscal Years Ended |
| | March 30,
2013 | | March 31,
2012 | | April 2,
2011 |
| | (millions) |
Aggregate carrying value of long-lived assets written down to fair value | | $ | 19.0 |
| | $ | 3.2 |
| | $ | 5.2 |
|
Impairment charges(a) | | (19.0 | ) | | (2.2 | ) | | (2.5 | ) |
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(a) | See Note 11 for details of impairment charges recorded in Fiscal 2013, Fiscal 2012, and Fiscal 2011. |
