FAIR VALUE MEASUREMENTS
The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
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| | | |
• | Level 1 | – | Observable inputs that reflect quoted prices in active markets |
• | Level 2 | – | Inputs other than quoted prices in active markets that are either directly or indirectly observable |
• | Level 3 | – | Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The assets and liabilities of the Company that are measured at fair value on a recurring basis as of February 2, 2014 and February 3, 2013 were as follows (amounts in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at February 2, 2014 Using | | Fair Value at February 3, 2013 Using |
| Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Derivative agreements - assets | $ | — |
| | $ | 30 |
| | $ | — |
| | $ | — |
| | $ | 64 |
| | $ | — |
|
Derivative agreements - liabilities | — |
| | (10 | ) | | — |
| | — |
| | (15 | ) | | — |
|
Total | $ | — |
| | $ | 20 |
| | $ | — |
| | $ | — |
| | $ | 49 |
| | $ | — |
|
The Company uses derivative financial instruments from time to time in the management of its interest rate exposure on long-term debt and its exposure on foreign currency fluctuations. The fair value of the Company’s derivative financial instruments was measured using level 2 inputs. The Company’s derivative agreements are discussed further in Note 3.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Upon announcement in fiscal 2012 of its intention to close seven stores in China, the Company completed an assessment on the recoverability of Goodwill for its China reporting unit. The fair value of the China reporting unit was estimated using the present value of expected future discounted cash flows through unobservable inputs (level 3). As a result of this analysis, the Company recorded a $97 million impairment charge to Goodwill in fiscal 2012. See Note 8 for further discussion of the China store closings.
Long-lived assets, the remaining goodwill and other intangible assets were also analyzed for impairment on a nonrecurring basis using fair value measurements with unobservable inputs (level 3). Impairment charges related to long-lived assets, the remaining goodwill and other intangible assets in fiscal 2013 and 2012 were not material, as further discussed in Note 1 under the captions "Impairment of Long-Lived Assets" and "Goodwill and Other Intangible Assets," respectively.
The aggregate fair value of the Company’s senior notes, based on quoted market prices, was $15.6 billion and $12.2 billion at February 2, 2014 and February 3, 2013, respectively, compared to a carrying value of $14.2 billion and $10.3 billion at February 2, 2014 and February 3, 2013, respectively.
