The Gap 2014 Annual Report Download - page 64

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52
Fair Value Measurements at Reporting Date Using
($ in millions) February 1, 2014
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents $ 519 $ 196 $ 323 $ —
Derivative financial instruments 64 — 64 —
Deferred compensation plan assets 37 37 — —
Total $ 620 $ 233 $ 387 $ —
Liabilities:
Derivative financial instruments $ 15 $ — $ 15 $ —
We have highly liquid investments classified as cash equivalents, which are placed primarily in money market
funds, time deposits, and commercial paper. These investments are classified as held-to-maturity based on our
positive intent and ability to hold the securities to maturity. We value these investments at their original purchase
prices plus interest that has accrued at the stated rate.
Derivative financial instruments primarily include foreign exchange forward contracts. The principal currencies
hedged against changes in the U.S. dollar are British pounds, Canadian dollars, Euro, and Japanese yen. The fair
value of the Company’s derivative financial instruments is determined using pricing models based on current
market rates. Derivative financial instruments in an asset position are recorded in other current assets or other
long-term assets in the Consolidated Balance Sheets. Derivative financial instruments in a liability position are
recorded in accrued expenses and other current liabilities or lease incentives and other long-term liabilities in the
Consolidated Balance Sheets.
We maintain the Gap Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer
compensation up to a maximum amount. Plan investments are recorded at market value and are 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 in the Consolidated Balance Sheets.
Nonfinancial Assets
As discussed in Note 2 of Notes to Consolidated Financial Statements, we recorded a charge for the impairment
of long-lived assets of $10 million, $1 million, and $8 million in fiscal 2014, 2013, and 2012, respectively. The
impairment charge reduced the then carrying amount of the applicable long-lived assets of $11 million, $2 million,
and $11 million to their fair value of $1 million, $1 million, and $3 million during fiscal 2014, 2013, and 2012,
respectively. The fair value of the long-lived assets was determined using level 3 inputs and the valuation
techniques discussed in Note 1 of Notes to Consolidated Financial Statements.
There were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for fiscal 2014,
2013, or 2012.
Note 8. Derivative Financial Instruments
We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate
fluctuations. Consistent with our risk management guidelines, we hedge a portion of our transactions related to
merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange
forward contracts. These contracts are entered into with large, reputable financial institutions that are monitored
for counterparty risk. The principal currencies hedged against changes in the U.S. dollar are British pounds,
Canadian dollars, Euro, and Japanese yen. Our use of derivative financial instruments represents risk
management; we do not enter into derivative financial contracts for trading purposes.