Fair Value Measurements

12 Months Ended

Jan. 30, 2021

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 material purchases, sales, issuances, or settlements related to recurring level 3 measurements during fiscal 2020 or 2019. There were no transfers of financial assets or liabilities into or out of level 1, level 2, and level 3 during fiscal 2020 or 2019.

Financial Assets and Liabilities

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


			Fair Value Measurements at Reporting Date Using
($ in millions)	January 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	375	$	25	$	350	$	—
Short-term investments	410		342		68		—
Derivative financial instruments	5		—		5		—
Deferred compensation plan assets	43		43		—		—
Other assets	2		—		—		2
Total	$	835	$	410	$	423	$	2
Liabilities:
Derivative financial instruments	$	21	$	—	$	21	$	—


			Fair Value Measurements at Reporting Date Using
($ in millions)	February 1, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	311	$	19	$	292	$	—
Short-term investments	290		117		173		—
Derivative financial instruments	10		—		10		—
Deferred compensation plan assets	51		51		—		—
Other assets	2		—		—		2
Total	$	664	$	187	$	475	$	2
Liabilities:
Derivative financial instruments	$	10	$	—	$	10	$	—

We have highly liquid investments classified as cash equivalents. 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 investments in cash equivalents are placed primarily in time deposits, money market funds, and debt securities.

Our available-for-sale securities are comprised of investments in debt securities and are recorded within both short-term investments and cash and cash equivalents on the Consolidated Balance Sheets. These securities are recorded at fair value using market prices. As of January 30, 2021 and February 1, 2020, the Company held $410 million and $290 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 Consolidated Balance Sheets. In addition, as of January 30, 2021 and February 1, 2020, the Company held $90 million and $23 million, respectively, 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 Consolidated Balance Sheets. Unrealized gains or losses on available-for-sale debt securities included in accumulated other comprehensive income were immaterial as of January 30, 2021 and February 1, 2020.

The Company regularly reviews its available-for-sale securities for other-than-temporary impairment. The Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment loss during the fiscal years ended January 30, 2021, February 1, 2020 or February 2, 2019.

Derivative financial instruments primarily include foreign exchange forward contracts. See Note 8 of Notes to 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 to defer base compensation and bonus up to a maximum percentage, and non-employee directors to defer receipt of a portion of their Board fees. 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 within other long-term assets on the Consolidated Balance Sheets.

See Note 12 of Notes to Consolidated Financial Statements for information regarding employee benefit plans.

Nonfinancial Assets

Long-lived assets, which for us primarily consist of store assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The estimated fair value of the long-lived assets is based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. For operating lease assets, the Company determines the estimated fair value of the assets by comparing discounted contractual rent payments to estimated market rental rates or other valuation techniques. These fair value measurements qualify as level 3 measurements in the fair value hierarchy.

See Note 1 of Notes to Consolidated Financial Statements for further information regarding the impairment of long-lived assets.

In total, we recorded the following long-lived asset impairment charges in operating expenses in the Consolidated Statements of Operations:


	Fiscal Year
($ in millions)	2020		2019		2018



Operating lease assets (1)	$	391	$	239	$	—



Store assets (2)	135		98		14
Other indefinite-lived intangible assets (3)	31		—		—
Goodwill	—		—		—
Total impairment charges of long-lived and indefinite-lived assets	$	557	$	337	$	14

__________

(1)The impairment charge of operating lease assets reduced the then carrying amount of the applicable operating lease assets of $1,635 million and $865 million to their fair value of $1,244 million and $626 million during fiscal 2020 and fiscal 2019, respectively.

(2)The impairment charge reduced the then carrying amount of the applicable store assets of $143 million, $99 million, and $15 million to their fair value of $8 million, $1 million, and $1 million during fiscal 2020, 2019, and 2018, respectively.

(3)See Note 4 of Notes to Consolidated Financial Statements for further information regarding the impairment of Intermix trade name.

In fiscal 2020, the impact of COVID-19 resulted in a qualitative indication of impairment related to our store long-lived assets. For store locations, we analyzed our store asset recoverability. As a result, we recorded an impairment charge related to store assets and operating lease assets during fiscal 2020. Additionally, in the fourth quarter of fiscal 2020, we performed a strategic review of the Intermix business which resulted in a qualitative indication of impairment related to both our store long-lived assets as well as the Intermix trade name. We recorded an impairment charge of Intermix store assets and operating lease assets of $4 million and $21 million, respectively. See Note 4 of Notes to Consolidated Financial Statements for further information regarding the impairment charge for intangible assets.

In fiscal 2019, we reassessed our operating strategy for flagship stores including an evaluation of whether to exit or sublease certain flagship store locations. Due to this shift in strategy, the Company determined that, for flagship stores, the individual store represents the lowest level of independent identifiable cash flows. As a result, during fiscal 2019, we recorded an impairment charge of store assets and operating lease assets related to flagship stores of $73 million and $223 million, respectively, which was recorded within operating expenses on the Consolidated Statement of Operations. The impairment charge was primarily related to our New York specialty flagship store locations in Times Square for Old Navy Global and Gap Global.