Fair Value Measurements

6 Months Ended

Jul. 28, 2012

Fair Value Measurements

Note 5. Fair Value Measurements

There were no purchases, sales, issuances, or settlements related to recurring level 3 measurements during the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011. There were no transfers into or out of level 1 and level 2 during the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011.

Financial Assets and Liabilities

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

			Fair Value Measurements at Reporting Date Using
($ in millions)	July 28, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,027	$	216	$	811	$	—
Short-term investments		75		—		75		—
Derivative financial instruments		16		—		16		—
Deferred compensation plan assets		25		25		—		—
Total	$	1,143	$	241	$	902	$	—
Liabilities:
Derivative financial instruments	$	9	$	—	$	9	$	—
			Fair Value Measurements at Reporting Date Using
($ in millions)	January 28, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,009	$	224	$	785	$	—
Short-term investments		—		—		—		—
Derivative financial instruments		13		—		13		—
Deferred compensation plan assets		22		22		—		—
Total	$	1,044	$	246	$	798	$	—
Liabilities:
Derivative financial instruments	$	14	$	—	$	14	$	—
			Fair Value Measurements at Reporting Date Using
($ in millions)	July 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant  Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,169	$	211	$	958	$	—
Short-term investments		75		—		75		—
Derivative financial instruments		2		—		2		—
Deferred compensation plan assets		25		25		—		—
Total	$	1,271	$	236	$	1,035	$	—
Liabilities:
Derivative financial instruments	$	68	$	—	$	68	$	—

We have highly liquid investments classified as cash equivalents and short-term investments, 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. Money market funds of $211 million as of July 30, 2011 have been reclassified from cash to cash equivalents and are included as level 1 measurements in the table above. This correction had no impact on the Condensed Consolidated Financial Statements for any period reported.

Derivative financial instruments primarily include foreign exchange forward contracts. The principal currencies hedged against changes in the U.S. dollar are the Euro, British pound, Japanese yen, and Canadian dollar. 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 Condensed 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 Condensed 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 Condensed Consolidated Balance Sheets.

Nonfinancial Assets

We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.

There were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011. There were no material impairment charges recorded for other long-lived assets for the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011.