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This excerpt taken from the FL 10-Q filed Dec 10, 2008. Level
3 – Model-derived valuations in which one or
more significant inputs or significant value-drivers are unobservable.
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis at November 1, 2008:
As of November 1, 2008, the Company had $328 million of cash and cash equivalents. Cash equivalents, excluding amounts due from third-party credit card processors, total $252 million and their carrying value approximates its fair value due to their short-term nature. At November 1, 2008, the Company’s auction rate security was classified as available-for-sale, and accordingly is reported at fair value. The fair value of the security is determined by review of the underlying security at each reporting period. The Company’s derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility. Page 15 of 30 The following table is a reconciliation of financial assets and liabilities measured at fair value on a recurring basis classified as Level 3, for the thirty-nine weeks ended November 1, 2008:
The Company has determined that its note receivable from the Northern Group should be classified within Level 3 of the fair value hierarchy. During the first quarter of 2008, the Company determined that the value of the Northern Group note receivable was impaired; accordingly, a charge of $15 million was recorded reducing the fair value to zero. This assessment was based upon management’s review of Northern Group’s financial condition. Additionally, the Company’s Level 3 assets include investments in money market funds classified in short-term investments. The Company assessed the fair value of its money market funds for the Reserve International Liquidity Fund, Ltd. (the “Fund”) and their underlying securities. Based on this assessment, the Company recorded an impairment charge of $3 million, incorporating the valuation at zero for debt securities of Lehman Brothers. The Company has reclassified its investment in shares of the Fund from Level 1 to Level 3 of the fair value hierarchy due to the inherent subjectivity and significant judgment related to the fair value of the shares of the Fund and their underlying securities. Changes in market conditions and the method and timing of the liquidation process of the Fund could result in further adjustments to the fair value and classifications of these investments. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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