Bath & Body Works, Inc. - 10-Q filing on 2013-06-07

Fair Value Measurements

3 Months Ended

May 04, 2013

The following table provides a summary of the carrying value and fair value of long-term debt as of May 4, 2013, February 2, 2013 and April 28, 2012:



	May 4, 2013		February 2, 2013		April 28, 2012
	(in millions)
Carrying Value	$	4,475	$	4,477	$	4,537
Fair Value (a)	5,071		5,023		4,836

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(a)	The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices which are considered Level 2 inputs in accordance with ASC Topic 820, Fair Value Measurements and Disclosure. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

The authoritative guidance included in ASC Topic 820, establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


•	Level 1 – Quoted market prices in active markets for identical assets or liabilities.


•	Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices of similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


•	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table provides a summary of assets and liabilities measured in the consolidated financial statements at fair value on a recurring basis as of May 4, 2013, February 2, 2013 and April 28, 2012:



	Level 1		Level 2		Level 3		Total
	(in millions)
As of May 4, 2013
Assets:
Cash and Cash Equivalents	$	382	$	—	$	—	$	382
Liabilities:
Cross-currency Cash Flow Hedges	—		58		—		58
Lease Guarantees	—		—		2		2
As of February 2, 2013
Assets:
Cash and Cash Equivalents	$	773	$	—	$	—	$	773
Liabilities:
Cross-currency Cash Flow Hedges	—		59		—		59
Lease Guarantees	—		—		2		2
As of April 28, 2012
Assets:
Cash and Cash Equivalents	$	1,286	$	—	$	—	$	1,286
Interest Rate Designated Fair Value Hedges	—		13		—		13
Liabilities:
Cross-currency Cash Flow Hedges	—		63		—		63
Lease Guarantees	—		—		4		4

The Company’s Level 2 fair value measurements are measured using market approach valuation techniques. The primary inputs to these techniques include benchmark interest rates and foreign currency exchange rates, as applicable to the underlying instruments.

The Company’s Level 3 fair value measurements are measured using income approach valuation techniques. The primary inputs to these techniques include the guaranteed lease payments, discount rates, as well as the Company’s assessment of the risk of default on guaranteed leases.

Management believes that the carrying values of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity.

The following table provides a reconciliation of the Company’s lease guarantees measured at fair value on a recurring basis using unobservable inputs (Level 3) for the first quarter 2013 and 2012:



	First Quarter
	2013		2012
	(in millions)
Beginning Balance	$	2	$	4
Change in Estimated Fair Value Reported in Earnings	—		—
Ending Balance	$	2	$	4

The Company’s lease guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of certain businesses. The fair value of these lease guarantees is impacted by economic conditions, probability of rent obligation payments, period of obligation as well as the discount rate utilized. For additional information, see Note 13, “Commitments and Contingencies.”