FAIR VALUE MEASUREMENTS
Financial Assets and Liabilities- Financial assets and liabilities measured at fair value on a recurring basis consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| February 3, 2018 | | January 28, 2017 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| (in thousands) |
Financial Assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 175,932 |
| | $ | 175,932 |
| | $ | — |
| | $ | — |
| | $ | 110,657 |
| | $ | 110,657 |
| | $ | — |
| | $ | — |
|
Short-term investments | 124,605 |
| | — |
| | 124,605 |
| | — |
| | 98,530 |
| | 2,446 |
| | 96,084 |
| | — |
|
Long-term investments | — |
| | — |
| | — |
| | — |
| | 77,904 |
| | 431 |
| | 77,473 |
| | — |
|
| $ | 300,537 |
| | $ | 175,932 |
| | $ | 124,605 |
| | $ | — |
| | $ | 287,091 |
| | $ | 113,534 |
| | $ | 173,557 |
| | $ | — |
|
Financial Liabilities - | | | | | | | | | | | | | | | |
Contingent consideration | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 33,204 |
| | $ | — |
| | $ | — |
| | $ | 33,204 |
|
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 33,204 |
| | $ | — |
| | $ | — |
| | $ | 33,204 |
|
The short-term and long-term investments categorized as Level 2 were valued using a market-based approach using inputs such as prices of similar assets in active markets. See Note 14, Commitments and Contingencies, for the estimated fair value (categorized as Level 3) of the contingent consideration liability and changes recognized.
We have financial assets and liabilities not required to be measured at fair value on a recurring basis, which primarily consist
of accounts receivables, notes receivable from Town Shoes, and accounts payables. The carrying value of accounts receivables and accounts payables approximated their fair values due to their short-term nature. As of February 3, 2018, the fair value of the notes receivable from Town Shoes was $117.8 million, compared to the carrying value of $115.9 million. As of January 28, 2017, the fair value of the note receivable from Town Shoes was $45.7 million, compared to the carrying value of $53.1 million. We estimated the fair value of the notes receivable based upon current interest rates offered on similar instruments. The change in fair value is based on the change in comparable rates on similar instruments. Based on our intention and ability to hold the notes until maturity or the exercise of the put/call option, the carrying value is not other-than-temporarily impaired.
Non-Financial Assets- Impairment charges recognized are based on Level 3 inputs. During fiscal 2017, as a result of recurring operating losses incurred by Ebuys since its acquisition, which led to our decision to exit the business and as discussed in Note 1, Significant Accounting Policies, we recorded impairment charges related to Ebuys, which resulted in writing off all of Ebuys' goodwill and long-lived assets. During fiscal 2016 and 2015, we recorded impairment charges primarily on store leasehold improvement assets in the DSW segment of $0.2 million and $1.0 million, respectively, which were included in operating expenses. We determined that the carrying value exceeded the expected future cash flows and recorded an impairment after determining fair value based on the discounted future cash flow analysis using a discount rate determined by management based on historical performance and expectations of future performance. After the impairment losses were recorded, the remaining fair value of the assets are immaterial.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.