Fair Value Measurements

9 Months Ended

Oct. 29, 2016

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Therefore, fair value is a market-based measurement based on assumptions of the market participants. As a basis for these assumptions, the Company classifies its fair value measurements under the following fair value hierarchy:


•	Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are publicly accessible. Active markets have frequent transactions with enough volume to provide ongoing pricing information.


•	Level 2 inputs are other than level 1 inputs that are directly or indirectly observable. These can include unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical assets or liabilities in inactive markets or other observable inputs.


•	Level 3 inputs are unobservable inputs.

Financial Assets and Liabilities- The following table presents financial assets and liabilities at fair value as of the dates presented:



	October 29, 2016								January 30, 2016								October 31, 2015⁽¹⁾
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2

	(in thousands)
Financial assets:
Cash and equivalents	$	60,962	$	60,962	—		—		$	32,495	$	32,495	—		—		$	90,019	$	90,019	—
Short-term investments^(a)	78,512		2,547		$	75,965	—		226,027		2,127		$	223,900	—		—		—		—
Long-term investments^(a)	76,126		405		75,721		—		71,953		181		71,772		—		306,483		4,392		$	302,091
Cost method investments^(b)	7,250		—		—		$	7,250	6,000		—		—		$	6,000	—		—		—
Note receivable from Town Shoes^(c)	44,431		—		44,431		—		33,311		—		33,311		—		45,930		—		45,930
Total financial assets	$	267,281	$	63,914	$	196,117	$	7,250	$	369,786	$	34,803	$	328,983	$	6,000	$	442,432	$	94,411	$	348,021

Financial liabilities:
Stock appreciation rights^(d)	—		—		—		—		$	561	—		$	561	—		$	891	—		$	891
Contingent consideration^(e)	$	58,923	—		—		$	58,923	—		—		—		—		—		—		—
Total financial liabilities	$	58,923	$	—	$	—	$	58,923	$	561	$	—	$	561	$	—	$	891	$	—	$	891

(1) There were no Level 3 measurements as of October 31, 2015.

(a) Short-term and long-term investments are valued using a market-based approach using Level 2 inputs such as prices of similar assets in active markets.

(b) Cost method investments are valued using Level 3 inputs. The fair value approximates the carrying value as there have been no triggering events that would indicate impairment.

(c) The Company estimated the fair value of the note 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 the Company’s intention and ability to hold the note until maturity or the exercise of the put/call option (see Note 2), the carrying value is not other-than-temporarily impaired.

(d) Stock appreciation rights are valued using the Black-Scholes model. The unexercised SARs expired in June 2016, and the Company reversed the remaining liability.

(e) Included in the Level 3 liabilities is the contingent consideration liability related to the Company's acquisition of Ebuys. The liability is adjusted to fair value each reporting period. The categorization of the framework used to price the liability is considered Level 3 due to the subjective nature of the unobservable inputs used to determine the fair value.

Level 3 Measurements- Financial assets and liabilities are considered Level 3 when the fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at least one significant model assumption or input is unobservable.

The following table presents activity related to Level 3 fair value measurements for cost method investments for the periods presented:



	Fiscal period ended
	October 29, 2016		January 30, 2016

	(in thousands)
Carrying value, beginning of period	$	6,000	—
Additional cost method investment	1,250		$	6,000
Carrying value, end of period	$	7,250	$	6,000

The following table presents activity related to Level 3 fair value measurements for DSW Inc.'s contingent consideration liability for the period presented:



	Nine months ended
	October 29, 2016
	(in thousands)
Balance, acquisition date of contingent consideration	$	53,843
Change in fair value of contingent consideration	5,080
Balance, end of period	$	58,923

Non-Financial Assets- The Company evaluates the carrying amount of its long-lived assets, primarily property and equipment, and finite-lived intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. For the nine months ended October 29, 2016, there was no impairment. For the nine months ended October 31, 2015, there was a full impairment related to one store in the ABG segment of $0.4 million, recorded in cost of sales, where the future expected cash flows would not recover the carrying amount of its long-lived assets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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