DSW 2013 Annual Report Download - page 54

Table of Contents
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assets on the consolidated balance sheets and primarily consists of a mandatory cash deposit with the lender for outstanding letters of credit, as
detailed in Note 10.
Investments- DSW determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each
balance sheet date. If DSW has the intent and ability to hold the investments to maturity, investments are classified as held-to-maturity. Held-to-
maturity securities are stated at amortized cost plus accrued interest. Otherwise, investments are classified as available-for-sale. All income generated
from these investments is recorded as interest income. DSW evaluates its investments for impairment and whether impairment is other-than-
temporary at each balance sheet date. Please see Note 8 for additional discussion of DSW’s investments.
Accounts Receivable- Accounts receivable are classified as current assets because the average collection period is generally shorter than one year.
Accounts receivable are primarily construction and tenant allowance receivables from landlords and receivables from DSW's affiliated business
partners. The carrying amount approximates fair value because of the relatively short average collection period.
Derivative Financial Instruments- In accordance with ASC 815, Derivatives and Hedging, DSW, and prior to the Merger, RVI, recognized all
derivatives on the balance sheet at fair value. For derivatives that are not designated as hedges under ASC 815, changes in the fair values were
recognized in earnings in the period of change. There were no derivatives designated as hedges outstanding as of February 1, 2014 or February 2,
2013. DSW does not hold or issue derivative financial instruments for trading purposes. DSW, and prior to the Merger, RVI, estimated the fair
values of derivatives based on the Black-Scholes pricing model using current market information.
The embedded exchange feature of the Premium Income Exchangeable Securities ("PIES") was accounted for as a derivative, which was recorded at
fair value with changes in fair value in the statement of operations. Accordingly, the accounting for the embedded derivative addressed the variations
in the fair value of the obligation to settle the PIES when the market value exceeded or was less than the threshold appreciation price. See Note 10 for
a detailed discussion of DSW’s derivative financial instruments.
Concentration of Credit Risk- Financial instruments, which principally subject DSW to concentration of credit risk, consist of cash and equivalents and
investments. DSW invests excess cash when available through financial institutions in money market accounts and short-term and long-term investments. At
times, such amounts invested through banks may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits, and DSW mitigates the
risk by utilizing multiple banks.
Concentration of Vendor Risk- During fiscal 2013, 2012 and 2011, merchandise supplied to DSW by three key vendors accounted for approximately
19%, 18% and 19% of net sales, respectively.
Fair Value- 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, DSW 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.
F- 11
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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