v3.6.0.2
Acquisition and Equity Method Investment
 12 Months Ended
Jan. 28, 2017
Equity Method Investments and Joint Ventures [Abstract]  
Business Combination Disclosure [Text Block]
ACQUISITION AND EQUITY INVESTMENT

Acquisition of Ebuys- On March 4, 2016, we acquired 100% ownership of Ebuys for cash and future amounts to be paid to the sellers of Ebuys contingent upon achievement of certain milestones. During fiscal 2016, we had purchase price adjustments based on working capital adjustments and measurement period adjustments of the contingent consideration liability, based on additional information about facts and circumstances that existed at the acquisition date that were obtained after that date. We also made various measurement period adjustments for the assets and liabilities acquired.

The final purchase price and the allocation of the total consideration to the fair values of the assets and liabilities acquired consisted of the following:
 
Preliminary
Purchase Price
as of March 4, 2016
 
Adjustments
 
Final
Purchase Price
as of January 28, 2017
 
(in thousands)
Purchase price:
 
 
 
 
 
Cash consideration
$
60,411

 
$
(635
)
 
$
59,776

Contingent consideration
56,000

 
(2,645
)
 
53,355

 
$
116,411

 
$
(3,280
)
 
$
113,131

Fair value of assets and liabilities acquired:
 
 
 
 
 
Accounts and other receivables
$
1,623

 
$
(287
)
 
$
1,336

Inventory
30,152

 
18

 
30,170

Other current assets
191

 
335

 
526

Property and equipment
1,221

 
22

 
1,243

Goodwill
54,785

 
(995
)
 
53,790

Intangible assets
41,301

 
(2,600
)
 
38,701

Accounts payable and other long-term liabilities
(12,862
)
 
227

 
(12,635
)
 
$
116,411

 
$
(3,280
)
 
$
113,131



The fair value of intangible assets includes $22.3 million for online retailer and customer relationships based on using the excess earnings method, $11.0 million for tradenames based on using the relief from royalty method, and $5.4 million for non-compete agreements based on using the with-and-without method. The categorization of the fair value framework used for these methods are considered Level 3 due to the subjective nature of the unobservable inputs used to determine the fair value.

The goodwill represents the intangible assets that do not qualify for separate recognition and is primarily the result of expected synergies, vertical integration as a market for selling aged inventory, online presence, and the acquired workforce. Goodwill related to this acquisition is deductible for income tax purposes.

During the fourth quarter of fiscal 2016, we also made fair value adjustments to the contingent consideration liability based on Ebuys' results of operations during the year and revised projections for the contingent periods. These adjustments were not considered measurement period adjustments and were recognized as an adjustment to income from operations. See Note 15, Commitments and Contingencies, for differences recognized between the final acquisition-date fair value and the estimated settlement of the obligation as of January 28, 2017.

The following table provides the supplemental unaudited pro forma net sales and net income of the combined entity had the acquisition date of Ebuys been the first day of our fiscal 2015 (pro forma results have not been presented for fiscal 2016 as the results would not have been materially different from those presented in our consolidated statements of operations):
 
Fiscal 2015
 
(in thousands)
Net sales
$
2,699,770

Net income
$
135,600



The amounts in the supplemental pro forma earnings apply our accounting policies and reflect adjustments for additional depreciation and amortization that would have been charged assuming the same fair value adjustments to property and equipment and acquired intangibles had been applied on the first day of our fiscal 2015. These pro forma results are unaudited and are not necessarily indicative of results of operations that would have occurred had the acquisition actually occurred in the prior year period or indicative of the results of operations for any future period.

During fiscal 2016, our consolidated statements of operations included sales and net losses for Ebuys of $83.8 million and $5.6 million, respectively.
Equity Method Investments and Joint Ventures Disclosure [Text Block]
Equity Investment in Town Shoes- In May 2014, we acquired a 49.2% interest in Town Shoes for $75.1 million Canadian dollars ("CAD") ($68.9 million United States Dollars ("USD")), which included the purchase of an unsecured subordinated note from Town Shoes issued on February 14, 2012 that earns payment-in-kind interest at 12% and matures on February 14, 2022. As of January 28, 2017, our ownership percentage was 46.3%. The dilution of our ownership is due to Town Shoes' employee exercise of stock options. Our ownership stake provides 50% voting control and board representation equal to the co-investor.

Additionally, the Town Shoe co-investor holds a put option to sell the remaining portion of the company in fiscal 2017 to DSW Inc., and for the subsequent two years. We hold a call option to purchase the remaining portion of the company in fiscal 2018, and for the subsequent two years, if the Town Shoe co-investor has not exercised their put option. During fiscal 2015, we purchased $100 million of cash denominated in CAD to take advantage of the strength of the dollar and in anticipation of funding the future purchase of the remaining interest in Town Shoes. As this was a cash transaction, we recorded $3.3 million in foreign currency exchange gains related to the purchase of the cash denominated in CAD within non-operating income. Also during fiscal 2015, we then invested the cash denominated in CAD in available-for-sale securities denominated in CAD, with any foreign currency exchange gains or losses recorded within other comprehensive income.

Activity related to our equity investment in Town Shoes was as follows:
 
Fiscal
 
2016
 
2015
 
(in thousands)
Equity investment in Town Shoes - beginning of period
$
21,188

 
$
25,887

Acquisition costs adjustment
—

 
(184
)
Portion of Town Shoes loss
(4,592
)
 
(5,250
)
Foreign currency translation adjustments, included in other comprehensive income (loss)
(486
)
 
934

Amortization of purchase price adjustments
(280
)
 
(199
)
Equity investment in Town Shoes - end of period
$
15,830

 
$
21,188



Activity related to our note receivable from Town Shoes was as follows:
 
Fiscal
 
2016
 
2015
 
(in thousands)
Note receivable from Town Shoes - beginning of period
$
44,170

 
$
43,304

Payment-in-kind interest earned
5,613

 
5,098

Foreign currency translation adjustments, included in other comprehensive income (loss)
2,770

 
(4,232
)
Management service fee
568

 
—

Note receivable from Town Shoes - end of period
$
53,121

 
$
44,170



Payment-in-kind interest earned is paid annually and is subsequently returned to Town Shoes as additional amounts borrowed under the terms of the note receivable.