DSW 2009 Annual Report Download - page 30

DSW is primarily responsible for controlling and contesting any audit or other tax proceeding with respect to
the Consolidated Group or any Combined Group. In cases involving taxes relating to a spin-off, we have the right to
control decisions to resolve, settle or otherwise agree to any deficiency, claim or adjustment with respect to any item
for which we are solely liable under the tax separation agreement. Pursuant to the tax separation agreement, we have
the right to control and contest any audit or tax proceeding that relates to any tax returns that include only us and our
subsidiaries. We and Retail Ventures have joint control over decisions to resolve, settle or otherwise agree to any
deficiency, claim or adjustment for which we and Retail Ventures could be jointly liable, except in cases involving
taxes relating to a spin-off. Disputes arising between the parties relating to matters covered by the tax separation
agreement are subject to resolution through specific dispute resolution provisions.
We have been included in the Consolidated Group for periods in which Retail Ventures owned at least 80% of
the total voting power and value of our outstanding stock. Following completion of our initial public offering in July
2005, we are no longer included in the federal Consolidated Group. Each member of a consolidated group for
U.S. federal income tax purposes is jointly and severally liable for the U.S. federal income tax liability of each other
member of the consolidated group. Similarly, in some state and local jurisdictions, each member of a consolidated,
combined or unitary group is jointly and severally liable for the state and local income tax liability of each other
member of the consolidated, combined or unitary group. Accordingly, although the tax separation agreement
allocates tax liabilities between us and Retail Ventures, for any period in which we were included in the
Consolidated Group or a Combined Group, we could be liable in the event that any income tax liability was
incurred, but not discharged, by any other member of the Consolidated Group or a Combined Group.
Present and future majority-owned affiliates of DSW or Retail Ventures will be bound by our agreements,
unless Retail Ventures or we, as applicable, consent to grant a release of an affiliate (such consent cannot be
unreasonably withheld, conditioned or delayed), which may limit our ability to sell or otherwise dispose of such
affiliates. Additionally, a minority interest participant(s) in a future joint venture, if any, would need to evaluate the
effect of the tax separation agreement on such joint venture, and such evaluation may negatively affect their
decision whether to participate in such a joint venture. Furthermore, the tax separation agreement may negatively
affect our ability to acquire a majority interest in a joint venture.
For fiscal years after fiscal 2007, DSW and RVI will no longer reimburse each other for the benefits or
detriments derived from combined and unitary state and local filing positions.
Critical Accounting Policies and Estimates
As discussed in Note 1 to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K, the preparation of our consolidated financial statements in conformity with generally accepted
accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial
statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we
evaluate our estimates and judgments, including, but not limited to, those related to inventory valuation, invest-
ments, depreciation, amortization, recoverability of long-lived assets (including intangible assets), estimates for
self-insurance reserves for health and welfare, workers’ compensation and casualty insurance, investments, income
taxes and revenue recognition. We base these estimates and judgments on our historical experience and other factors
we believe to be relevant, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. The process of determining significant
estimates is fact-specific and takes into account factors such as historical experience, current and expected
economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We constantly re-evaluate
these significant factors and make adjustments where facts and circumstances dictate.
While we believe that our historical experience and other factors considered provide a meaningful basis for the
accounting policies applied in the preparation of the consolidated financial statements, we cannot guarantee that our
estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of
judgment, actual results inevitably will differ from those estimates, and such differences may be material to our
financial statements.
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