DSW 2013 Annual Report Download - page 37

Table of Contents
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Customer Loyalty Program. We maintain a
customer loyalty program for the DSW stores and
dsw.com sales channels in which program members
earn reward certificates that result in discounts on
future purchases. Upon reaching the target-earned
threshold, the members receive reward certificates
for these discounts which expire three months after
being issued (in the fourth quarter of fiscal 2013, the
rewards certificate expiration period was reduced
from six months to three months). We accrue the
anticipated redemptions of the discount earned at the
time of the initial purchase.
To estimate these costs, we make assumptions
related to customer purchase levels and redemption
rates based on historical experience.
If our redemption rate were to increase or decrease
by 5%, it would result in an increase or a
decrease of approximately $2.5 million to the
reserve at year end.
Income Taxes. We determine the aggregate amount of
income tax expense to accrue and the amount which
will be currently payable based upon tax statutes of
each jurisdiction we do business in. Deferred tax
assets and liabilities, as a result of these differences,
are reflected on our balance sheet for temporary
differences that will reverse in subsequent years. A
valuation allowance is established against deferred
tax assets when it is more likely than not that some
or all of the deferred tax assets will not be realized.
In making these estimates, we adjust income based
on a determination of generally accepted accounting
principles for items that are treated differently by the
applicable taxing authorities. If our management had
made these determinations on a different basis, our
tax expense, assets and liabilities could be different.
Although we believe that our estimates are
reasonable, actual results could differ from these
estimates resulting in an outcome that may be
materially different from that which is reflected
in our consolidated financial statements.
Stock-based Compensation. We recognize
compensation expense for stock option awards and
time-based restricted stock awards on a straight-line
basis over the requisite service period of the award
for the awards that actually vest.
We use the Black-Scholes pricing model to value
stock-based compensation expense, which requires
us to estimate the expected term of the stock options
and expected future stock price volatility over the
expected term.
If our expected term estimate were to decrease by
one year, it would result in an increase of $0.3
million to operating profit. If our expected term
estimate were to increase by one year, it would
result in a decrease of $0.1 million to operating
profit.
Exit and Disposal Obligations. We record a reserve
when a store or office facility is abandoned due to
closure or relocation. On a quarterly basis, we
reassess the reserve based on current market
conditions.
Using our credit-adjusted risk-free rate to present
value the liability, we estimate future lease
obligations based on remaining lease payments,
estimated or actual sublease payments and any other
relevant factors.
A 2% change to our expected sublease rentals
would result in a $1.2 million change to our
estimate.
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As of February 1, 2014, we have not entered into any “off-balance sheet” arrangements, as that term is described by the SEC.
 
Cash and Equivalents and Investments- Our cash and equivalents have maturities of 90 days or fewer. At times, cash and equivalents may be in excess of
Federal Deposit Insurance Corporation (“FDIC”) insurance limits. We also have investments in various short-term and long-term investments. Our available-
for-sale investments generally renew every 7 days, but have longer maturities, and we also have held-to-maturity investments that have terms greater than 365
days. These financial instruments may be subject to interest rate risk through lost income should interest rates increase during their term to maturity and thus
may limit our ability to invest in higher income investments.
$50 Million Credit Facility and $50 Million Letter of Credit Agreement As of February 1, 2014, there was no long-term debt outstanding. Future
borrowings, if any, would bear interest at rates in accordance with our credit facility and credit agreement and would be subject to interest rate risk. Because
we have no outstanding debt, we do not believe that a hypothetical adverse change of 1% in interest rates would have a material effect on our financial position.
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Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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