DSW 2013 Annual Report Download - page 53

Table of Contents
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and recorded over the vesting period, net of estimated forfeitures. Fair value is determined by multiplying the number of units granted by the grant date closing
market price.
New Store Costs- Costs associated with the opening of stores are expensed as incurred. New store costs, primarily pre-opening rent and marketing expenses,
were $7.9 million, $16.0 million and $6.7 million for fiscal 2013, 2012 and 2011, respectively. New store costs primarily fluctuate with changes in the
number of store openings.
Marketing Expense- The production cost of advertising is expensed when the advertising first takes place. All other marketing costs are expensed as
incurred. Marketing costs were $56.2 million, $55.9 million and $50.9 million in fiscal 2013, 2012 and 2011, respectively.
Other Operating Income- Other operating income consists primarily of income from consignment sales, rental income, income from gift card breakage and
insurance proceeds and is included in operating expenses in the statement of operations. The amount recorded in fiscal 2013, 2012 and 2011 was $14.1
million, $14.5 million and $7.8 million, respectively. Fiscal 2013 included a full year of rental income of $5.1 million. An award of damages of $5.3 million
is included in other operating income in fiscal 2012. See Note 16 for a discussion of the award of damages.
Income Taxes- Income taxes are accounted for using the asset and liability method. DSW is required to 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 in which DSW does business. In making these
estimates, income is adjusted based on a determination of GAAP for items that are treated differently by the applicable taxing authorities. Deferred tax assets
and liabilities, as a result of these differences, are reflected on DSW’s 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.
DSW succeeded to Retail Ventures, Inc.'s ("RVI") tax attributes as a result of the merger with RVI ("the Merger").
Consistent with its historical financial reporting, DSW has elected to classify interest expense related to income tax liabilities, when applicable, as part of
interest expense in its consolidated statements of operations rather than as part of income tax expense. DSW will continue to classify income tax penalties as
part of operating expenses in its consolidated statements of operations.
Discontinued Operations- As a result of RVI’s disposition of Filene’s Basement during fiscal 2009, any changes to the gain on disposal of Filene’s
Basement operations are included in discontinued operations. As a result of RVI’s disposition of an 81% ownership interest in its Value City business during
fiscal 2007, changes to the loss on disposal of Value City are also included in discontinued operations. Any changes in the carrying value of assets with
residual interest in the discontinued business are classified within continuing operations. See Note 4 for a discussion of discontinued operations.
Noncontrolling Interests- The noncontrolling interests represented the portion of legacy DSW’s total shareholders’ equity owned by unaffiliated investors in
DSW prior to the Merger and net income attributable to the unaffiliated investors. The noncontrolling interest percentage was computed by the ratio of shares
held by unaffiliated interests. After the Merger, noncontrolling interests were eliminated.
Earnings Per Share- Basic earnings per share is based on net income and a simple weighted average of common shares outstanding. Diluted earnings per
share reflects the potential dilution of common shares, related to outstanding stock options, restricted stock units and performance-based restricted stock
units. In previous periods, there was also potential dilution of common shares from stock appreciation rights, warrants and PIES. See Note 6 for a detailed
discussion of earnings per share.
Financial Instruments- The following assumptions were used to estimate the fair value of each class of financial instruments:
Cash and Equivalents- Cash and equivalents represent cash, money market funds and credit card receivables that generally settle within three
days. Amounts due from banks for credit card transactions totaled $13.2 million and $13.0 million as of February 1, 2014 and February 2, 2013,
respectively. The carrying amounts of cash and equivalents approximate fair value. DSW also reviews cash balances on a bank by bank basis to
identify book overdrafts. Book overdrafts occur when the amount of outstanding checks exceed the cash deposited at a bank. DSW reclassifies
book overdrafts, if any, to accounts payable.
Restricted Cash- Restricted cash represents cash that is restricted as to withdrawal or usage. The carrying amounts of restricted cash approximate
fair value. The restricted cash balance is recorded in prepaid expenses and other current
F- 10
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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