DSW 2013 Annual Report Download - page 55

Table of Contents
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Allowance for Doubtful Accounts- DSW monitors its exposure for credit losses and records related allowances for doubtful accounts. Allowances are
estimated based upon specific accounts receivable balances, where a risk of default has been identified. The following table summarizes the activity related to
DSW’s allowance for doubtful accounts:
Fiscal years ended
Balance at
Beginning of the
Period
Charged to Expense
Deductions
Balance at End of
the Period
(in thousands)
February 1, 2014
$299
4
—
$303
February 2, 2013
$555
—
(256)
$299
January 28, 2012
$714
532
(691)
$555
Inventories- Merchandise inventories are stated at lower of cost or market, determined using the retail inventory method. The retail inventory method is used
in the retail industry due to its practicality. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are determined
by applying a calculated cost to retail ratio to the retail value of inventories. The cost of the inventory reflected on the balance sheet is decreased by charges to
cost of sales at the time the retail value of the inventory is lowered through the use of markdowns, which are reductions in prices due to customers’ perception
of value. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale. Markdowns establish a new cost basis for inventory.
Changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in the newly established cost basis.
Markdowns require management to make assumptions regarding customer preferences, fashion trends and consumer demand.
Inherent in the calculation of inventories are certain significant management judgments and estimates, including setting the original merchandise retail value,
markdowns, and estimates of losses between physical inventory counts, or shrinkage, which combined with the averaging process within the retail inventory
method, can significantly impact the ending inventory valuation at cost and the resulting gross profit. DSW records a reduction to inventories and a charge to
cost of sales for shrinkage. Shrinkage is calculated as a percentage of sales from the last physical inventory date. Estimates are based on both historical
experience as well as recent physical inventory results. Physical inventory counts are taken on an annual basis and have supported DSW’s shrinkage
estimates.
Property and Equipment- Property and equipment are stated at cost less accumulated depreciation determined by the straight-line method over the expected
useful life of assets. The straight-line method is used to amortize such capitalized costs over the lesser of the expected useful life of the asset or the life of the
lease. The estimated useful lives by class of asset are:
Buildings 39 years
Furniture, fixtures and equipment 3 to 10 years
Building and leasehold improvements 3 to 20 years or the lease term if that is shorter than the normal life of the asset
Asset Impairment and Long-Lived Assets- DSW periodically evaluates the carrying amount of its long-lived assets, primarily property and equipment, and
finite lived intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a
long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset
or asset group. The reviews are conducted at the lowest identifiable level, which has been identified as a store. The impairment loss recognized is the excess of
the carrying value of the asset or asset group over its fair value, based on a discounted cash flow analysis using a discount rate determined by management.
Should an impairment loss be realized, it will generally be included in cost of sales. DSW expensed $0.8 million and $1.6 million in fiscal 2013 and 2011,
respectively, for identified assets where the recorded value could not be supported by projected future cash flows. The impairment charges in fiscal 2011 were
recorded in other, and the impairment charges in fiscal 2013 were recorded in the DSW segment. There were no impairment charges in fiscal 2012.
Goodwill- Goodwill represents the excess cost over the estimated fair values of net assets including identifiable intangible assets of businesses acquired.
Goodwill is tested for impairment at least annually. Management evaluates the fair value of the reporting unit using market-based analysis to review market
capitalization as well as reviewing a discounted cash flow analysis using management’s assumptions. Several factors could result in an impairment charge
such as failure to achieve sufficient levels of cash flow at the reporting unit level or a significant and sustained decline in DSW’s stock price. Significant
judgment is necessary to determine the underlying cause of the decline and whether stock price declines are related to the market or specifically to DSW. DSW
has never recorded a goodwill impairment. As of both February 1, 2014 and February 2, 2013, the balance of goodwill related to the DSW stores was $25.9
million.
F- 12
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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