DSW 2014 Annual Report Download - page 28

Table of Contents
of the award of damages and other RVI operating expenses noted above, operating expenses as a percentage of net sales was 21.2% for fiscal 2012. This 80
basis point decrease as a percentage of net sales over fiscal 2012 was primarily the result of a reduction in pre-opening expenses and a leverage of home office
overhead.
Change in Fair Value of Derivatives
During fiscal 2012, we recorded a non-cash charge of $6.1 million related to the change in fair value of warrants, which were exercised and settled in the first
half of fiscal 2012.
Interest Income, Net
Fiscal 2014 vs. Fiscal 2013- Net interest income was relatively flat for fiscal 2014 compared to fiscal 2013.
Fiscal 2013 vs. Fiscal 2012- In the third quarter of fiscal 2012, we received interest of $1.9 million related to the award of damages from our insurance carrier.
Excluding the impact of the interest related to the award, interest income, net was relatively flat for fiscal 2013 compared to fiscal 2012.
Income from Town Shoes
In fiscal 2014, income from Town Shoes includes interest on the shareholder note, income from Town Shoes' operations, and amortization of purchase price
adjustments.
Income Taxes
Fiscal 2014 vs. Fiscal 2013- Our effective tax rate for fiscal 2014 was 38.5% compared to 38.0% for fiscal 2013. The effective tax rate of 38.5% for fiscal
2014 reflects the impact of federal, state and local, and foreign taxes. A provision for U.S. income tax has not been recorded on undistributed profits of non-
U.S. subsidiaries that the Company has determined to be indefinitely reinvested outside the U.S. Determination of the amount of unrecognized deferred U.S.
income tax liability on these unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation.
Fiscal 2013 vs. Fiscal 2012- The effective tax rate of 38.0% for fiscal 2013 reflects the impact of federal, state and local taxes. The effective tax rate of 39.7%
for fiscal 2012 reflects the impact of federal, state and local taxes and the change in fair value of the warrants, which were included for book income but not in
tax income.
Income from Discontinued Operations
Fiscal 2014 vs. Fiscal 2013- During fiscal 2014, income from discontinued operations, net of tax, is due to the final distribution from the Filene's Basement
debtor's estates, partially offset by an adjustment to the guarantee of a Filene's Basement lease. During fiscal 2013, there was no income from discontinued
operations.
Fiscal 2013 vs. Fiscal 2012- During fiscal 2012, income from discontinued operations, net of tax, was due to reduction in our estimate of liability under lease
guarantees for Filene's Basement.
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We utilize merchandise margin, defined as gross profit excluding occupancy and distribution and fulfillment expenses, a non-GAAP financial measure, to
explain our gross profit performance. Management believes this non-GAAP measure is an indication of our performance as the measure provides a consistent
means of comparing performance between periods and competitors. Management uses this non-GAAP measure to assist in the evaluation of the performance
of our segments and to make operating decisions. Within Management’s Discussion and Analysis, we disclose merchandise margin, store occupancy
expenses and distribution and fulfillment expenses, as a percentage of net sales. In fiscal 2013, we excluded net sales and gross profit related to its luxury test
as these items were not indicative of our future gross profit performance.
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Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
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