DSW 2014 Annual Report Download - page 52

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Restricted Cash- Restricted cash represents cash that is restricted as to withdrawal or usage. The carrying amount of restricted cash approximates
fair value. The restricted cash balance is recorded in prepaid expenses and other current assets on the consolidated balance sheets and primarily
consists of a mandatory cash deposit with the lender for outstanding letters of credit, as detailed in Note 10.
Investments- The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at
each balance sheet date. If the Company has the intent and ability to hold the investments to maturity, investments are classified as held-to-
maturity. Held-to-maturity securities are stated at amortized cost plus accrued interest. Otherwise, investments are classified as available-for-sale.
All income generated from these investments is recorded as interest income. The company evaluates its investments for impairment and whether
impairment is other-than-temporary at each balance sheet date. See Note 8 for additional discussion of investments.
Accounts and Notes Receivable- Accounts receivable are classified as current assets because the average collection period is generally shorter than
one year. Accounts receivable are primarily construction and tenant allowance receivables from landlords and receivables from DSW Inc.'s
affiliated business partners. The carrying amount approximates fair value because of the relatively short average collection period. The shareholder
note receivable for Town Shoes is valued based on similar assets in active markets. The note receivable is classified as long-term as it is due in
2022.
Concentration of Credit Risk- Financial instruments, which principally subject the Company to concentration of credit risk, consist of cash and equivalents
and investments. The Company invests excess cash when available through financial institutions in money market accounts and short-term and long-term
investments. At times, such amounts invested through banks may be in excess of FDIC insurance limits, and the Company mitigates the risk by utilizing
multiple banks.
Concentration of Vendor Risk- During fiscal 2014, 2013 and 2012, merchandise supplied by three key vendors accounted for approximately 18%, 19% and
18% of net sales, respectively.
Fair Value- Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Therefore, fair value is a market-based measurement based on assumptions of the market participants. As a basis for
these assumptions, the Company classifies its fair value measurements under the following fair value hierarchy:
• Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are publicly accessible. Active markets have
frequent transactions with enough volume to provide ongoing pricing information.
• Level 2 inputs are other than level 1 inputs that are directly or indirectly observable. These can include unadjusted quoted prices for similar
assets or liabilities in active markets, unadjusted quoted prices for identical assets or liabilities in inactive markets or other observable inputs.
• Level 3 inputs are unobservable inputs.
Allowance for Doubtful Accounts- The Company 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. For the fiscal years ended January 31, 2015 and
February 1, 2014, the ending balance was $0.1 million and $0.3 million, respectively.
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
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Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
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