DSW 2014 Annual Report Download - page 53

Table of Contents


combined with the averaging process within the retail inventory method, can significantly impact the ending inventory valuation at cost and the resulting
gross profit. The Company 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. Stores physical inventory
counts are taken on an annual basis and have supported 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- The Company 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. The Company expensed $5.1 million and $0.8 million in
fiscal 2014 and 2013, respectively, for assets where the recorded value could not be supported by projected future cash flows. The impairment charges in
fiscal 2014 and 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 fair value 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 or a significant and sustained decline in 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 Inc. The Company has never recorded a goodwill impairment. As of
January 31, 2015 and February 1, 2014, the balance of goodwill related to DSW was $25.9 million.
Self-insurance Reserves- The Company records estimates for certain health and welfare, workers' compensation and casualty insurance costs that are self-
insured programs. Self-insurance reserves include actuarial estimates of both claims filed, carried at their expected ultimate settlement value, and claims
incurred but not yet reported. The liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. Estimates for health and
welfare, workers’ compensation and general liability are calculated utilizing claims development estimates based on historical experience and other factors.
The Company has purchased stop loss insurance to limit its exposure on a per person basis for health and welfare and on a per claim basis for workers'
compensation and general liability, as well as on an aggregate annual basis. The self-insurance reserves were $4.0 million and $3.0 million as of January 31,
2015 and February 1, 2014, respectively.
Customer Loyalty Program- The Company maintains a customer loyalty program for DSW 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. The Company accrues the anticipated redemptions of the discount earned at the time of the initial purchase. To estimate these
costs, the Company makes assumptions related to customer purchase levels and redemption rates based on historical experience.
Legal Proceedings and Claims- The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company
estimates the range of liability related to pending litigation where the amount of the range of loss can be estimated. The Company records its best estimate of
a loss when the loss is considered probable, including an estimate of legal fees to be incurred. When a liability is probable and there is a range of estimated
loss, the Company records an estimate of the amount of the liability related to the claim. See Note 16 for a discussion of legal proceedings.
Deferred Rent- Many of the Company’s operating leases contain predetermined fixed increases of the minimum rentals during the initial lease terms. For
these leases, the Company recognizes the related rental expense on a straight-line basis over the
F- 13
Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.