DSW 2014 Annual Report Download - page 54

Table of Contents
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noncancelable terms of the lease. The Company records the difference between the amounts charged to expense and the rent paid as deferred rent and begins
amortizing such deferred rent upon the delivery of the lease location by the lessor. Deferred rent is included in non-current liabilities.
Construction and Tenant Allowances- The Company receives cash allowances from landlords, which are deferred and amortized on a straight-line basis over
the noncancelable terms of the lease as a reduction of rent expense. Construction and tenant allowances are included in non-current liabilities.
Exit and Disposal Obligations- The Company records a reserve when a store or office facility is abandoned due to closure or relocation. Using its credit-
adjusted risk-free rate to present value the liability, the Company estimates future lease obligations based on remaining lease payments, estimated or actual
sublease payments and any other relevant factors. On a quarterly basis, the Company reassesses the reserve based on current market conditions. See Note 16
for a discussion of exit and disposal obligations.
Accumulated Other Comprehensive Loss- Accumulated other comprehensive loss is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. Fiscal 2014 included foreign currency translation adjustments.
Co-Branded Credit Card- On April 30, 2014, the Company began to offer co-branded credit cards under a seven year agreement with an issuing bank, which
allows members to earn points through purchases at DSW and anywhere that Visa is accepted. DSW provides marketing support for the co-branded credit card
program. The issuing bank is the sole owner of the credit card accounts.
The revenue under this agreement is recorded in net sales. The Company received an upfront signing bonus from the issuing bank, which is recognized on a
straight-line basis over the life of the relationship. The Company receives ongoing payments from the issuing bank for new accounts activated as well as
payments for usage of the cards, which will be recognized over the life of the relationship on a cumulative catch-up basis.
Consistent with the current accounting for the customer loyalty program, costs associated with rewards points and certificates are accrued as the points are
earned by the cardholder and are recorded in cost of sales. Administrative costs related to the co-branded credit card program, including payroll, store
expenses, marketing expenses, depreciation and other direct costs, are recorded in operating expenses.
Foreign Currency Translation and Remeasurement- In anticipation of the equity method investment in Town Shoes, the Company purchased $75 million
CAD, which equated to approximately $69 million USD at the transaction date. As the Company's functional currency is USD, the purchase of CAD resulted
in a foreign currency exchange gain of $0.6 million at the purchase date of Town Shoes. Gains or losses resulting from foreign currency transactions are
included in operating expenses in the consolidated statement of operations, whereas translation adjustments are reported as an element of other
comprehensive income.
The note receivable and the payment-in-kind interest from Town Shoes are denominated in CAD. The functional and reporting currency of Town Shoes is
CAD. As USD is the functional currency of the entity that holds DSW's investment in and note receivable from Town Shoes, the Company is required to
remeasure these balances into USD balances. Each quarter, the income or loss from Town Shoes is remeasured into USD at the average exchange rate for the
period. The note receivable from Town Shoes is remeasured in USD at the exchange rate prevailing at the balance sheet date. As the Company has designated
the note receivable from Town Shoes as an investment of a long-term investment nature, the Company records the translation gains and losses arising from
changes in exchange rates in comprehensive income.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued standard No. 2014-08, which amends the requirement for reporting discontinued
operations in ASC Subtopic 205-20 Discontinued Operations. The amendments in this Update improve the definition of discontinued operations by limiting
discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's
operations and financial results. Under current U.S. GAAP, many disposals, some of which may be routine in nature and not a change in an entity's strategy,
are reported in discontinued operations.The amendments in this Update require expanded disclosures for discontinued operations. Those disclosures should
provide users of financial statements with more information about the assets,
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Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
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