DSW 2009 Annual Report Download - page 51

The Company evaluates its investments for impairment and whether impairment is other-than-temporary.
In fiscal 2009 and 2008, the Company recognized other-than-temporary impairments of $2.9 million,
excluding realized gains of $0.5 million, and $1.1 million, respectively, as non-operating expense. The
Company did not recognize any impairment on investments during fiscal 2007. Please see Note 5 for additional
discussion of the Company’s investments.
Accounts Receivable — Accounts receivable are classified as current assets because the average col-
lection period is generally less than one year. The carrying amount approximates fair value because of the
relatively short average maturity of the instruments and no significant change in interest rates.
Concentration of Credit Risk — Financial instruments, which principally subject the Company to concen-
tration of credit risk, consist of cash, equivalents and short-term investments. The Company invests excess cash
when available through financial institutions in overnight investments. At times, such amounts may be in excess of
Federal Deposit Insurance Corporation (“FDIC”) insurance limits.
Concentration of Vendor Risk — During fiscal 2009, 2008 and 2007, merchandise supplied to the Company by
three key vendors accounted for approximately 21%, 20% and 21% of net footwear sales.
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. As of January 30, 2010 and January 31, 2009, the Company’s allowances
for doubtful accounts were $1.3 million and $0.8 million, respectively. The increase in the allowance was primarily
related to the collectability of a receivable from Filene’s Basement prior to its bankruptcy. All other references to
“Filene’s Basement” refer to the stores operated by Syms unless otherwise stated. The following table summarizes
the activity related to the Company’s allowance for doubtful accounts:
Fiscal Years Ended
Beginning
Balance Expenses Deductions
Ending
Balance
(In thousands)
January 30, 2010 . ............................ $778 869 (305) $1,342
January 31, 2009 . ............................ 399 1,207 (828) 778
February 2, 2008 . ............................ 115 286 (2) 399
Inventories — Merchandise inventories are stated at net realizable value, determined using the first-in, first-
out basis, or market, using the retail inventory method. The retail method is widely 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 calculated 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.
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 method, can
significantly impact the ending inventory valuation at cost and the resulting gross profit.
DSW records a reduction to inventories and 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 the
Company’s shrinkage estimates.
Markdowns represent the excess of the carrying value over the amount the Company expect to realize from the
ultimate disposition of the inventory. Factors considered in the determination of markdowns include customer
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DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)