DSW 2010 Annual Report Download - page 34

14.1% for fiscal 2008 as a result of increased average store sales, a reduction in store impairments and disposals of
property and equipment and rent concessions from landlords.
As a percentage of net sales, gross profit for the leased department segment increased to 19.1% for fiscal 2009
from 16.6% for fiscal 2008 due to decreased markdowns. The decrease in markdowns was a result of continued
enhancements to the clearance markdown process and aligning our inventory position to sales demand.
Operating Expenses. Operating expenses as a percentage of net sales were 23.4% and 23.0% for fiscal 2009
and 2008, respectively. Improved operating results increased bonus expense as a percentage of net sales by 110 basis
points. The increase in bonus expense was partially offset by 70 basis points of leverage in other operating expenses
as a percentage of net sales. Further, decreases in store, new store and overhead expenses as a percentage of net sales
were offset by a 60 basis point increase in marketing expense and a 40 basis point increase in depreciation expense.
Store expenses decreased as a percentage of net sales by 60 basis points. New store expenses as a percentage of net
sales decreased by 30 basis points due to DSW opening 32 fewer stores in fiscal 2009 compared to fiscal 2008.
Overhead expenses, excluding bonus expense, decreased as a percentage of net sales by 80 basis points.
Interest Income, Net. Interest income, net of interest expense, was 0.1% and 0.2%, respectively, as a
percentage of net sales for fiscal 2009 and 2008. While cash and short-term investments increased as compared to
fiscal 2008, the increase was offset by a decrease in interest rates.
Non-operating Income (Expense), Net. Non-operating income (expense), net for fiscal 2009 represents
other-than-temporary impairments on our auction rate securities net of realized gains related to the sale of preferred
shares, which were the underlying assets of two auction rate securities. Non-operating expense, net for fiscal 2008
represents other-than-temporary impairments of our auction rate securities.
Income Taxes. Our effective tax rate for fiscal 2009 was 40.4%, compared to 39.3% for fiscal 2008. The
increase in the effective tax rate was primarily a result of the valuation allowance related to other-than-temporary
impairments.
Net Income. For fiscal 2009, net income increased 103.5%, compared to fiscal 2008 and represented 3.4%
and 1.8% of net sales, respectively. This increase was primarily the result of an increase in gross profit partially
offset by an increase in operating expenses.
Liquidity and Capital Resources
Overview
Our primary ongoing cash flow requirements are for inventory purchases, capital expenditures in connection
with our expansion, improving our information systems, the remodeling of existing stores and infrastructure
growth. Our working capital and inventory levels typically build seasonally. We believe that we have sufficient
financial resources and access to financial resources at this time. We are committed to a cash management strategy
that maintains liquidity to adequately support the operation of the business, our growth strategy and to withstand
unanticipated business volatility. We believe that cash generated from DSW operations, together with our current
levels of cash and investments as well as availability under our revolving credit facility, will be sufficient to maintain
our ongoing operations, support seasonal working capital requirements and fund capital expenditures related to
projected business growth for the foreseeable future.
$100 Million Credit Facility. On June 30, 2010, we entered into a $100 million secured revolving credit
facility (the “Credit Facility”) with a term of four years that will expire on June 30, 2014. This facility replaced an
existing $150 million secured revolving credit facility (the “Previous Credit Facility”) that expired July 5, 2010.
Under the Credit Facility, we and our subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are co-borrowers, with
all other subsidiaries listed as guarantors. The Credit Facility may be increased by up to $75 million upon our
request and approval by increasing lenders and subject to customary conditions. The Credit Facility provides for
swing loans of up to $10 million and the issuance of letters of credit up to $50 million. The Credit Facility is secured
by a lien on substantially all of our personal property assets and our subsidiaries with certain exclusions and may be
used to provide funds for general corporate purposes, to refinance existing letters of credit outstanding under our
previous credit arrangement, to provide for our ongoing working capital requirements, and to make permitted
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