DSW 2010 Annual Report Download - page 35

acquisitions. Revolving credit loans bear interest under the Credit Facility at our option under: (A) a base rate option
at a rate per annum equal to the highest of (i) the Federal Funds Open Rate (as defined in the Credit Agreement),
plus 0.5%, (ii) the Agent’s prime rate, and (iii) the Daily LIBOR Rate (as defined in the Credit Agreement) plus
1.0%, plus in each instance an applicable margin based upon our revolving credit availability; or (B) a LIBOR
option at rates equal to the one, two, three, or six month LIBOR rates, plus an applicable margin based upon our
revolving credit availability. Swing loans bear interest under the base rate option. Our right to obtain advances under
the credit facility is limited by a borrowing base. In addition, the Credit Facility contains restrictive covenants
relating to the Company’s management and the operation of the Company’s business. These covenants, among
other things, limit or restrict our ability to grant liens on our assets, incur additional indebtedness, enter into
transactions with affiliates, merge or consolidate with another entity, redeem our stock and limit cash dividends up
to the aggregate amount of 50% of the previous year’s net income, not to exceed $50.0 million. Additional
covenants limit our payments for capital expenditures to $75.0 million in any fiscal year, and if we have direct
borrowings greater than $25.0 million, our credit facility also requires that we maintain a fixed charge coverage
ratio of not less than 1.1 to 1.0. We paid $46.7 million for capital expenditures in fiscal 2010. As of January 29,
2011, we were not required to calculate the fixed charge coverage ratio as we did not have direct borrowings greater
than $25.0 million. We had availability under the Credit Facility of $80.8 million, outstanding letters of credit of
$19.2 million and were in compliance with all covenants related to the Credit Facility.
Net Working Capital. Net working capital is defined as current assets less current liabilities. Net working
capital increased $81.2 million to $463.5 million as of January 29, 2011 from $382.3 million as of January 30, 2010.
The increase in net working capital was primarily related to the increase in cash and short-term investments as a
result of operating cash flow and a planned inventory increase. The increase in current assets was partially offset by
an increase in accounts payable primarily related to the inventory increase. As of January 29, 2011 and January 30,
2010, the current ratio was 2.8 and 2.7, respectively.
Net working capital increased $86.6 million to $382.3 million as of January 30, 2010 from $295.7 million as of
January 31, 2009. The increase in net working capital was primarily related to the increase in cash and short-term
investments as a result of operating cash flow and a planned inventory increase. The increase in current assets was
partially offset by an increase in accounts payable primarily related to the inventory increase, accrued bonus related
to improved operating results and accrued taxes related to the increase in earnings before income taxes. As of
January 30, 2010 and January 31, 2009, the current ratio was 2.7 and 2.9, respectively.
Operating Activities
Net cash provided by operations in fiscal 2010 decreased to $140.9 million from $164.5 million for fiscal 2009.
Net income increased $52.9 million but was offset by income tax related items and the planned inventory increase
net of the related increase in accounts payable.
Net cash provided by operations in fiscal 2009 was $164.5 million, compared to $97.1 million for fiscal 2008.
The increase in net cash provided by operations during fiscal 2009 was primarily due to the increase in net income
and changes in net working capital.
We operate all our stores, our distribution and fulfillment centers and our office facilities from leased facilities.
All lease obligations are accounted for as operating leases. We disclose the minimum payments due under operating
leases in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Although our plan of continued expansion could place increased demands on our financial, managerial,
operational and administrative resources and result in increased demands on management, we do not believe that
our anticipated growth plan will have an unfavorable impact on our operations or liquidity. Uncertainty in the
United States economy could result in reductions in customer traffic and comparable sales in our existing stores
with the resultant increase in inventory levels and markdowns. Reduced sales may result in reduced operating cash
flows if we are not able to appropriately manage inventory levels or leverage expenses. These potential negative
economic conditions may also affect future profitability and may cause us to reduce the number of future store
openings, impair goodwill or impair long-lived assets.
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