DSW 2010 Annual Report Download - page 39

impairment has occurred, we review information about the underlying investment that is publicly available
and assess our ability to hold the securities for the foreseeable future. Based on the nature of the
impairment(s), we would record temporary impairments as unrealized losses in other comprehensive
income or other-than-temporary impairments in earnings. The investment is written down to its current
market value at the time the impairment is deemed to have occurred.
• Asset Impairment and Long-lived Assets. We periodically evaluate the carrying amount of our long-lived
assets, primarily property and equipment, and finite life 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. Our reviews are conducted at the lowest identifiable level, which
includes a store. The impairment loss recognized is the excess of the carrying amount of the asset or asset
group over its fair value, based on projected discounted cash flows using a discount rate determined by
management. Any impairment loss realized is included in cost of sales. We believe as of January 29, 2011
that the long-lived assets’ carrying amounts and useful lives are appropriate. To the extent these future
projections or our strategies change, the conclusion regarding impairment may differ from our current
estimates.
• Self-insurance Reserves. We record 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. Our 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. We have purchased stop loss
insurance to limit our exposure to any significant exposure on a per person basis for health and welfare and
on a per claim basis for workers’ compensation and casualty insurance. Although we do not anticipate the
amounts ultimately paid will differ significantly from our estimates, self-insurance reserves could be
affected if future claim experience differs significantly from the historical trends and the actuarial
assumptions. For example, for workers’ compensation and liability future claims estimates, a 1% increase
or decrease to the assumptions for claims costs and loss development factors would increase or decrease our
self-insurance accrual by less than $0.1 million.
• Customer Loyalty Program. We maintain a customer loyalty program for the DSW stores and dsw.com 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 six
months after being issued. We accrue the anticipated redemptions of the discount earned at the time of the
initial purchase. To estimate these costs, we make assumptions related to customer purchase levels and
redemption rates based on historical experience. If our redemption rate were to increase or decrease by 5%, it
would result in a decrease or increase of approximately $1.8 million to operating profit.
• Income Taxes. We determine the aggregate amount of income tax expense to accrue and the amount which
will be currently payable based upon tax statutes of each jurisdiction we do business in. In making these
estimates, we adjust income based on a determination of generally accepted accounting principles for items
that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities, as a result
of these differences, are reflected on our balance sheet for temporary differences that will reverse in
subsequent years. A valuation allowance is established against deferred tax assets when it is more likely than
not that some or all of the deferred tax assets will not be realized. If our management had made these
determinations on a different basis, our tax expense, assets and liabilities could be different.
Off-Balance Sheet Arrangements
As of January 29, 2011, we have not entered into any “off-balance sheet” arrangements, as that term is
described by the SEC.
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