DSW 2010 Annual Report Download - page 54

Markdowns establish a new cost basis for inventory. Changes in facts or circumstances do not result in the
reversal of previously recorded markdowns or an increase in the newly established cost basis. The markdown
reserve requires management to make assumptions regarding customer preferences, fashion trends and consumer
demand.
Property and Equipment — Property and equipment are stated at cost less accumulated depreciation deter-
mined by the straight-line method over the expected useful lives of the assets. The straight-line method is used to
amortize such capitalized costs over the lesser of the expected useful life of the asset or the life of the lease. The
estimated useful lives by class of asset are:
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements Shorter of the non-cancellable term of the lease
or 10 years
Asset Impairment and Long-Lived Assets — The Company periodically evaluates the carrying amount of its
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 or asset group. The Company reviews are conducted at the lowest identifiable level, which
includes a store. The impairment loss recognized is the excess of the carrying value of the asset or asset group over
its fair value, based on discounted cash flow analysis using a discount rate determined by management. Should an
impairment loss be realized, it will be included in cost of sales. There were no impairment charges in fiscal 2010.
The Company expensed $0.9 million and $3.3 million in fiscal 2009 and 2008, respectively, of identified assets
where the recorded value could not be supported by projected future cash flows. The impairment charges were
recorded within the DSW reportable segment.
Goodwill — Goodwill represents the excess cost over the estimated fair values of net assets including
identifiable intangible assets of businesses acquired. As of both January 29, 2011 and January 30, 2010, the balance
of goodwill related to the DSW stores was $25.9 million. Goodwill is tested for impairment at least annually.
Management evaluates the fair value of the reporting unit using market-based analysis to review market capital-
ization as well as reviewing a discounted cash flow analysis using management’s assumptions. Several factors could
result in an impairment charge such as failure to achieve sufficient levels of cash flow at the reporting unit level or a
significant and sustained decline in DSW’s stock price. Significant judgment is necessary to determine the
underlying cause of the decline and whether stock price declines are related to the market or specifically to the
Company. The Company has never recorded goodwill impairment.
Tradenames and Other Intangible Assets, net — Tradenames and other intangible assets, net are primarily
comprised of values assigned to tradenames at the time of RVI’s acquisition of the Company. As of January 29, 2011
and January 30, 2010, the gross balance of tradenames was $13.0 million and $12.8 million, respectively. During
fiscal 2010, DSW purchased a merchandise tradename for the amount of $0.2 million, amortizable over five years,
and an indefinite lived tradename for less than $0.1 million. Accumulated amortization for tradenames was
$10.9 million and $10.0 million as of January 29, 2011 and January 30, 2010, respectively. The average useful lives
of tradenames and other intangible assets, net are 14 years and 15 years as of January 29, 2011 and January 30, 2010,
respectively.
Amortization expense for fiscal 2010 was $0.9 million. Future amortization expense associated with the net
carrying amount of intangible assets as of January 29, 2011 is $0.9 million for both fiscal 2011 and fiscal 2012,
$0.3 million in fiscal 2013 and less than $0.1 million in both fiscal 2014 and fiscal 2015.
Equity Investments — The Company accounts for equity investments using the equity method of accounting
when it exercises significant influence over the investment. If the Company does not exercise significant influence,
the Company accounts for the investment using the cost method of accounting.
F-8
DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)