DSW 2010 Annual Report Download - page 55

Self-insurance Reserves — The Company records estimates for certain health and welfare, workers com-
pensation 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. The 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. The Company has purchased stop loss
insurance to limit its exposure to any significant exposure on a per person basis for health and welfare and on a per
claim basis for workers compensation and general liability. The self-insurance reserves were $2.3 million and
$2.8 million as of January 29, 2011 and January 30, 2010, respectively.
Customer Loyalty Program — The Company maintains 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. The Company accrues the anticipated redemptions of the discount earned at the time of
the initial purchase. To estimate these costs, DSW makes assumptions related to customer purchase levels and
redemption rates based on historical experience. The accrued liability included in other accrued expenses as of
January 29, 2011 and January 30, 2010 was $12.4 million and $9.0 million, respectively.
Deferred Rent — Many of the Company’s operating leases contain predetermined fixed increases of the
minimum rentals during the initial lease terms. For these leases, the Company recognizes the related rental expense
on a straight-line basis over the non-cancellable terms of the lease. The Company records the difference between the
amounts charged to expense and the rent paid as deferred rent and begins amortizing such deferred rent upon the
delivery of the lease location by the lessor. The deferred rent included in other non-current liabilities was
$32.2 million and $32.3 million as of January 29, 2011 and January 30, 2010, respectively.
Construction and Tenant Allowances — The Company receives cash allowances from landlords, which are
deferred and amortized on a straight-line basis over the non-cancellable terms of the lease as a reduction of rent
expense. Construction and tenant allowances are included in other non-current liabilities and were $60.4 million
and $59.7 million as of January 29, 2011 and January 30, 2010, respectively.
Comprehensive Income — For fiscal 2009, total comprehensive income was $54.6 million. In fiscal 2009,
DSW reclassified its unrealized loss to an other-than-temporary impairment and recognized the impairment charge
in earnings. For fiscal 2010, comprehensive income was equal to net income.
Sales and Revenue Recognition — Revenues from merchandise sales are recognized upon customer receipt of
merchandise, are net of returns through period end and sales tax and are not recognized until collectability is
reasonably assured. For dsw.com, the Company estimates a time lag for shipments to record revenue when the
customer receives the goods and also includes revenue from shipping and handling in net sales while the related
costs are included in cost of sales.
Revenue from gift cards is deferred and recognized upon redemption of the gift card. The Company’s policy is
to recognize income from breakage of gift cards when the likelihood of redemption of the gift card is remote. The
Company recognized $1.1 million, $1.1 million and $0.8 million as other operating income from gift card breakage
during fiscal 2010, 2009 and 2008, respectively.
As of January 29, 2011, the Company supplies footwear, under supply arrangements, to four retailers. Sales for
these leased departments are net of returns through period end and sales tax, as reported by the lessor, and are
included in net sales. Leased department sales represented 7.8%, 9.2% and 11.2% of total net sales for fiscal 2010,
2009 and 2008, respectively.
Cost of Sales — In addition to the cost of merchandise, which includes markdowns and shrinkage, the
Company includes in the cost of sales expenses associated with warehousing (including depreciation), distribution
and store occupancy (excluding depreciation and including impairments). Warehousing costs are comprised of
F-9
DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)