DSW 2010 Annual Report Download - page 63

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 a 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.
7. DSW $100 MILLION CREDIT FACILITY
On June 30, 2010, the Company 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,
the Company and its 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 the Company’s
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 the Company’s personal property assets and its subsidiaries with certain exclusions
and may be used to provide funds for general corporate purposes, to refinance existing letters of credit outstanding
under the Company’s previous credit arrangement, to provide for the Company’s ongoing working capital
requirements, and to make permitted acquisitions. Revolving credit loans bear interest under the Credit Facility
at the Company’s 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
the Company’s 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 the Company’s revolving credit availability. Swing loans bear
interest under the base rate option. The Company’s 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 man-
agement and the operation of the Company’s business. These covenants, among other things, limit or restrict the
Company’s ability to grant liens on its assets, incur additional indebtedness, enter into transactions with affiliates,
merge or consolidate with another entity, redeem its 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 payments for capital
expenditures to $75.0 million in any fiscal year, and if the Company has direct borrowings greater than
$25.0 million, the credit facility also requires that the Company maintain a fixed charge coverage ratio of not
less than 1.1 to 1.0. DSW paid $46.7 million for capital expenditures in fiscal 2010. The Company was not required
to calculate a fixed charge coverage ratio in fiscal 2010.
As of January 29, 2011, the Company had no outstanding borrowings, had availability under the Credit Facility
of $80.8 million and had outstanding letters of credit of $19.2 million. As of January 30, 2010 under its previous
credit facility, the Company had no outstanding borrowings, had availability under the facility of $132.6 million and
had outstanding letters of credit of $17.4 million. DSW is in compliance with the covenants under the Credit
Facility.
Total interest expense was $1.0 million, $1.4 million and $0.8 million for fiscal 2010, 2009 and 2008,
respectively, and included fees, such as commitment and line of credit fees, of $0.5 million in each respective
period.
8. EARNINGS PER SHARE
Basic earnings per share are based on net income and a simple weighted average of Class A and Class B
Common Shares and director stock units outstanding. Diluted earnings per share are calculated using the treasury
stock method and reflect the potential dilution of Class A Common Shares related to outstanding stock options and
F-17
DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)