DSW 2011 Annual Report Download - page 35

Table of Contents
temporary. In determining whether 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 loss 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.
30
•
Asset Impairment and Long
-lived Assets. We periodically evaluate the carrying amount of our long-
lived assets, primarily property and
equipment, and finite lived 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 generally included in cost of sales. We believe as of
January 28, 2012 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, as well as on an aggregate annual basis.
Although we do not anticipate the amounts ultimately paid will differ significantly from our estimates, self-
insurance reserves could be affected
if future claims experience differs significantly from the historical trends and the actuarial assumptions. For example, for worker's 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 $0.1 million.
• Customer Loyalty Program.
We maintain a customer loyalty program for the DSW stores and dsw.com sales channels 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
$1.9 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.
•
Pension
. Plan assets, which consist primarily of marketable equity and debt instruments, are valued using market quotations. Plan obligations
and the annual pension expense are determined by independent actuaries and through the use of a number of assumptions. Key assumptions in
measuring the plan obligations include the discount rate and the estimated future return on plan assets. In determining the discount rate, we
utilize the yield on a forward curve based on corporate debt securities currently available with maturities corresponding to the anticipated timing
of the benefit payments. Asset returns are based upon the anticipated average rate of earnings expected on the invested funds of the plans. If our
discount rate were to increase or decrease by 35 basis points, it would result in a decrease or increase to the unfunded pension liability of
approximately $1.0 million.
• Change in Fair Value of Derivative Instruments . In accordance with ASC 815, Derivatives and Hedging
, DSW, and prior to the Merger, RVI,
recognizes all derivatives on the balance sheet at fair value. For derivatives that are not designated as hedges under ASC 815, changes in the fair
values are recognized in earnings in the period of change. The Black-Scholes pricing model
is used to calculate the fair value of derivative
instruments.