DSW 2012 Annual Report Download - page 34

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Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions
Investments. Our investments are valued
using a market-based approach using
level 1 and 2 inputs. We evaluate our
investments for impairment and whether
impairment is other-than-temporary.
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.
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. We believe that our fair value estimates are reasonable.
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 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.
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
an increase or a decrease of
approximately $2.3 million to the
reserve at year end.
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.
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.
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. If our
management had made these
determinations on a different basis, our
tax expense, assets and liabilities could
be different.
Although we believe that our
estimates are reasonable, actual results
could differ from these estimates
resulting in an outcome that may be
materially different from that which is
reflected in our consolidated financial
statements.
Stock-based Compensation. We recognize
compensation expense for stock option
awards and time-based restricted stock
awards on a straight-line basis over the
requisite service period of the award for
the awards that actually vest.
We use the Black-Scholes pricing model
to value stock-based compensation
expense, which requires us to estimate
the expected term of the stock options
and expected future stock price volatility
over the expected term.
If our expected term were to increase
or decrease by one year, it would
result in a decrease or increase of less
than $0.1 million to operating profit.
Exit and Disposal Obligations. We record
a reserve when a store or office facility is
abandoned due to closure or relocation.
On a quarterly basis, we reassess the
reserve based on current market
conditions.
Using our credit-adjusted risk-free rate
to present value the liability, we estimate
future lease obligations based on
remaining lease payments, estimated or
actual sublease payments and any other
relevant factors.
A 2% change to our expected sublease
rentals would result in a $1.3 million
change to our estimate.
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