DSW 2012 Annual Report Download - page 77

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F- 37
February 2, 2013 January 28, 2012
(in thousands)
Deferred tax assets:
Federal net operating loss $ 25,006 $ 99,701
Federal tax credits 16,881 16,043
State net operating loss and tax credits — 2,485
Inventory 6,529 5,913
Construction and tenant allowances 9,981 —
Stock-based compensation 6,109 7,657
Benefit from uncertain tax positions 116 1,252
Guarantees 2,523 3,454
Accrued expenses 7,389 6,203
Accrued rent 14,293 13,947
Other 12,921 10,979
Total deferred tax assets, gross of valuation allowance 101,748 167,634
Less: valuation allowance (785)(785)
Total deferred tax assets, net of valuation allowance 100,963 166,849
Deferred tax liabilities:
Property and equipment (21,567)(31,046)
Prepaid expenses (924)(1,727)
Other (1,632)(1,950)
Total deferred tax liabilities (24,123)(34,723)
Total – net deferred tax asset $ 76,840 $ 132,126
As of February 2, 2013, these net operating losses are available to reduce federal taxable income for the fiscal years 2013 to
2030. The Company establishes valuation allowances for deferred tax assets when the amount of expected future taxable
income is not likely to support the use of the deduction or credit. The valuation allowance as of February 2, 2013 and
January 28, 2012 was related to a capital loss carryforward, as the Company believes that it is more likely than not that this
benefit will not be realized.
As a result of the Merger in fiscal 2011, DSW released the valuation allowance on RVI’s deferred tax assets of $88.6 million
due to the Company’s expected future taxable income and eliminated $17.4 million of state net operating losses and tax credits
and the related valuation allowance. DSW was also able to reverse the deferred tax liability of $87.4 million related to RVI's
basis in DSW. RVI's tax basis of its investment in DSW was below its book basis in the shares and RVI had recorded a deferred
tax liability for the gain on eventual sales of the DSW stock. When the merger closed, the parent/subsidiary relationship that
caused the basis difference ended, and no tax cost was incurred to eliminate the historical basis difference. The elimination of
the historical basis difference was an indirect effect of the merger, and accordingly, the reversal of the deferred tax liability was
required to be reflected in the statement of operations. Similarly, RVI had recorded a deferred tax asset of $18.6 million for the
changes in fair value of its PIES and, as a result of the merger where DSW would now settle a security indexed to its own
stock, any gain or loss on the settlement of the PIES would not be taxable. As the elimination of the taxability of any gain or
loss was also an indirect effect of the Merger, the reversal of the deferred tax asset was charged to the statement of operations.
Table of Contents DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS