DSW 2014 Annual Report Download - page 51

Table of Contents
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In fiscal 2014, the Company granted Stock Appreciation Rights ("SARs") to a non-employee. Under ASC 505-50, Equity-Based Payments to Non-Employees,
share-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity
instruments issued. Beginning in fiscal 2014, the Company estimated the initial fair value of the SARs using the Black-Scholes model and remeasures the
SARs each period using the Black-Scholes model. The SARs are classified as share-based liabilities as the instruments are required to be settled in cash. The
instruments are not included in diluted shares for the purposes of calculating earnings per share. The compensation expense of the SARs will be recognized
over the vesting period as that is the period that the Company is receiving the services. After the vesting period is complete, the Company will continue to
remeasure the SARs using the Black-Scholes model as the instruments become subject to ASC 815, Derivatives and Hedging.
New Store Costs- Costs associated with the opening of stores are expensed as incurred. New store costs, primarily pre-opening rent and marketing expenses,
were $8.7 million, $7.9 million and $16.0 million for fiscal 2014, 2013 and 2012, respectively. New store costs primarily fluctuate with changes in the
number of store openings.
Marketing Expense- The production cost of advertising is expensed when the advertising first takes place. All other marketing costs are expensed as
incurred. Marketing costs were $59.9 million, $56.2 million and $55.9 million in fiscal 2014, 2013 and 2012, respectively.
Other Operating Income- Other operating income consists primarily of income from consignment sales, rental income, income from gift card breakage and
insurance proceeds and is included in operating expenses in the statement of operations. The amount recorded in fiscal 2014, 2013 and 2012 was $17.3
million, $14.1 million and $14.5 million, respectively. Rental income was $4.5 million, $5.1 million and $1.2 million for fiscal 2014, fiscal 2013 and fiscal
2012, respectively. An award of damages of $5.3 million is included in other operating income in fiscal 2012. See Note 16 for a discussion of the award of
damages.
Income Taxes- Income taxes are accounted for using the asset and liability method. The Company is required to 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 in which the Company does business. In
making these estimates, income is adjusted based on a determination of GAAP 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 the 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. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently
reinvested for the foreseeable future.
Consistent with its historical financial reporting, the Company has elected to classify interest expense related to income tax liabilities, when applicable, as
part of interest expense in its consolidated statements of operations rather than as part of income tax expense. The Company classifies income tax penalties as
part of operating expenses in its consolidated statements of operations.
Discontinued Operations- As a result of RVI’s disposition of Filene’s Basement during fiscal 2009, any changes to the gain on disposal of Filene’s Basement
operations are included in discontinued operations. Any changes in the carrying value of assets with residual interest in the discontinued business are
classified within continuing operations. See Note 16 for a discussion of discontinued operations.
Earnings Per Share- Basic earnings per share is based on net income and a simple weighted average of common shares outstanding. Diluted earnings per
share reflects the potential dilution of common shares adjusted for outstanding stock options, restricted stock units and performance-based restricted stock
units. In previous periods, there was also potential dilution of common shares from warrants. See Note 6 for a detailed discussion of earnings per share.
Financial Instruments- The following assumptions were used to estimate the fair value of each class of financial instruments:
Cash and Equivalents- Cash and equivalents represent cash, money market funds and credit card receivables that generally settle within three days.
Amounts due from banks for credit card transactions totaled $16.1 million and $13.2 million as of January 31, 2015 and February 1, 2014,
respectively. The carrying amounts of cash and equivalents approximate fair value. The Company also reviews cash balances on a bank by bank
basis to identify book overdrafts. Book overdrafts occur when the amount of outstanding checks exceed the cash deposited at a bank. The
Company reclassifies book overdrafts, if any, to accounts payable.
F- 11
Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
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