DSW 2015 Annual Report Download - page 33

Table of Contents
Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions
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 timing 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 estimate were to increase or
decrease by one year, it would not materially
impact our 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 an immaterial change to our
estimate.

The Company is not dependent on dividends from its foreign subsidiaries to fund its U.S. operations or make distributions to DSW stockholders. Unremitted
earnings from foreign subsidiaries, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends
or were lent to DSW or a U.S. affiliate.

As of January 30, 2016, we have not entered into any “off-balance sheet” arrangements, as that term is described by the U.S. Securities and Exchange
Commission.
 
 Our cash and equivalents have maturities of 90 days or fewer. At times, cash and equivalents may be in excess of
FDIC insurance limits. We also have available-for-sale investments. These financial instruments may be subject to interest rate risk through lost income
should interest rates increase during their term to maturity and thus may limit our ability to invest in higher income investments.
As of January 30, 2016, there was no long-term debt outstanding. Future borrowings, if any, would bear interest at rates in accordance
with our $100 million credit facility and $50 million letter of credit agreement and would be subject to interest rate risk. Because we have no outstanding
debt, we do not believe that a hypothetical adverse change of 1% in interest rates would have a material effect on our financial position.
As a result of our equity investment in Town Shoes, we are exposed to foreign currency rate risk. We currently do not
utilize hedging instruments to mitigate foreign currency exchange risks.
 
Our consolidated financial statements and the Report of Independent Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are
included in this report beginning on page F-1.
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Source: DSW Inc., 10-K, March 24, 2016 Powered by Morningstar® Document Research℠
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