DSW 2013 Annual Report Download - page 59

Table of Contents
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Management Agreement is three years, with automatic one year extensions after the initial term. The Management Agreement can be terminated by either party
with 60 days notice.
Prior to the Acquisition, certain portions of the purchased property were leased to third-party tenants. One of these tenants is SB Capital, which is a
Schottenstein Affiliate. In connection with the Acquisition, DSW assumed the role of landlord to the lease with SB Capital. On December 6, 2013, the lease
was amended to provide that the lease shall expire on or before December 6, 2014 for a payment of less than $0.1 million. Under this agreement, DSW
received approximately $0.2 million in rent for fiscal 2013.
Since each of the Sellers and SPG are Schottenstein Affiliates, the audit committee of DSW's board of directors reviewed and approved the Purchase
Agreement, the Acquisition, the Cost Sharing Agreement, and the Management Agreement, consistent with DSW's related party transaction policy and
determined that the transaction was fair and reasonable for the properties. As this was a transaction between entities under common control, as provided by
ASC 805, there was no adjustment to the historical cost carrying amounts of assets transferred to DSW. The difference between the historical cost carrying
amounts and the consideration of $72 million transferred was an equity transaction. DSW also reduced the cost basis of the assets by the balance of tenant
allowances and deferred rent recorded related to the properties. DSW received a step-up of tax basis to $72 million and the resulting tax effect, the difference
between the financial reporting basis and tax basis, was recorded to equity. In the first quarter of fiscal 2013, DSW recorded an adjustment to the tax impact of
$3.3 million as a prior period adjustment between non-current deferred tax assets and basis difference related to acquisition of commonly controlled entity.
There was no impact to the statement of operations. The following table highlights the key financial statement line items impacted by the transaction:
Impact on Consolidated Financial Statements
Amount
Financial Statement Section/Line item
Impact on the Consolidated Statement of Cash Flows:
(in thousands)
Historical cost carrying amount
$(32,443)
Net cash and equivalents used in investing activities from
continuing operations
Equity impact of Corporate Headquarters and Distribution Center
Acquisition
(39,557)
Net cash and equivalents used in financing activities from
continuing operations
Total cash transferred to the Sellers
$(72,000)
Impact on the Consolidated Balance Sheet:
Historical cost carrying amount
$32,443
Less: Tenant allowances and deferred rent
(8,310)
Total net book value of assets recorded
$24,133
Property and equipment, net
Impact on the Consolidated Statement of Shareholders' Equity:
Equity impact of Corporate Headquarters and Distribution Center
Acquisition
$(39,557)
Tax impact of Corporate Headquarters and Distribution Center
Acquisition
17,877
Adjustment to the tax impact of basis difference of Corporate
Headquarters and Distribution Center Acquisition
(3,313)
Basis difference related to acquisition of commonly controlled entity
$ (24,993)
Acquisition of commonly controlled entity
Prior to the transfer of the buildings to DSW, lease payments by DSW for the buildings were $2.6 million and $4.3 million for fiscal 2012 and 2011,
respectively.
SEI Loan AgreementOn February 8, 2011, RVI and SEI, Inc. (“SEI”), a Schottenstein Affiliate, entered into a Loan Agreement (the “Loan Agreement”)
pursuant to which SEI made available to RVI a revolving credit facility, to fund its operations prior to the Merger, in the principal amount not to exceed $30.0
million (the “RVI Credit Facility”). Upon execution of the Loan Agreement, RVI also paid an up-front commitment fee of 8.75% of the maximum loan amount,
$2.625 million, to SEI, which was approved by the RVI board of directors prior to the Merger. All outstanding principal and accrued but unpaid interest
under the RVI Credit Facility became due and payable after the closing of the Merger. DSW repaid RVI’s borrowings of
F- 16
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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