DSW 2014 Annual Report Download - page 67

Table of Contents
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month following an employee’s completion of six months and 500 hours of service as defined under the terms of the 401(k) Plan, the Company matches
employee deferrals, 100% on the first 3% of eligible compensation deferred and 50% on the next 2% of eligible compensation deferred. Additionally, the
Company may contribute a discretionary profit sharing amount to the Plan each year but has not for the past three fiscal years. The Company incurred costs
associated with the Plan of $3.2 million, $3.1 million and $2.4 million for fiscal 2014, 2013 and 2012, respectively.
Deferred Compensation Plan- The Company sponsors a non-qualified deferred compensation plan for certain executives and non-employee members of the
Board of Directors that is intended to defer the receipt of compensation. As of January 31, 2015 and February 1, 2014, the plan liability was $2.2 million and
$2.3 million, respectively.
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Legal Proceedings- The Company is involved in various legal proceedings that are incidental to the conduct of its business. Although it is not possible to
predict with certainty the eventual outcome of any litigation, in the opinion of management, the amount of any potential liability with respect to current
legal proceedings will not be material to results of operations or financial condition. As additional information becomes available, the Company will assess
the potential liability related to its pending litigation and revise the estimates as needed.
As previously reported, on March 8, 2005, RVI announced that it had learned of the theft of credit card and other information from a portion of DSW's
customers. In fiscal 2005, DSW Inc. incurred a loss of approximately $6.0 million related to this incident. DSW Inc. filed a claim for coverage with its
insurance carrier, which the insurance carrier denied. DSW Inc. brought suit in federal district court and won a ruling that coverage applied and was awarded
$6.8 million in damages. The insurance company appealed that decision, and oral arguments on the appeal occurred in July 2012. On August 23, 2012, DSW
Inc. received notification from the Sixth Circuit Court of Appeals that the damages award was affirmed, and in September 2012, DSW Inc. received $7.2
million from the insurance carrier, $1.9 million of which represented accrued interest on the award. As this was a gain contingency resulting from a litigation,
DSW Inc. recognized the award at the time of receipt of cash from the insurance carrier. In the statement of operations, $5.3 million was classified as other
operating income, which was included in operating expenses, and $1.9 million related to interest was classified as interest income.
Guarantees and Liabilities related to Discontinued Operations- As of the effective time of the Merger, a subsidiary of DSW Inc. assumed the obligations
under RVI’s guarantees related to discontinued operations. DSW Inc. may become subject to various risks related to guarantees and in certain circumstances
may be responsible for certain other liabilities related to discontinued operations. Changes in the amount of guarantees and liabilities related to discontinued
operations are included in the loss from discontinued operations on the statements of operations. When a liability is probable and there is a range of
estimated loss, the Company records its estimated liability related to the guarantee. Additionally, if the underlying obligations are paid down or otherwise
liquidated by the primary obligor, subject to certain statutory requirements, the Company will recognize a reduction of the associated liability.
Filene’s Basement- Following the Merger, a subsidiary of DSW Inc., Merger Sub, assumed RVI’s obligations under lease guarantees for three Filene’s
Basement retail store locations for leases assumed by Syms in its purchase of Filene’s Basement in fiscal 2009. In fiscal 2011, Syms and Filene’s Basement
filed for bankruptcy protection ("2011 Syms and Filene's Basement bankruptcy") and liquidated all of their stores in December 2011. DSW Inc. recorded a
liability of $9.0 million related to lease guarantees for two locations in fiscal 2011, and in the first quarter of fiscal 2012 adjusted the liability to $7.0 million
based on current information available to DSW Inc., which resulted in an update of DSW Inc.'s most likely estimated liability. DSW Inc. assumed the lease for
the third location in fiscal 2011 and is operating a store at this location. In the third quarter of fiscal 2013, DSW Inc. settled the dispute over the guarantee for
the Bergen, New Jersey location, and the case was dismissed. As of January 31, 2015, the estimated liability was $3.1 million for the remaining guarantee,
which is described in more detail below:
Union Square, NY- RVI guaranteed Filene’s Basement’s obligations for the Union Square location when RVI owned Filene’s Basement, and the
landlord at the Union Square location has brought a lawsuit against Merger Sub in the Supreme Court of the State of New York ("the Court") seeking
payment under the guarantee. In April 2012, the landlord advised Merger Sub that it had signed a lease with a tenant and asserted that Merger Sub is
responsible for shortfalls and rent while the space is unoccupied. The landlord filed a motion for summary judgment that the guarantee is
enforceable as a matter of law. In April 2013, the Court denied the landlord's motion for summary judgment. The landlord appealed the court's denial
of summary judgment. Oral arguments for the appeal were held in February 2014. In September 2014, the appellate court reversed the Court ruling
and determined that the guarantee was enforceable, and ordered that a referee determine the amount of the landlord's damages. On February 27,
2015,
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Source: DSW Inc., 10-K, March 26, 2015 Powered by Morningstar® Document Research℠
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