DSW 2011 Annual Report Download - page 17

Table of Contents
an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs.
Prior to the Merger, RVI had actual liabilities and significant contingent liabilities. As of the effective time of the Merger, Merger Sub, a
subsidiary of DSW, is required to fulfill RVI's obligations with respect to these actual liabilities and contingent liabilities, if they become actual
liabilities, which could adversely affect DSW’s financial condition.
Merger Sub is obligated with respect to all of RVI's liabilities and significant contingent liabilities. On November 2, 2011, Syms and Filene’
s
Basement filed for bankruptcy protection. RVI guaranteed the obligations of Filene’
s Basement in connection with three leases for retail store
locations. Merger Sub is responsible for any obligations of RVI under these guarantees. These leases expire in January 2017, September 2017 and
October 2024. DSW assumed one of these leases. We have recorded a liability of $9.0 million
associated with the remaining lease guarantees. The
remaining minimum lease obligations under the remaining leases could be as much as $45 million plus amounts for common area maintenance, taxes
and insurance.
We believe that one lease (which makes up 93% of the potential liability under the two guarantees) is in a desirable location. We also believe that
not all of the guarantees may be enforceable and/or that the amount of liability under the guarantees may be limited. Currently, the ultimate disposition
of these leases is unknown. Among other things, the landlords could find a tenant and assert that DSW is responsible for any shortfalls or rent while
the space is unoccupied, DSW could acquire additional space at these locations, or DSW could successfully assert that the guarantee is not enforceable
resulting in limited or no liability to DSW. We will continue to monitor our potential liability regarding these lease obligations. The landlord at one of
the locations has brought a lawsuit against Merger Sub seeking to recoup payments under the guarantee.
In addition, if the assumptions or estimates regarding the amount of any actual or contingent liabilities made by the Company were incorrect or
become incorrect due to changes in economic conditions, among other reasons, this could cause the amount of any actual liability to exceed the
amounts estimated, which could have a material adverse effect on DSW’s financial condition.
Merger Sub is responsible for the Filene
’
s Basement defined benefit pension plan that RVI assumed as part of its sale of Filene's Basement in
fiscal 2009.
By assuming the Filene’
s Basement defined benefit pension plan, RVI and now Merger Sub, is responsible for maintaining this plan, including the
cost of contributions to satisfy the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, and the
costs incident to the normal administration of the plan and any possible deficiencies in plan administration. Required annual contributions will depend
in part on changes in the fair market value of plan assets, as well as changes in interest rates used in calculating the accumulated benefit obligation, and
such changes could have materially adverse effect during periods of market instability or decline.
Merger Sub has a long
-term lease that is subleased to a third party at a rent that was lower than its expenses under the lease.
In connection with the Merger, Merger Sub assumed RVI’
s responsibilities under a lease dated September 2003 for an office facility in Columbus,
Ohio (the "Premises"). In April 2005, RVI sublet the Premises to an unrelated third party at a rent that is lower than its expenses under the lease. The
sublease is through the lease expiration date, but either party can terminate after each two year renewal option. Merger Sub remains liable under the
lease through the lease expiration date in 2024, and if the subtenant does not pay the rent to the landlord or vacates the premises, Merger Sub would be
required to make full rent payments to the landlord. All of the foregoing circumstances or events could have a material adverse effect on our financial
condition.
None.
All DSW stores, our distribution and fulfillment centers, a trailer parking lot and our corporate office are leased or subleased. As of
January 28,
2012 , we operated 326 DSW stores in 40 states in the United States. The following table shows the number of our DSW stores by state.
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ITEM 1B.
UNRESOLVED STAFF COMMENTS.
ITEM 2.
PROPERTIES.