DSW 2011 Annual Report Download - page 36

Table of Contents
Off-Balance Sheet Arrangements
As of January 28, 2012 , we have not entered into any “off-balance sheet” arrangements, as that term is described by the SEC.
Cash and Equivalents-
Our cash and equivalents have maturities of 90 days or fewer. At times, cash and equivalents may be in excess of Federal
Deposit Insurance Corporation (“FDIC”) insurance limits. We also have investments in various short-term and long-term investments. Our available-
for-sale investments generally renew every 7 days, and we also have held-to-
maturity investments that have terms greater than 365 days. 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.
$100 Million Credit Facility - As of January 28, 2012 , there was no long-
term debt outstanding. Future borrowings, if any, would bear interest at rates
in accordance with our credit facility 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.
Warrants -
The warrants issued by RVI on July 5, 2005 in connection with previously paid credit facilities qualified as derivatives under ASC 815,
Derivatives and Hedging
. For derivatives that are not designated as hedges under ASC 815, changes in the fair values are recognized in earnings in
the period of change. The Company estimates the fair value of derivatives based on pricing models using current market rates and records all
derivatives on the balance sheet at fair value. As of January 28, 2012 , DSW had warrants outstanding to purchase up to 753,185
DSW Common
Shares.
During fiscal 2011 , DSW, and prior to the Merger, RVI, recorded a total non-
cash charge related to the change in the fair value of the warrants of
$12.3 million , respectively. As of January 28, 2012 , the aggregate fair value liability recorded relating to the warrants is $29.3 million
. The fair value
liability was estimated as of January 28, 2012 using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 0.1%
;
expected life of 0.4 years ; expected volatility of 43.5% and an expected dividend yield of 1.3%
. As the warrants may be exercised for either Class A
or Class B Common Shares of DSW, the settlement of such warrants will not result in a cash outlay by DSW. The warrants expire on June 11, 2012 .
On March 14, 2012, DSW issued 411,963 of its Class B Common Shares, without par value, to the Schottenstein Affiliates in connection with the
exercise of its outstanding warrant that was originally issued on July 5, 2005. The common shares were issued at an exercise price of $10.35 per share,
for an aggregate cash purchase price of $4.3 million, and DSW paid accrued dividends of $0.8 million related to the Company's special dividend
issued on September 30, 2011. In connection with this issuance, no underwriters were utilized and no commissions were paid. Following this exercise,
there are remaining warrants held by other Schottenstein Affiliates to acquire 341,222 Class A or Class B Common Shares.
Our 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.
None.
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)).
Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded, as of the end of the period covered by this Annual Report, that such disclosure controls and procedures were effective.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
ITEM 9A.
CONTROLS AND PROCEDURES.