DSW 2011 Annual Report Download - page 78

Table of Contents DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13 . COMMITMENTS AND CONTINGENCIES
Legal Proceedings-
DSW is involved in various legal proceedings that are incidental to the conduct of its business. DSW estimates the range of
liability related to pending litigation where the amount of the range of loss can be estimated. DSW records its best estimate of a loss when the loss
is considered probable. When a liability is probable and there is a range of estimated loss, DSW records the most likely estimated liability related
to the claim. 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 DSW’
s results of operations or financial condition. As
additional information becomes available, DSW will assess the potential liability related to its pending litigation and revise the estimates as
needed.
In the first quarter of fiscal 2011, shareholders of RVI filed two putative shareholder class action lawsuits in an Ohio state court captioned as
follows: Steamfitters local #449 Retirement Security Fund v. Schottenstein, et. al (“Steamfitters”), and Farkas v. Retail Ventures, Inc. (“Farkas”
).
The Steamfitters action was brought against RVI and its directors and chief executive officer and DSW. The Farkas action was brought against
RVI and its directors, and DSW and Merger Sub. The Steamfitters action alleged, among other things, that RVI and its directors breached their
fiduciary duties by approving the merger agreement and that RVI’
s chief executive officer and DSW aided and abetted in these alleged breaches
of fiduciary duty. The Farkas action alleged, among other things, that the RVI board of directors breached its fiduciary duties by approving the
merger agreement and failing to disclose certain alleged material information, and that RVI and DSW aided and abetted these alleged breaches of
fiduciary duty. Both complaints sought, among other things, to enjoin the shareholder vote on the Merger, as well as money damages. On May 9,
2011, the court granted plaintiffs’
motion to consolidate the actions. In order to avoid the costs associated with the litigation, the parties agreed to
a disclosure-
based settlement of the lawsuits set forth in an executed memorandum of understanding that was filed with the court. The
memorandum of understanding provided for, among other things, additional public disclosure with respect to the Merger, which was included in
the joint proxy statement/prospectus sent to the shareholders of RVI and DSW. The court approved the settlement, and this matter is resolved.
Guarantees and Liabilities related to Discontinued Operations-
As of the effective time of the Merger, a subsidiary of DSW assumed the
obligations under RVI’
s guarantees related to discontinued operations. DSW 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. DSW records its
best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss, DSW records the
most likely estimated liability related to the guarantee. The increase in the liability through January 28, 2012
is due to information available
indicating that it was probable that the guaranteed liability or other liability would be incurred. Additionally, if the underlying obligations are paid
down or otherwise liquidated by the primary obligor, subject to certain statutory requirements, DSW will recognize a reduction of the associated
liability.
Value City-
RVI completed the disposition of an 81% ownership interest in its Value City business segment on January 23, 2008. RVI or its
wholly owned subsidiary, RVS, had guaranteed and in certain circumstances may be responsible for certain liabilities of Value City. There is a
guarantee of certain workers compensation claims for events prior to the disposition date.
Filene’s Basement- On April 21, 2009, RVI disposed of its Filene’
s Basement operations. RVI agreed to indemnify Buxbaum, FB II Acquisition
Corp. and their owners against certain liabilities. As of January 28, 2012, DSW had a liability of less than
F-34
Fiscal years ended
January 28, 2012
January 29, 2011 January 30, 2010
(in thousands)
Net sales
$
63,351
Loss before income taxes
$
(31,195
)
Income tax (expense) benefit
$
(345
)
(Loss) gain on sale
$
(5,038
)
$
3,895
$
81,907
(Loss) income from discontinued operations, net of tax - Filene’s
Basement
$
(5,038
)
$
3,895
$
50,367