DSW 2011 Annual Report Download - page 79

Table of Contents DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$0.1 million for the guarantees of Filene’
s Basement commitments related to leases not assumed by Syms. In addition to leases not assumed by
Syms, following the Merger, a subsidiary of DSW 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 2009. On November 2, 2011, Syms and Filene’
s Basement filed for
bankruptcy protection and liquidated all of their stores in December 2011, and as a result , DSW recorded a liability of $9.0 million as of January
28, 2012 related to lease guarantees assumed by Syms based as the most likely estimate based on current information available to DSW.These
lease guarantees are 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 seeking to recoup
payments under the guarantee. DSW believes that the liability under the guarantee may be limited based on the ultimate disposition of the lease
and/or the guarantee may not be enforceable. The lease expires in October 2024, and as of January 28, 2012, DSW believes Filene’s Basement’
s
remaining minimum lease payments under the lease are approximately
$42 million plus amounts for common area maintenance, taxes and
insurance
. Currently, the ultimate disposition of the lease is unknown. Among other things, the landlord 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, or DSW could successfully assert that
the guarantee is not enforceable resulting in limited or no liability to DSW. The range of loss is from no loss to
$42 million plus amounts for
common area maintenance, taxes and insurance .
Bergen, NJ - RVI guaranteed Filene’s Basement’s obligations for the Bergen location when RVI owned Filene’
s Basement. The lease expires in
September 2017. The lease guarantee expressly caps Merger Sub's liability at $3 million. Filene’
s Basement ceased operating at the Bergen
location earlier in the year prior to the bankruptcy, and a third party is operating in a portion of the space leased by Filene’
s Basement. Currently,
the ultimate disposition of the lease is unknown. DSW could successfully assert that the guarantee is not enforceable resulting in limited or no
liability to DSW. The range of loss is from no loss to $3 million.
Broadway, NY - RVI guaranteed Filene’s Basement’s obligations for the Broadway location when RVI owned Filene’
s Basement. DSW assumed
this lease through the bankruptcy auction process and the obligation is included in DSW's future minimum lease payments as DSW plans to open
a store at this location in fiscal 2012.
Contractual Obligations-
As of January 28, 2012, DSW has entered into various construction commitments, including capital items to be
purchased for projects that were under construction, or for which a lease has been signed. DSW’
s obligations under these commitments were
approximately $4.9 million as of January 28, 2012. In addition, DSW has signed lease agreements for 22
new store locations expected to be
opened over the next 18 months, with total annual rent of approximately $16.7 million
. In connection with the new lease agreements, DSW will
receive a total of $12.5 million of construction and tenant allowance reimbursements for expenditures at these locations.
In the third quarter of fiscal 2011, DSW recorded a liability of $5.5 million related to a lease of an office building assumed in the Merger. The
non-
cash impairment charge is included in operating expenses. DSW estimated its future liability under this lease based on its current lease
payments and executory costs, net of estimated sublease rentals. DSW estimated inflationary increases in its executory costs and used its credit-
adjusted risk-
free rate to present value its liability. The loss was partially offset by the elimination of the deferred rent liability of $2.1 million, as
rent will no longer be recorded on a straight-line basis.
DSW maintained its historical segment presentation, but recast its segment presentation to include other. The Company sells products through
three channels: DSW stores, dsw.com and the leased business division.
The reportable segments are the DSW segment, which includes the DSW
stores and dsw.com sales channels, and the leased business division segment.
DSW has identified such segments based on internal management
reporting and management responsibilities and measures segment profit as gross profit, which is defined as net sales less cost of sales. All
operations are located in the United States. The goodwill balance of $25.9 million outstanding as of January 28, 2012 and January 29, 2011
is
recorded in the DSW segment related to the DSW stores. In order to reconcile to consolidated financial statements, DSW includes other, which
consists of assets, liabilities and expenses that are not attributable to the two segments.
F-35
14.
SEGMENT REPORTING