DSW 2012 Annual Report Download - page 73

F- 33
15. COMMITMENTS AND CONTINGENCIES
Legal Proceedings- DSW 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 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.
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 incurred a loss of approximately $6.0 million related to this incident.
DSW filed a claim for coverage with its insurance carrier, which the insurance carrier denied. DSW 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 received
notification from the Sixth Circuit Court of Appeals that the damages award was affirmed, and in September 2012, DSW
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 recognized the award at the time of receipt of cash from the insurance
carrier. In the statement of operations, $5.3 million is classified as other operating income, which is included in operating
expenses, and $1.9 million related to interest is classified as interest income.
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 was resolved during fiscal 2011.
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 decrease in the liability through February 2, 2013 is due to information available indicating that it
was probable that the Company's exposure to the guaranteed liability would be reduced. 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 a portion of its ownership interest in its Value City business segment in fiscal
2007. 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. As
of February 2, 2013 and January 28, 2012, the amount of guarantees of Value City commitments was $0.1 million and $0.2
million, respectively.
Filene’s Basement- Following the Merger, a subsidiary of DSW, 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 recorded a liability of $9.0 million related to lease
Table of Contents DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS