DSW 2012 Annual Report Download - page 74

F- 34
guarantees for two locations in fiscal 2011 and in the first quarter of fiscal 2012, adjusted the liability to $7.0 million based on
current information available to DSW, which resulted in an update of DSW's most likely estimated liability. As of February 2,
2013, the liability was $6.6 million. DSW assumed the lease for the third location in fiscal 2011 and is operating a store at this
location. 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 payment 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. In April 2012, the landlord advised DSW that it had signed a lease with a tenant and asserted that DSW is
responsible for shortfalls and rent while the space is unoccupied. The expected range of loss is from no loss to $7
million.
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 landlord at the Bergen location has brought a lawsuit against
Merger Sub in the Supreme Court of the State of New Jersey seeking payment under the guarantee. 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 expected range of loss is from no loss to
$3 million.
Contractual Obligations- As of February 2, 2013, 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 $4.1 million as of February 2, 2013. In addition, DSW has signed lease agreements for
20 new store locations expected to be opened in fiscal 2013 and 2014 with total annual rent of approximately $9.8 million. In
connection with the new lease agreements, DSW will receive a total of $12.4 million of construction and tenant allowance
reimbursements for expenditures at these locations.
In the third quarter of fiscal 2011, DSW recorded an initial liability of $5.5 million related to a lease of an office building
assumed in the Merger. The office lease expires in 2024. 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 would no longer be recorded on a straight-line basis. In fiscal 2012, DSW
recorded an increase of $6.0 million to the liability as the result of a decrease in future sublease rental based on market
expectations as well as an increase in expected real estate taxes as the building was purchased by a new landlord in the fourth
quarter of fiscal 2012, resulting in an increase in the real estate valuation of the property. The non-cash impairment charges are
included in operating expenses.
16. SEGMENT REPORTING
DSW maintained its historical segment presentation, but recast its segment presentation in fiscal 2011 to include Other. In order
to reconcile to the consolidated financial statements, DSW includes Other, which consists of assets, liabilities and expenses that
are not attributable to the reportable segments, primarily related to assets and liabilities of the former RVI operations.
The Company sells products through three channels: DSW stores, dsw.com and the Affiliated Business Group. The reportable
segments are the DSW segment, which includes the DSW stores and dsw.com sales channels, and the Affiliated Business Group
segment. DSW has identified such segments based on internal management reporting and 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 and
its territories. The goodwill balance of $25.9 million outstanding as of February 2, 2013 and January 28, 2012 is recorded in the
DSW segment related to the DSW stores.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS