DSW 2013 Annual Report Download - page 74

Table of Contents
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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 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. DSW assumed the lease for the third location in
fiscal 2011 and is operating a store at this location. In the third quarter of fiscal 2013, DSW settled the dispute over the guarantee for the Bergen, New Jersey
location, and the case has been dismissed. As of February 1, 2014, the estimated liability was $3.4 million for the remaining guarantee, which is 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. In April 2013, the Court denied the landlord's motion for summary judgment. The
landlord appealed the court's denial of summary judgment. Oral arguments for the appeal were held in February 2014. The expected range of loss is
from no loss to $7 million.
Contractual Obligations- As of February 1, 2014, 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 $6.7 million as
of February 1, 2014. In addition, DSW has entered into various noncancelable purchase and service agreements. These agreements expire over the next two
years, and the obligations under these agreements were $4.7 million as of February 1, 2014. DSW has also signed lease agreements for 30 new store locations
expected to be opened in fiscal 2014 and 2015 with total annual rent of approximately $10.3 million. In connection with the new lease agreements, DSW will
receive a total of $15.7 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 income 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 were included in operating expenses.
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DSW 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 1, 2014 and February 2, 2013 is recorded in
the DSW segment related to the DSW stores. In order to reconcile to the consolidated financial statements, DSW includes Other, which consists of assets,
liabilities and expenses that are primarily related to assets and liabilities of the former RVI operations, and are not attributable to the reportable segments. The
settlement of the pension plan was recorded in Other.
F- 31
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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