DSW 2013 Annual Report Download - page 33

Table of Contents
DSW $50 Million Letter of Credit Agreement. Also on August 2, 2013, we entered into a letter of credit agreement (the “Letter of Credit Agreement”). The
Letter of Credit Agreement provides for the issuance of letters of credit up to $50 million, with a term of five years that will expire on August 2, 2018. The
facility for the issuance of letters of credit is secured by a cash collateral account containing cash in an amount equal to 103% of the face amount of any letter
of credit extension (105% for extensions denominated in foreign currency) and is used for general corporate purposes. The Letter of Credit Agreement requires
compliance with conditions precedent that must be satisfied prior to issuing any letter of credit or extension. In addition, the Letter of Credit Agreement contains
restrictive covenants relating to our management and the operation of our business. These covenants, among other things, limit or restrict our ability to grant
liens on our assets, limit our ability to incur additional indebtedness, limit our ability to enter into transactions with affiliates and limit our ability to merge or
consolidate with another entity. An event of default may cause the applicable interest rate and fees to increase by 2.0% per annum. As of February 1, 2014, we
had $5.6 million in outstanding letters of credit and $6.1 million in restricted cash on deposit as collateral under the Letter of Credit Agreement.
Discontinued Operations
For fiscal 2013, cash flows from discontinued operations related to our payment of the Bergen, New Jersey lease guarantee settlement. For fiscal 2011, cash
flows from discontinued operations related to a distribution received from the debtors' estates in connection with the Filene's Basement bankruptcy.

Filene's Basement Pension Plan. On December 1, 2011, we adopted a plan amendment to terminate the plan with a proposed termination date of March 11,
2012. In April 2013, we received a favorable determination letter from the Internal Revenue Service, began the process of obtaining participant settlement
elections and were required to disburse the funds within 120 days of the receipt of the favorable determination letter.
To satisfy the liability under the pension plan, we issued lump-sum payments at participant election and purchased a nonparticipating annuity contract to
cover any participants that did not elect a lump-sum distribution. The purchase price of the contracts was funded from the assets of the plan in July 2013,
and the shortfall was covered by a payment from DSW to the plan of $5.0 million. The transaction resulted in the transfer and settlement of the pension plan
benefit obligation, thus relieving us of any responsibility for the pension plan. Upon the transfer of the pension plan obligations and assets described above,
we recognized a settlement loss of $8.9 million, which is net of an income tax benefit of $5.3 million, in the second quarter of fiscal 2013.
Value City Disposition.In fiscal 2007, RVI completed the disposition of an 81% ownership interest in its Value City business. RVI, now Merger Sub,
guaranteed or may, in certain circumstances, be responsible for certain liabilities of Value City including, but not limited to: amounts owed under certain
guarantees with various financing institutions for Value City inventory purchases made prior to the disposition date; amounts owed for guaranteed severance
for certain Value City employees; amounts owed under lease obligations for certain equipment leases; amounts owed under certain employee benefit plans if the
plans are not fully funded on a termination basis; amounts owed for certain workers compensation claims for events prior to the disposition date; amounts
owed under certain income tax liabilities and the guarantee of other amounts. On October 26, 2008, Value City filed for bankruptcy protection and announced
that it would close its remaining stores. RVI may become subject to risks associated with the bankruptcy filing by Value City, if creditors whose obligations
RVI has guaranteed are not paid. As of both February 1, 2014 and February 2, 2013, the amount of guarantees of Value City commitments was $0.1 million.
The reduction in the liability through February 1, 2014 is due to payments by the primary obligor to the guaranteed party or information available indicating
that it was no longer probable that the guaranteed liability would be incurred.
Filene’s Basement Disposition.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:
29
Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.