17. Commitments and Contingencies

Lease Commitments

The Company leases all of its retail stores. Certain leases provide for additional rents based on percentages of net sales, charges for real estate taxes, insurance and other occupancy costs. Store leases generally have an initial term of approximately 10 years with one or more 5-year options to extend the lease. Some of these leases have provisions for rent escalations during the initial term. The Company also receives rental income and reimbursement for taxes and common area maintenance charges primarily from two tenants that occupy a portion of our Suffern, NY facility. Such rental income was $1.1 million for Fiscal 2012 and $1.8 million for each of Fiscal 2011 and 2010. Such amounts are classified within “Interest and other income, net” in the accompanying consolidated statements of operations.

The Company’s operating lease obligations represent future minimum lease payments under non-cancelable operating leases as of July 28, 2012. The minimum lease payments do not include common area maintenance (“CAM”) charges or real estate taxes, which are also required contractual obligations under the operating leases. In the majority of the Company’s operating leases, CAM charges are not fixed and can fluctuate from year to year.

A summary of occupancy costs follows:

	Fiscal Years Ended
	July 28, 2012			July 30, 2011			July 31, 2010
	(millions)
Base rentals	$	269.0		$	245.9		$	212.1
Percentage rentals		14.1			12.1			9.4
Other occupancy costs, primarily CAM and real estate taxes		88.3			78.5			69.9
		371.4			336.5			291.4
Less: Rental income from third parties		(1.1	)		(1.8	)		(1.8	)
Total	$	370.3		$	334.7		$	289.6

The following is a schedule of future minimum rentals under non-cancelable operating leases as of July 28, 2012:

Fiscal Years	Minimum Operating Lease Payments (a) (b)
	(millions)
2013	$	382.7
2014		327.2
2015		276.4
2016		228.5
2017		175.9
Subsequent years		311.5
Total future minimum rentals	$	1,702.2

(a)

Net of sublease income, which is not significant in any period.

(b)

Although certain leases are cancelable if specified sales levels are not achieved, future minimum rentals under such leases have been included in the above table.

Leases with Related Parties

The Company leases two stores from its Chairman or related trusts. Future minimum rentals under such related-party leases are approximately $0.4 million annually and in the aggregate $1.5 million, which have been included in the above table. The leases also contain provisions for cost escalations and additional rent based on net sales in excess of stipulated amounts. Rent expense under these leases amounted to approximately $0.4 million in Fiscal 2012, $0.4 million in Fiscal 2011 and $0.4 million in Fiscal 2010.

Employment Agreements

The Company has employment agreements with certain executives in the normal course of business which provide for compensation and certain other benefits. These agreements also provide for severance payments under certain circumstances, as do other agreements with certain key executives of Charming Shoppes that provide enhanced severance benefits upon an involuntary termination or other conditions generally within a two-year period of time from the effective date of the Charming Shoppes Acquisition.

Other Commitments

The Company enters into various cancelable and non-cancelable commitments during the year. Typically, those commitments are for less than a year in duration and are principally focused on the construction of new retail stores and the procurement of inventory. The Company normally does not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier. Preliminary commitments with the Company’s private-label merchandise vendors typically are made five to seven months in advance of planned receipt date. Substantially all merchandise purchase commitments are cancelable up to 30 days prior to the vendor’s scheduled shipment date.

Other off-balance sheet firm commitments, which primarily include inventory purchase commitments and outstanding letters of credit, amounted to approximately $573.8 million as of July 28, 2012.

Legal Matters

Six lawsuits were filed challenging the proposed acquisition of Charming Shoppes by Ascena. Five of these lawsuits have been consolidated in state court in Pennsylvania, and one case remains in Federal court in Pennsylvania. In general, plaintiffs sued the Charming Shoppes’ board of directors for breach of their fiduciary duties under Pennsylvania state law in connection with the sales process, negotiations and public disclosures about the transaction. Ascena was sued for allegedly aiding and abetting the Charming Shoppes’ board of directors’ breach of their fiduciary duties. The parties reached an agreement in principle to settle the state and federal litigations on the basis of supplemental disclosures only, and settlement papers are expected to be filed with the court shortly. Pursuant to the settlement, Plaintiffs will seek an award of attorneys’ fees from the court, and any award will be paid by Ascena, as Charming Shoppes’ parent company. The amount of attorneys’ fees so payable is not expected to have a material adverse effect on the Company’s consolidated financial statements.

On January 21, 2010, Tween Brands was sued in the U.S. District Court for the Eastern District of California. This purported class action alleged, among other things, that Tween Brands violated the Fair Labor Standards Act by not properly paying its employees for overtime and missed rest breaks. The parties agreed to a settlement of this wage and hour lawsuit. The court granted final approval of the settlement on August 10, 2011. The Company had previously established a reserve for this settlement. During the first quarter of Fiscal 2012, the settlement funds were disbursed to class members, and the excess reserve was reversed into income. The effect of the settlement and the reversal of excess reserve was not material to the consolidated financial statements.

In addition to the litigation discussed above, the Company is, and in the future may be, involved in various lawsuits, claims or proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, the Company believes that the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial statements.