[X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended |
[ ] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ |
BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter) | |
New York (State or other jurisdiction of incorporation or organization) | 43-0197190 (IRS Employer Identification Number) |
8300 Maryland Avenue St. Louis, Missouri (Address of principal executive offices) | 63105 (Zip Code) |
(314) 854-4000 (Registrant's telephone number, including area code) | |
PART I | FINANCIAL INFORMATION |
ITEM 1 | FINANCIAL STATEMENTS |
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
($ thousands) | October 30, 2004 | November 1, 2003 | January 31, 2004 | |||||||
Assets | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 74,793 | $ | 52,750 | $ | 55,657 | ||||
Receivables | 74,850 | 64,534 | 81,930 | |||||||
Inventories | 409,961 | 376,602 | 376,210 | |||||||
Prepaid expenses and other current assets | 17,963 | 24,717 | 15,888 | |||||||
Total current assets | 577,567 | 518,603 | 529,685 | |||||||
Other assets | 87,928 | 84,056 | 83,692 | |||||||
Goodwill and intangible assets, net | 20,860 | 20,435 | 20,405 | |||||||
Property and equipment | 291,684 | 271,405 | 272,151 | |||||||
Allowances for depreciation and amortization | (201,944 | ) | (186,598 | ) | (186,603 | ) | ||||
Total property and equipment | 89,740 | 84,807 | 85,548 | |||||||
Total assets | $ | 776,095 | $ | 707,901 | $ | 719,330 | ||||
Liabilities and Shareholders' Equity | ||||||||||
Current Liabilities | ||||||||||
Notes payable | $ | 43,500 | $ | 16,000 | $ | 19,500 | ||||
Trade accounts payable | 108,617 | 107,894 | 116,677 | |||||||
Accrued expenses | 92,291 | 93,613 | 96,707 | |||||||
Income taxes | 11,811 | 14,272 | 2,960 | |||||||
Current maturities of long-term debt | - | 3,500 | - | |||||||
Total current liabilities | 256,219 | 235,279 | 235,844 | |||||||
Other Liabilities | ||||||||||
Long-term debt | 100,000 | 100,000 | 100,000 | |||||||
Other liabilities | 29,550 | 28,317 | 28,358 | |||||||
Total other liabilities | 129,550 | 128,317 | 128,358 | |||||||
Shareholders' Equity | ||||||||||
Common stock | 68,229 | 67,640 | 67,787 | |||||||
Additional capital | 62,977 | 55,135 | 62,772 | |||||||
Unamortized value of restricted stock | (2,935 | ) | (2,691 | ) | (3,408 | ) | ||||
Accumulated other comprehensive loss | (607 | ) | (5,366 | ) | (4,934 | ) | ||||
Retained earnings | 262,662 | 229,587 | 232,911 | |||||||
Total shareholders' equity | 390,326 | 344,305 | 355,128 | |||||||
Total liabilities and shareholders' equity | $ | 776,095 | $ | 707,901 | $ | 719,330 |
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited) | |||||||||
AS RESTATED (See Note 2) | |||||||||
($ thousands) | April 30, 2005 | May 1, 2004 | January 29, 2005 | ||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 25,748 | $ | 66,422 | $ | 79,448 | |||
Receivables | 112,703 | 88,072 | 97,503 | ||||||
Inventories | 423,707 | 366,902 | 421,450 | ||||||
Prepaid expenses and other current assets | 26,167 | 17,049 | 24,438 | ||||||
Total current assets | 588,325 | 538,445 | 622,839 | ||||||
Other assets | 91,488 | 87,751 | 87,427 | ||||||
Goodwill and intangible assets, net | 195,292 | 20,222 | 21,474 | ||||||
Property and equipment | 347,215 | 315,987 | 339,138 | ||||||
Allowances for depreciation and amortization | (230,184 | ) | (210,732 | ) | (224,744 | ) | |||
Total property and equipment | 117,031 | 105,255 | 114,394 | ||||||
Total assets | $ | 992,136 | $ | 751,673 | $ | 846,134 | |||
Liabilities and Shareholders' Equity | |||||||||
Current Liabilities | |||||||||
Current maturities of long-term debt | $ | 79,500 | $ | 43,000 | $ | 92,000 | |||
Trade accounts payable | 123,864 | 100,902 | 143,982 | ||||||
Accrued expenses | 103,777 | 89,556 | 98,096 | ||||||
Income taxes | 12,064 | 5,189 | 7,437 | ||||||
Total current liabilities | 319,205 | 238,647 | 341,515 | ||||||
Other Liabilities | |||||||||
Long-term debt | 200,000 | 100,000 | 50,000 | ||||||
Other liabilities | 79,531 | 54,887 | 63,316 | ||||||
Total other liabilities | 279,531 | 154,887 | 113,316 | ||||||
Shareholders' Equity | |||||||||
Common stock | 68,650 | 68,002 | 68,406 | ||||||
Additional paid-in capital | 62,314 | 64,851 | 62,639 | ||||||
Unamortized value of restricted stock | (2,443 | ) | (3,648 | ) | (2,661 | ) | |||
Accumulated other comprehensive loss | (974 | ) | (5,651 | ) | (983 | ) | |||
Retained earnings | 265,853 | 234,585 | 263,902 | ||||||
Total shareholders’ equity | 393,400 | 358,139 | 391,303 | ||||||
Total liabilities and shareholders’ equity | $ | 992,136 | $ | 751,673 | $ | 846,134 |
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||||||
($ thousands, except per share amounts) | October 30, 2004 | November 1, 2003 | October 30 , 2004 | November 1, 2003 | ||||||||
Net sales | $ | 514,825 | $ | 493,433 | $ | 1,465,314 | $ | 1,398,261 | ||||
Cost of goods sold | 306,782 | 288,721 | 868,661 | 820,557 | ||||||||
Gross profit | 208,043 | 204,712 | 596,653 | 577,704 | ||||||||
Selling and administrative expenses | 179,762 | 172,278 | 540,177 | 511,317 | ||||||||
Operating earnings | 28,281 | 32,434 | 56,476 | 66,387 | ||||||||
Interest expense | 1,980 | 2,256 | 6,600 | 7,679 | ||||||||
Interest income | (221 | ) | (118 | ) | (517 | ) | (318 | ) | ||||
Earnings before income taxes | 26,522 | 30,296 | 50,393 | 59,026 | ||||||||
Income tax provision | 7,702 | 9,096 | 15,192 | 17,267 | ||||||||
Net earnings | $ | 18,820 | $ | 21,200 | $ | 35,201 | $ | 41,759 | ||||
Basic net earnings per common share | $ | 1.05 | $ | 1.19 | $ | 1.97 | $ | 2.37 | ||||
Diluted net earnings per common share | $ | 1.01 | $ | 1.13 | $ | 1.87 | $ | 2.25 | ||||
Dividends per common share | $ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 |
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS |
(Unaudited) | ||||||||||||
Thirteen Weeks Ended | ||||||||||||
AS RESTATED (See Note 2) | ||||||||||||
($ thousands, except per share amounts) | April 30, 2005 | May 1, 2004 | ||||||||||
Net sales | $ | 523,283 | $ | 491,832 | ||||||||
Cost of goods sold | 312,677 | 292,468 | ||||||||||
Gross profit | 210,606 | 199,364 | ||||||||||
Selling and administrative expenses | 187,538 | 184,514 | ||||||||||
Operating earnings | 23,068 | 14,850 | ||||||||||
Interest expense | (3,399 | ) | (2,479 | ) | ||||||||
Interest income | 449 | (126 | ||||||||||
Earnings before income taxes | 20,118 | 12,497 | ||||||||||
Income tax provision | (16,339 | ) | (3,971 | ) | ||||||||
Net earnings | $ | 3,779 | $ | 8,526 | ||||||||
Basic earnings per common share | $ | 0.21 | $ | 0.48 | ||||||||
Diluted earnings per common share | $ | 0.20 | $ | 0.45 | ||||||||
Dividends per common share | $ | 0.10 | $ | 0.10 |
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
($ thousands) | October 30, 2004 | November 1, 2003 | ||||
Operating Activities: | ||||||
Net earnings | $ | 35,201 | $ | 41,759 | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||
Depreciation and amortization | 18,251 | 19,053 | ||||
Share-based compensation (income) expense | (1,480 | ) | 3,299 | |||
Tax benefit related to share-based plans | 913 | - | ||||
Loss on disposal of facilities and equipment | 739 | 1,599 | ||||
Impairment charges for facilities and equipment | 1,481 | 2,147 | ||||
Provision for (recoveries from) doubtful accounts | (342 | ) | 278 | |||
Changes in operating assets and liabilities: | ||||||
Receivables | 7,422 | 17,674 | ||||
Inventories | (33,751 | ) | 15,982 | |||
Prepaid expenses and other current assets | (2,075 | ) | (3,739 | ) | ||
Trade accounts payable and accrued expenses | (12,476 | ) | (31,198 | ) | ||
Income taxes | 8,851 | 8,920 | ||||
Other, net | 1,164 | (182 | ) | |||
Net cash provided by operating activities | 23,898 | 75,592 | ||||
Investing Activities: | ||||||
Capital expenditures | (23,880 | ) | (21,668 | ) | ||
Other | 153 | 368 | ||||
Net cash used by investing activities | (23,727 | ) | (21,300 | ) | ||
Financing Activities: | ||||||
Increase (decrease) in short-term notes payable | 24,000 | (13,000 | ) | |||
Principal repayments of long-term debt | - | (20,000 | ) | |||
Debt issuance costs | (1,274 | ) | - | |||
Proceeds from stock options exercised | 1,687 | 4,696 | ||||
Dividends paid | (5,448 | ) | (5,359 | ) | ||
Net cash provided (used) by financing activities | 18,965 | (33,663 | ) | |||
Increase in cash and cash equivalents | 19,136 | 20,629 | ||||
Cash and cash equivalents at beginning of period | 55,657 | 32,121 | ||||
Cash and cash equivalents at end of period | $ | 74,793 | $ | 52,750 |
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) | ||||||
Thirteen Weeks Ended | ||||||
AS RESTATED (See Note 2) | ||||||
($ thousands) | April 30, 2005 | May 1, 2004 | ||||
Operating Activities: | ||||||
Net earnings | $ | 3,779 | $ | 8,526 | ||
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | ||||||
Depreciation and amortization | 7,826 | 7,130 | ||||
Share-based compensation expense | 352 | 1,405 | ||||
Loss on disposal of facilities and equipment | 184 | 315 | ||||
Impairment charges for facilities and equipment | 590 | 409 | ||||
Provision for (recoveries from) doubtful accounts | 165 | (167 | ) | |||
Changes in operating assets and liabilities: | ||||||
Receivables | 6,486 | (5,975 | ) | |||
Inventories | 26,524 | 9,308 | ||||
Prepaid expenses and other current assets | (3,305 | ) | (3,387 | ) | ||
Trade accounts payable and accrued expenses | (23,763 | ) | (22,193 | ) | ||
Income taxes | 4,760 | 2,229 | ||||
Deferred rent | (1,341 | ) | 1,621 | |||
Deferred income taxes | 7,316 | (116 | ) | |||
Other, net | 320 | (1,019 | ) | |||
Net cash provided (used) by operating activities | 29,893 | (1,914 | ) | |||
Investing Activities: | ||||||
Payments on acquisition, net of cash received | (206,970 | ) | - | |||
Capital expenditures | (8,547 | ) | (9,774 | ) | ||
Other | 105 | 115 | ||||
Net cash used by investing activities | (215,412 | ) | (9,659 | ) | ||
Financing Activities: | ||||||
Increase (decrease) in current maturities of long-term debt | (12,500 | ) | 23,500 | |||
Proceeds from issuance of senior notes | 150,000 | - | ||||
Debt issuance costs | (4,667 | ) | - | |||
Proceeds from stock options exercised | 562 | 649 | ||||
Tax benefit related to share-based plans | 254 | - | ||||
Dividends paid | (1,830 | ) | (1,811 | ) | ||
Net cash provided by financing activities | 131,819 | 22,338 | ||||
Increase (decrease) in cash and cash equivalents | (53,700 | ) | 10,765 | |||
Cash and cash equivalents at beginning of period | 79,448 | 55,657 | ||||
Cash and cash equivalents at end of period | $ | 25,748 | $ | 66,422 |
BROWN SHOE COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
Note 1. | Basis of Presentation |
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
See Note 2 for information regarding the restatement of our consolidated financial statements for prior periods.
Note 2. | Restatement of Consolidated Financial Statements |
Note 3. | Acquisition of Bennett Footwear Group and Related Financing |
Thirteen Weeks Ended | |||||||
($ thousands, except per share data) | April 30, 2005 | May 1, 2004 | |||||
Net sales | $ | 560,653 | $ | 544,288 | |||
Net earnings (loss) | 1,110 | (3,862 | ) | ||||
Net earnings (loss) per common share: | |||||||
Basic | 0.06 | (0.22 | ) | ||||
Diluted | 0.06 | (0.20 | ) |
Note 4. | Earnings Per Share |
($ thousands, except per share data) | October 30, 2004 | November 1, 2003 | October 30, 2004 | November 1, 2003 | |||||||||
NUMERATOR | |||||||||||||
Net earnings | $ | 18,820 | $ | 21,200 | $ | 35,201 | $ | 41,759 | |||||
DENOMINATOR (thousand shares) | |||||||||||||
Denominator for basic net earnings per common share | 17,943 | 17,761 | 17,902 | 17,634 | |||||||||
Dilutive effect of unvested restricted stock and stock options | 706 | 937 | 950 | 900 | |||||||||
Denominator for diluted net earnings per common share | 18,649 | 18,698 | 18,852 | 18,534 | |||||||||
Basic net earnings per common share | $ | 1.05 | $ | 1.19 | $ | 1.97 | $ | 2.37 | |||||
Diluted net earnings per common share | $ | 1.01 | $ | 1.13 | $ | 1.87 | $ | 2.25 |
Thirteen Weeks Ended | |||||||||||||
($ thousands, except per share data) | April 30, 2005 | May 1, 2004 | |||||||||||
NUMERATOR | |||||||||||||
Net earnings | $ | 3,779 | $ | 8,526 | |||||||||
DENOMINATOR (thousand shares) | |||||||||||||
Denominator for basic net earnings per common share | 18,074 | 17,841 | |||||||||||
Dilutive effect of unvested restricted stock and stock options | 738 | 1,078 | |||||||||||
Denominator for diluted net earnings per common share | 18,812 | 18,919 | |||||||||||
Basic net earnings per common share | $ | 0.21 | $ | 0.48 | |||||||||
Diluted net earnings per common share | $ | 0.20 | $ | 0.45 |
Note 5. | Comprehensive Income |
5
($ Thousands) | October 30, 2004 | November 1, 2003 | October 30, 2004 | November 1, 2003 | |||||||||
Net earnings | $ | 18,820 | $ | 21,200 | $ | 35,201 | $ | 41,759 | |||||
Other comprehensive income (loss), net of tax: | |||||||||||||
Foreign currency translation adjustment | 3,580 | 2,448 | 3,488 | 5,707 | |||||||||
Unrealized losses on derivative instruments | (631 | ) | (624 | ) | (743 | ) | (1,179 | ) | |||||
Net loss from derivatives reclassified into earnings | 418 | 536 | 1,582 | 1,253 | |||||||||
3,367 | 2,360 | 4,327 | 5,781 | ||||||||||
Comprehensive income | $ | 22,187 | $ | 23,560 | $ | 39,528 | $ | 47,540 |
Thirteen Weeks Ended | |||||||||||||
($ Thousands) | April 30, 2005 | May 1, 2004 | |||||||||||
Net earnings | $ | 3,779 | $ | 8,526 | |||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||
Foreign currency translation adjustment | (568 | ) | (1,310 | ) | |||||||||
Unrealized gains on derivative instruments | 7 | 102 | |||||||||||
Net loss from derivatives reclassified into earnings | 570 | 491 | |||||||||||
9 | (717 | ) | |||||||||||
Comprehensive income | $ | 3,788 | $ | 7,809 |
Note 6. | Business Segment Information |
($ thousands) | Famous Footwear | Wholesale Operations | Naturalizer Retail | Other | Totals | ||||||||||
Thirteen Weeks Ended October 30, 2004 | |||||||||||||||
External sales | $ | 311,685 | $ | 148,696 | $ | 49,911 | $ | 4,533 | $ | 514,825 | |||||
Intersegment sales | 414 | 46,786 | - | - | 47,200 | ||||||||||
Operating earnings (loss) | 24,802 | 10,375 | (1,491 | ) | (5,405 | ) | 28,281 | ||||||||
Operating segment assets | 359,044 | 188,362 | 79,836 | 148,853 | 776,095 | ||||||||||
Thirteen Weeks Ended November 1, 2003 | |||||||||||||||
External sales | $ | 301,588 | $ | 140,062 | $ | 49,789 | $ | 1,994 | $ | 493,433 | |||||
Intersegment sales | 284 | 35,968 | - | - | 36,252 | ||||||||||
Operating earnings (loss) | 23,427 | 15,460 | (166 | ) | (6,287 | ) | 32,434 | ||||||||
Operating segment assets | 345,000 | 171,986 | 70,669 | 120,246 | 707,901 | ||||||||||
Thirty-nine Weeks Ended October 30, 2004 | |||||||||||||||
External sales | $ | 853,620 | $ | 457,125 | $ | 143,507 | $ | 11,062 | $ | 1,465,314 | |||||
Intersegment sales | 1,054 | 121,718 | - | - | 122,772 | ||||||||||
Operating earnings (loss) | 49,818 | 32,144 | (6,262 | ) | (19,224 | ) | 56,476 | ||||||||
Thirty-nine Weeks Ended November 1, 2003 | |||||||||||||||
External sales | $ | 831,634 | $ | 418,950 | $ | 142,296 | $ | 5,381 | $ | 1,398,261 | |||||
Intersegment sales | 693 | 100,718 | - | - | 101,411 | ||||||||||
Operating earnings (loss) | 46,914 | 41,106 | (2,534 | ) | (19,099 | ) | 66,387 | ||||||||
The Other segment includes corporate administrative and other expenses, which are not allocated to
($ thousands) | Famous Footwear | Wholesale Operations | Specialty Retail | Other | Totals | ||||||||||
Thirteen Weeks Ended April 30, 2005 | |||||||||||||||
External sales | $ | 288,735 | $ | 181,288 | $ | 53,260 | $ | - | $ | 523,283 | |||||
Intersegment sales | 440 | 46,945 | - | - | 47,385 | ||||||||||
Operating earnings (loss) | 16,514 | 17,504 | (3,509 | ) | (7,441 | ) | 23,068 | ||||||||
Operating segment assets | 389,925 | 417,185 | 88,545 | 96,481 | 992,136 | ||||||||||
Thirteen Weeks Ended May 1, 2004 | |||||||||||||||
External sales | $ | 272,124 | $ | 171,545 | $ | 48,163 | $ | - | $ | 491,832 | |||||
Intersegment sales | 322 | 38,378 | - | - | 38,700 | ||||||||||
Operating earnings (loss) | 12,317 | 12,805 | (2,470 | ) | (7,802 | ) | 14,850 | ||||||||
Operating segment assets | 350,972 | 197,855 | 75,505 | 127,341 | 751,673 |
Effective February 1, 2004,company, within the Company began accounting for its Irish financing subsidiary, Brown Group Dublin Limited, which holds cash and short term investments relating to offshore earnings other than in Canada,Specialty Retail segment. Shoes.com, Inc., had previously been reported within the Other segment. Brown Group Dublin Limited had previously been accounted for within the Wholesale Operations segment. Prior year
6
amounts have been reclassified to conform to the current year presentation. This reclassification had no effect on operating earnings, but resulted in a transfer of sales of $6.6 million and $2.8 million in 2005 and 2004, respectively, and resulted in an immaterial transfer of operating earnings (loss) in both 2005 and 2004 to the Specialty Retail segment. This reclassification also resulted in a transfer of operating segment assets of $68.0$7.8 million and $47.1$4.8 million at October 30,in 2005 and 2004, respectively.
Note 7. |
Closure of Canadian Manufacturing Facility
In the fourth quarter of fiscal year 2003, the Company announced the closing of its last Canadian footwear manufacturing facility, located in Perth, Ontario, and recorded a pre-tax charge of $4.5 million, the components of which were as follows:
($ millions) | Employee Severance | Inventory Markdowns | Lease Buyouts | Total | ||||||||
Original charge and reserve balance | $ | 2.3 | $ | 1.6 | $ | 0.6 | $ | 4.5 | ||||
Adjustments | (0.3 | ) | 0.4 | (0.1 | ) | - | ||||||
Expenditures in quarter ending May 1, 2004 | (1.8 | ) | (2.0 | ) | (0.1 | ) | (3.9 | ) | ||||
Expenditures in quarter ending July 31, 2004 | (0.1 | ) | - | (0.2 | ) | (0.3 | ) | |||||
Expenditures in quarter ending October 30, 2004 | - | - | (0.1 | ) | (0.1 | ) | ||||||
Reserve balance October 30, 2004 | $ | 0.1 | $ | - | $ | 0.1 | $ | 0.2 |
The Company anticipates that the restructuring activities associated with the closure of the Canadian manufacturing facility will be substantially completed by the end of fiscal 2004.
Goodwill and Other Intangible Assets |
($ thousands) | October 30, 2004 | November 1, 2003 | January 31, 2004 | ||||||
Famous Footwear | $ | 3,529 | $ | 3,529 | $ | 3,529 | |||
Wholesale Operations | 10,233 | 10,248 | 10,245 | ||||||
Naturalizer Retail | 5,763 | 5,323 | 5,296 | ||||||
Other | 1,335 | 1,335 | 1,335 | ||||||
$ | 20,860 | $ | 20,435 | $ | 20,405 |
($ thousands) | April 30, 2005 | May 1, 2004 | January 29, 2005 | ||||||
Famous Footwear | $ | 3,529 | $ | 3,529 | $ | 3,529 | |||
Wholesale Operations | 184,127 | 10,241 | 10,230 | ||||||
Specialty Retail | 6,913 | 6,452 | 6,992 | ||||||
Other | 723 | - | 723 | ||||||
$ | 195,292 | $ | 20,222 | $ | 21,474 |
Note 8. | Share-Based Compensation |
7
underlying common stock on the date of grant. The following table illustrates the effect on net earnings and net earnings per common share as if the Company had applied the fair value recognition provisions of SFAS No. 123, "AccountingAccounting for Stock-Based Compensation", to stock options outstanding:
($ thousands, except per share amounts) | October 30, 2004 | November 1, 2003 | October 30, 2004 | November 1, 2003 | |||||||||
Net earnings, as reported | $ | 18,820 | $ | 21,200 | $ | 35,201 | $ | 41,759 | |||||
Add: Total share-based employee compensation (income) expense included in reported net earnings, net of related tax effect | (1,425 | ) | 931 | (962 | ) | 2,145 | |||||||
Deduct: Total share-based employee compensation expense determined under the fair value based method for all awards, net of related tax effect | 618 | (1,479 | ) | (1,396 | ) | (3,877 | ) | ||||||
Pro forma net earnings | $ | 18,013 | $ | 20,652 | $ | 32,843 | $ | 40,027 | |||||
Net earnings per common share: | |||||||||||||
Basic - as reported | $ | 1.05 | $ | 1.19 | $ | 1.97 | $ | 2.37 | |||||
Basic - pro forma | 1.00 | 1.16 | 1.83 | 2.27 | |||||||||
Diluted - as reported | 1.01 | 1.13 | 1.87 | 2.25 | |||||||||
Diluted - pro forma | 0.97 | 1.10 | 1.74 | 2.16 | |||||||||
Thirteen Weeks Ended | |||||||||||||
($ thousands, except per share amounts) | April 30, 2005 | May 1, 2004 | |||||||||||
Net earnings, as reported | $ | 3,779 | $ | 8,526 | |||||||||
Add: Total share-based employee compensation expense included in reported net earnings, net of related tax effect | 137 | 913 | |||||||||||
Deduct: Total share-based employee compensation expense determined under the fair value based method for all awards, net of related tax effect | (1,135 | ) | (1,654 | ) | |||||||||
Pro forma net earnings | $ | 2,781 | $ | 7,785 | |||||||||
Net earnings per common share: | |||||||||||||
Basic - as reported | $ | 0.21 | $ | 0.48 | |||||||||
Basic - pro forma | 0.15 | 0.44 | |||||||||||
Diluted - as reported | 0.20 | 0.45 | |||||||||||
Diluted - pro forma | 0.15 | 0.41 |
As a result of the decline in the Company's net earnings and stock price during the period and the corresponding change in estimated payouts under stock-based and other incentive plans, the Company's third quarter and year to date 2004 results reflect reduced compensation expense as compared to the same periods in 2003. The Company recognized income of $3.2 million ($2.0 million on an after tax basis, or $0.11 per diluted share) during the thirteen weeks ended October 30, 2004 related to these plans, compared to expense of $5.4 million ($3.3 million on an after tax basis) during the thirteen weeks ended November 1, 2003. For the year to date period, the Company recognized $4.2 million of expense ($2.6 million on an after tax basis, or $0.14 per diluted share) related to these plans during the thirty-nine weeks ended October 30, 2004 as compared to $13.9 million of expense ($8.6 million on an after tax basis) during the thirty-nine weeks ended November 1, 2003.
Note 9. | Retirement and Other Benefit Plans |
($ thousands) | October 30, 2004 | November 1, 2003 | October 30, 2004 | November 1, 2003 | ||||||||
Service cost | $ | 1,543 | $ | 1,318 | $ | - | $ | - | ||||
Interest cost | 2,169 | 2,001 | 65 | 68 | ||||||||
Expected return on assets | (3,831 | ) | (3,705 | ) | - | - | ||||||
Amortization of: | ||||||||||||
Actuarial loss (gain) | 104 | 96 | (35 | ) | (48 | ) | ||||||
Prior service costs | 78 | 78 | - | (26 | ) | |||||||
Net transition assets | - | (42 | ) | - | - | |||||||
Total net periodic benefit cost (income) | $ | 63 | (254 | ) | $ | 30 | $ | (6 | ) |
8
Pension Benefits | Other Postretirement Benefits | |||||||||||
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||
($ thousands) | April 30, 2005 | May 1, 2004 | April 30, 2005 | May 1, 2004 | ||||||||
Service cost | $ | 1,608 | $ | 1,383 | $ | - | $ | - | ||||
Interest cost | 2,284 | 2,103 | 65 | 63 | ||||||||
Expected return on assets | (3,935 | ) | (3,608 | ) | - | - | ||||||
Amortization of: | ||||||||||||
Actuarial loss (gain) | 130 | 78 | (15 | ) | (50 | ) | ||||||
Prior service costs | 100 | 75 | - | - | ||||||||
Net transition assets | (46 | ) | (43 | ) | - | - | ||||||
Total net periodic benefit cost (income) | $ | 141 | (12 | ) | $ | 50 | $ | 13 |
($ thousands) | October 30, 2004 | November 1, 2003 | October 30, 2004 | November 1, 2003 | ||||||||
Service cost | $ | 4,625 | $ | 3,950 | $ | - | $ | - | ||||
Interest cost | 6,500 | 5,995 | 195 | 204 | ||||||||
Expected return on assets | (11,481 | ) | (11,104 | ) | - | - | ||||||
Amortization of: | ||||||||||||
Actuarial loss (gain) | 263 | 283 | (105 | ) | (146 | ) | ||||||
Prior service costs | 234 | 234 | - | (78 | ) | |||||||
Net transition assets | (85 | ) | (123 | ) | - | - | ||||||
Total net periodic benefit cost (income) | $ | 56 | $ | (765 | ) | $ | 90 | $ | (20 | ) |
Note 10. | Income Taxes |
Note 11. | Debt |
In connection with On March 14, 2005, the Company entered into the First Amendment to the Agreement to permit the Company incurred approximately $1.3 millionacquisition of Bennett and the issuance costs, which, together with remaining unamortized debt issuance costs of approximately $2.7 million associated with the original bank credit agreement, will be amortized over the five-year termits 8.75% Senior Notes due 2012.
Note 12. | Commitments and Contingencies |
9
recovery, and certain insurers have offered to settle these claims. The Company is unable to estimate the ultimate recovery from the insurance carriers, but is pursuing resolution of its claims.
All legal costs associated with litigation are expensed as incurred.
matter.
10
Note 13. | Financial Information for the Company and its Subsidiaries |
CONDENSED CONSOLIDATING BALANCE SHEET AS OF APRIL 30, 2005 |
($ thousands) | Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||
ASSETS | |||||||||||||||
Current Assets | |||||||||||||||
Cash and cash equivalents | $ | (1,458 | ) | $ | 7,046 | $ | 20,160 | $ | - | $ | 25,748 | ||||
Receivables, net | 59,538 | 31,500 | 22,615 | (950 | ) | 112,703 | |||||||||
Inventories, net | 62,216 | 362,586 | 5,928 | (7,023 | ) | 423,707 | |||||||||
Other current assets | 4,135 | 18,577 | 1,152 | 2,303 | 26,167 | ||||||||||
Total current assets | 124,431 | 419,709 | 49,855 | (5,670 | ) | 588,325 | |||||||||
Other assets | 78,297 | 206,594 | 2,039 | (150 | ) | 286,780 | |||||||||
Property and equipment, net | 14,755 | 98,744 | 3,532 | - | 117,031 | ||||||||||
Investment in subsidiaries | 422,497 | 33,281 | - | (455,778 | ) | - | |||||||||
Total assets | $ | 639,980 | $ | 758,328 | $ | 55,426 | $ | (461,598 | ) | $ | 992,136 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||
Current Liabilities | |||||||||||||||
Current maturities of long-term debt | $ | 79,500 | $ | - | $ | 950 | $ | (950 | ) | $ | 79,500 | ||||
Trade accounts payable | 13,861 | 87,847 | 22,156 | - | 123,864 | ||||||||||
Accrued expenses | 48,290 | 51,018 | 3,811 | 658 | 103,777 | ||||||||||
Income taxes | 5,898 | 5,377 | 1,285 | (496 | ) | 12,064 | |||||||||
Total current liabilities | 147,549 | 144,242 | 28,202 | (788 | ) | 319,205 | |||||||||
Other Liabilities | |||||||||||||||
Long-term debt | 200,000 | - | - | - | 200,000 | ||||||||||
Other liabilities | 35,539 | 44,080 | (88 | ) | - | 79,531 | |||||||||
Intercompany payable (receivable) | (136,508 | ) | 143,908 | (2,368 | ) | (5,032 | ) | - | |||||||
Total other liabilities | 99,031 | 187,988 | (2,456 | ) | (5,032 | ) | 279,531 | ||||||||
Shareholders’ equity | 393,400 | 426,098 | 29,680 | (455,778 | ) | 393,400 | |||||||||
Total liabilities and shareholders’ equity | $ | 639,980 | $ | 758,328 | $ | 55,426 | $ | (461,598 | ) | $ | 992,136 |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE THIRTEEN WEEKS ENDED APRIL 30, 2005 |
($ thousands) | Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||
Net Sales | $ | 144,487 | $ | 350,311 | $ | 74,192 | $ | (45,707 | ) | $ | 523,283 | ||||
Cost of goods sold | 104,757 | 191,071 | 61,785 | (44,936 | ) | 312,677 | |||||||||
Gross profit | 39,730 | 159,240 | 12,407 | (771 | ) | 210,606 | |||||||||
Selling and administrative expenses | 33,618 | 147,700 | 6,991 | (771 | ) | 187,538 | |||||||||
Equity in (earnings) of subsidiaries | (10,824 | ) | (5,089 | ) | - | 15,913 | - | ||||||||
Operating earnings | 16,936 | 16,629 | 5,416 | (15,913 | ) | 23,068 | |||||||||
Interest expense | (3,377 | ) | - | (22 | ) | - | (3,399 | ) | |||||||
Interest income | 10 | 37 | 402 | - | 449 | ||||||||||
Intercompany interest income (expense) | 1,372 | (1,641 | ) | 269 | - | - | |||||||||
Earnings before income taxes | 14,941 | 15,025 | 6,065 | (15,913 | ) | 20,118 | |||||||||
Income tax (provision) benefit | (11,162 | ) | (4,144 | ) | (1,033 | ) | - | (16,339 | ) | ||||||
Net earnings | $ | 3,779 | $ | 10,881 | $ | 5,032 | $ | (15,913 | ) | $ | 3,779 |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED APRIL 30, 2005 |
($ thousands) | Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||
Net cash provided (used) by operating activities | $ | 21,448 | $ | 4,507 | $ | 2,311 | $ | 1,627 | $ | 29,893 | |||||
Investing activities | |||||||||||||||
Payments on acquisition, net of cash received | - | (206,970 | ) | - | - | (206,970 | ) | ||||||||
Capital expenditures | (310 | ) | (8,113 | ) | (124 | ) | - | (8,547 | ) | ||||||
Other | 105 | - | - | - | 105 | ||||||||||
Net cash used by investing activities | (205 | ) | (215,083 | ) | (124 | ) | - | (215,412 | ) | ||||||
Financing activities | |||||||||||||||
Increase (decrease) in current maturities of long-term debt | (12,500 | ) | - | 175 | (175 | ) | (12,500 | ) | |||||||
Proceeds from the issuance of Senior Notes | 150,000 | - | - | - | 150,000 | ||||||||||
Debt issuance costs | (4,667 | ) | - | - | - | (4,667 | ) | ||||||||
Proceeds from stock options exercised | 562 | - | - | - | 562 | ||||||||||
Tax benefit related to share-based plans | 254 | - | - | - | 254 | ||||||||||
Dividends (paid) received | (1,830 | ) | 60,464 | (60,464 | ) | - | (1,830 | ) | |||||||
Intercompany financing | (150,863 | ) | 147,253 | 5,062 | (1,452 | ) | - | ||||||||
Net cash provided (used) by financing activities | (19,044 | ) | 207,717 | (55,227 | ) | (1,627 | ) | 131,819 | |||||||
Increase (decrease) in cash and cash equivalents | 2,199 | (2,859 | ) | (53,040 | ) | - | (53,700 | ) | |||||||
Cash and cash equivalents at beginning of period | (3,657 | ) | 9,905 | 73,200 | - | 79,448 | |||||||||
Cash and cash equivalents at end of period | $ | (1,458 | ) | $ | 7,046 | $ | 20,160 | $ | - | $ | 25,748 |
CONDENSED CONSOLIDATING BALANCE SHEET AS OF MAY 1, 2004 |
($ thousands) | Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||
ASSETS | |||||||||||||||
Current Assets | |||||||||||||||
Cash and cash equivalents | $ | (416 | ) | $ | 6,755 | $ | 60,083 | $ | - | $ | 66,422 | ||||
Receivables, net | 68,247 | 5,394 | 15,431 | (1,000 | ) | 88,072 | |||||||||
Inventories, net | 66,916 | 301,957 | 2,865 | (4,836 | ) | 366,902 | |||||||||
Other current assets | 1,108 | 12,973 | 1,279 | 1,689 | 17,049 | ||||||||||
Total current assets | 135,855 | 327,079 | 79,658 | (4,147 | ) | 538,445 | |||||||||
Other assets | 70,771 | 34,958 | 2,244 | - | 107,973 | ||||||||||
Property and equipment, net | 14,595 | 87,158 | 3,502 | - | 105,255 | ||||||||||
Investment in subsidiaries | 371,377 | 73,590 | - | (444,967 | ) | - | |||||||||
Total assets | $ | 592,598 | $ | 522,785 | $ | 85,404 | $ | (449,114 | ) | $ | 751,673 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||
Current Liabilities | |||||||||||||||
Current maturities of long-term debt | $ | 43,000 | $ | - | $ | 1,000 | $ | (1,000 | ) | $ | 43,000 | ||||
Trade accounts payable | 10,813 | 73,018 | 17,071 | - | 100,902 | ||||||||||
Accrued expenses | 42,658 | 42,207 | 4,398 | 293 | 89,556 | ||||||||||
Income taxes | 1,454 | 1,686 | 1,409 | 640 | 5,189 | ||||||||||
Total current liabilities | 97,925 | 116,911 | 23,878 | (67 | ) | 238,647 | |||||||||
Other Liabilities | |||||||||||||||
Long-term debt | 100,000 | - | - | - | 100,000 | ||||||||||
Other liabilities | 27,907 | 26,991 | (11 | ) | - | 54,887 | |||||||||
Intercompany payable (receivable) | 8,627 | 3,139 | (7,686 | ) | (4,080 | ) | - | ||||||||
Total other liabilities | 136,534 | 30,130 | (7,697 | ) | (4,080 | ) | 154,887 | ||||||||
Shareholders’ equity | 358,139 | 375,744 | 69,223 | (444,967 | ) | 358,139 | |||||||||
Total liabilities and shareholders’ equity | $ | 592,598 | $ | 522,785 | $ | 85,404 | $ | (449,114 | ) | $ | 751,673 |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE THIRTEEN WEEKS ENDED MAY 1, 2004 |
($ thousands) | Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||
Net Sales | $ | 136,836 | $ | 325,552 | $ | 69,365 | $ | (39,921 | ) | $ | 491,832 | ||||
Cost of goods sold | 96,781 | 176,405 | 58,454 | (39,172 | ) | 292,468 | |||||||||
Gross profit | 40,055 | 149,147 | 10,911 | (749 | ) | 199,364 | |||||||||
Selling and administrative expenses | 38,683 | 141,605 | 4,975 | (749 | ) | 184,514 | |||||||||
Equity in (earnings) of subsidiaries | (9,066 | ) | (5,936 | ) | - | 15,002 | - | ||||||||
Operating earnings | 10,438 | 13,478 | 5,936 | (15,002 | ) | 14,850 | |||||||||
Interest expense | (2,466 | ) | - | (13 | ) | - | (2,479 | ) | |||||||
Interest income | 1 | 21 | 104 | - | 126 | ||||||||||
Intercompany interest income (expense) | 1,852 | (2,027 | ) | 175 | - | - | |||||||||
Earnings before income taxes | 9,825 | 11,472 | 6,202 | (15,002 | ) | 12,497 | |||||||||
Income tax (provision) benefit | (1,299 | ) | (2,303 | ) | (369 | ) | - | (3,971 | ) | ||||||
Net earnings | $ | 8,526 | $ | 9,169 | 5,833 | $ | (15,002 | ) | $ | 8,526 |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED MAY 1, 2004 |
($ thousands) | Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||
Net cash provided (used) by operating activities | $ | (35,465 | ) | $ | 25,515 | $ | 6,398 | $ | 1,638 | $ | (1,914 | ) | |||
Investing activities | |||||||||||||||
Capital expenditures | (874 | ) | (7,828 | ) | (1,072 | ) | - | (9,774 | ) | ||||||
Other | 115 | - | - | - | 115 | ||||||||||
Net cash used by investing activities | (759 | ) | (7,828 | ) | (1,072 | ) | - | (9,659 | ) | ||||||
Financing activities | |||||||||||||||
Increase (decrease) in current maturities of long-term debt | 23,500 | - | - | - | 23,500 | ||||||||||
Debt issuance costs | - | - | - | - | - | ||||||||||
Proceeds from stock options exercised | 649 | - | - | - | 649 | ||||||||||
Dividends paid | (1,811 | ) | - | - | - | (1,811 | ) | ||||||||
Intercompany financing | 17,008 | (17,297 | ) | 1,927 | (1,638 | ) | - | ||||||||
Net cash provided (used) by financing activities | 39,346 | (17,297 | ) | 1,927 | (1,638 | ) | 22,338 | ||||||||
Increase (decrease) in cash and cash equivalents | 3,122 | 390 | 7,253 | - | 10,765 | ||||||||||
Cash and cash equivalents at beginning of period | (3,538 | ) | 6,365 | 52,830 | -- | 55,657 | |||||||||
Cash and cash equivalents at end of period | $ | (416 | ) | $ | 6,755 | $ | 60,083 | $ | - | $ | 66,422 |
ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW |
The following Net earnings were negatively impacted by $9.6 million of incremental income tax expense related to the repatriation of foreign earnings and $1.0 million ($0.6 million on an after-tax basis) of interest expense related to bank commitment fees associated with the acquisition of Bennett Footwear Holdings, LLC and its subsidiaries (“Bennett”).
· | Famous Footwear’s net sales increased 6.1% to $288.7 million in the first quarter compared to $272.1 million last year. Same-store sales increased 1.5%. Operating earnings increased to $16.5 million in the first quarter compared to $12.3 million in the first quarter of the prior year. This improvement in earnings was driven by the sales increase, and higher gross margin rates driven by lower markdowns. |
· | Our Wholesale Operations segment’s operating earnings increased in the first quarter to $17.5 million compared to $12.8 million in the first quarter last year. Operating earnings were positively impacted by the non-recurrence of $3.3 million of transition and assimilation costs recorded in the first quarter of 2004 associated with the Bass footwear license. In addition, the acquisition of Bennett contributed $1.2 million in operating earnings for the period of ownership from April 22, 2005 to April 30, 2005. |
· | Our Specialty Retail segment experienced a 10.6% increase in net sales to $53.3 million in the first quarter, compared to $48.2 million in the first quarter of the prior year. Same-store sales were up 0.1% for the quarter in our Naturalizer stores. We incurred an operating loss of $3.5 million in the first quarter compared to an operating loss of $2.5 million in the first quarter of the prior year. The higher loss was driven by higher markdowns taken to clear seasonal inventory in our stores. Effective January 30, 2005, we began reporting our majority-owned subsidiary, Shoes.com, Inc., a footwear e-commence company, within the Specialty Retail segment. |
· | Inventories at quarter-end are $423.7 million, up from $366.9 million last year due to additional stores at Famous Footwear and the addition of $26.4 million from the Bennett acquisition. Our current ratio, the relationship of current assets to current liabilities, remained flat at 1.8 to 1 compared to January 29, 2005, but declined from the May 1, 2004 ratio of 2.3 to 1. Our debt-to-capital ratio, the ratio of our debt obligations to the sum of our debt obligations and shareholders’ equity, at the end of the quarter increased to 41.5% from 28.5% at the end of the year-ago quarter, driven by the issuance of $150 million senior notes due 2012 in conjunction with the acquisition of Bennett. |
· | During the first quarter of 2005, in connection with our acquisition of Bennett described in more detail below, we entered into a commitment letter with a lender to provide $100.0 million of short-term financing (the “Bridge Commitment”) on a senior unsecured basis. The Bridge Commitment was not utilized as a result of the issuance of the senior notes. We expensed all fees and costs associated with the Bridge Commitment, totaling $1.0 million ($0.6 million on an after-tax basis), or $0.04 per diluted share, as a component of interest expense in the first quarter of 2005. |
· | During the first quarter of 2005, to fund a portion of the Bennett acquisition, we repatriated $60.5 million of earnings from our foreign subsidiaries under the American Jobs Creation Act of 2004. We recognized $9.6 million, or $0.51 per diluted share, of tax expense associated with the repatriation. |
· | During the first quarter of 2004, we recorded $3.3 million ($2.0 million on an after-tax basis), or $0.11 per diluted share, of transition and assimilation costs related to the Bass footwear license acquired on February 2, 2004. |
CONSOLIDATED RESULTS |
Thirteen Weeks Ended | |||||||||||||||||||
AS RESTATED | |||||||||||||||||||
April 30, 2005 | May 1, 2004 | ||||||||||||||||||
($ millions) | % of Net Sales | % of Net Sales | |||||||||||||||||
Net sales | $ | 523.3 | 100.0% | $ | 491.8 | 100.0% | |||||||||||||
Cost of goods sold | 312.7 | 59.8% | 292.4 | 59.5% | |||||||||||||||
Gross profit | 210.6 | 40.2% | 199.4 | 40.5% | |||||||||||||||
Selling and administrative expenses | 187.5 | 35.8% | 184.5 | 37.5% | |||||||||||||||
Operating earnings | 23.1 | 4.4% | 14.9 | 3.0% | |||||||||||||||
Interest expense | (3.4 | ) | (0.7)% | (2.5 | ) | (0.5)% | |||||||||||||
Interest income | 0.4 | 0.1% | 0.1 | 0.0% | |||||||||||||||
Earnings before income taxes | 20.1 | 3.8% | 12.5 | 2.5% | |||||||||||||||
Income tax provision | (16.3 | ) | (3.1)% | (4.0 | ) | (0.8)% | |||||||||||||
Net earnings | $ | 3.8 | 0.7% | $ | 8.5 | 1.7% |
11
($ millions) | % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||
Net sales | $ | 514.8 | 100.0% | $ | 493.4 | 100.0% | $ | 1,465.3 | 100.0% | $ | 1,398.3 | 100.0% | |||||||
Cost of goods sold | 306.8 | 59.6% | 288.7 | 58.5% | 868.6 | 59.3% | 820.6 | 58.7% | |||||||||||
Gross profit | 208.0 | 40.4% | 204.7 | 41.5% | 596.7 | 40.7% | 577.7 | 41.3% | |||||||||||
Selling and administrative expenses | 179.7 | 34.9% | 172.3 | 34.9% | 540.2 | 36.8% | 511.3 | 36.6% | |||||||||||
Operating earnings | 28.3 | 5.5% | 32.4 | 6.6% | 56.5 | 3.9% | 66.4 | 4.7% | |||||||||||
Interest expense | 2.0 | 0.3% | 2.2 | 0.5% | 6.6 | 0.5% | 7.7 | 0.5% | |||||||||||
Interest income | (0.2 | ) | 0.0% | (0.1 | ) | 0.0% | (0.5 | ) | 0.0% | (0.3 | ) | 0.0% | |||||||
Earnings before income taxes | 26.5 | 5.2% | 30.3 | 6.1% | 50.4 | 3.4% | 59.0 | 4.2% | |||||||||||
Income tax provision | (7.7 | ) | (1.5)% | (9.1 | ) | (1.8)% | (15.2 | ) | (1.0)% | (17.2 | ) | (1.2)% | |||||||
Net earnings | $ | 18.8 | 3.7% | $ | 21.2 | 4.3% | $ | 35.2 | 2.4% | $ | 41.8 | 3.0% |
Net SalesNet sales increased $21.4 million, or 4.3%, to $514.8 million in the third quarter of 2004 as compared to $493.4 million in the thirdfirst quarter of the prior year. This increase is primarily attributable to a $10.1$16.6 million increase at Famous Footwear and a $9.8 million increase in our Wholesale Operations segment. The improvement in the net sales of our Wholesale Operations segment were driven by the recent Bennett acquisition, which contributed $5.8 million of net sales in the Bass footwear license at the beginning of fiscal 2004.
Net salesperiod.
Gross ProfitGross profit increased $3.3 million, or 1.6%, to $208.0 million for the third quarter of 2004 as compared to $204.7 million in the third quarter of the prior year. As a percent of net sales, our gross profit rate decreased to 40.4%40.2% in the thirdfirst quarter from 41.5%40.5% in the thirdfirst quarter of the prior year as a result of more aggressive promotions and pricing at Famous Footwear to capture more sales during the critical back-to-school period, higher provisions for allowances to our department store customers, and higher inventory markdowns in our wholesale operations.
Gross profit increased $19.0 million, or 3.3%,Specialty Retail segment, taken to $596.7 million in the first nine months of 2004 as compared to $577.7 million in the first nine months of the prior year. The overall increase in gross profit is primarily driven by the $67.0 million increase in net sales. Asclear seasonal inventory, and a percent of net sales, our gross profit rate decreased to 40.7% in the first nine months of 2004 as compared to 41.3% in the first nine months of the prior year. The decline in the gross profit rate reflects a greater mix of wholesale sales, which carry aslightly lower gross margin rate than our retail sales, more aggressive back-to-school pricing at Famous Footwear, a higher provision for allowances to our department store customers, and higher inventory markdowns in our wholesale operations.
Wholesale Operations segment.
Selling and administrative expenses increased $28.9 million, or 5.6% to $540.2totaling $3.3 million in the first nine monthsquarter of 20042004. As a percentage of sales, selling and administrative expenses have decreased to 35.8% from 37.5%, as comparedwe have better leveraged our expense base.
12
costs related to the Bass footwear line of approximately $5.1 million, increased selling and administrative costs associated with the Bass footwear line, and our ongoing investments in talent, systems and infrastructure intended to position the Company for future growth. Offsetting these factors were benefits from reduced compensation costs associated with stock-based and incentive compensation plans of $9.7 million compared to last year.
Interest ExpenseInterest expense decreased $0.2 million, or 12.2%, to $2.0 million in the third quarter as compared to $2.2$2.5 million in the thirdfirst quarter of the prior year. The decreaseincrease in interest expense is due to lower interest rates. On July 21, 2004,a result of $1.0 million of expense for bank commitment fees incurred in funding the Company amended and restated its credit agreement, which resulted in more favorable interest rates during the third quarter.
Interest expense decreased $1.1 million, or 14.1%, to $6.6 million in the first nine monthsacquisition of 2004 as compared to $7.7 million in the first nine months of the prior year due to more favorable interest rates.
Bennett.
Forrate for the first nine monthsquarter was 33.7% compared to 31.8% in the first quarter of 2004,last year. This increase reflects the additional provision recorded for the additional expected repatriation in 2005.
FAMOUS FOOTWEAR |
Thirteen Weeks Ended | |||||||||||||||||||
AS RESTATED | |||||||||||||||||||
April 30, 2005 | May 1, 2004 | ||||||||||||||||||
($ millions, except per square foot) | % of Net Sales | % of Net Sales | |||||||||||||||||
Operating Results | |||||||||||||||||||
Net sales | $ | 288.7 | 100.0% | $ | 272.1 | 100.0% | |||||||||||||
Cost of goods sold | 159.5 | 55.2% | 151.1 | 55.5% | |||||||||||||||
Gross profit | 129.2 | 44.8% | 121.0 | 44.5% | |||||||||||||||
Selling and administrative expenses | 112.7 | 39.1% | 108.7 | 40.0% | |||||||||||||||
Operating earnings | $ | 16.5 | 5.7% | $ | 12.3 | 4.5% | |||||||||||||
Key Metrics | |||||||||||||||||||
Same-store sales % change | 1.5% | 2.6% | |||||||||||||||||
Same-store sales $ change | $ | 4.0 | $ | 6.4 | |||||||||||||||
Sales change from new and closed stores, net | $ | 12.6 | $ | 4.6 | |||||||||||||||
Sales per square foot | $ | 44 | $ | 44 | |||||||||||||||
Square footage (thousand sq. ft.) | 6,506 | 6,249 | |||||||||||||||||
Stores opened | 20 | 12 | |||||||||||||||||
Stores closed | 12 | 8 | |||||||||||||||||
Ending stores | 927 | 897 |
($ millions, except per square foot) | % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||
Operating Results | |||||||||||||||||||
Net sales | $ | 311.7 | 100.0% | $ | 301.6 | 100.0% | $ | 853.6 | 100.0% | $ | 831.6 | 100.0% | |||||||
Cost of goods sold | 174.6 | 56.0% | 167.5 | 55.6% | 473.7 | 55.5% | 462.5 | 55.6% | |||||||||||
Gross profit | 137.1 | 44.0% | 134.1 | 44.4% | 379.9 | 44.5% | 369.1 | 44.4% | |||||||||||
Selling and administrative expenses | 112.3 | 36.0% | 110.7 | 36.6% | 330.1 | 38.7% | 322.2 | 38.8% | |||||||||||
Operating earnings | $ | 24.8 | 8.0% | $ | 23.4 | 7.8% | $ | 49.8 | 5.8% | $ | 46.9 | 5.6% | |||||||
Key Metrics | |||||||||||||||||||
Same-store sales % change | (0.4)% | 0.7% | (2.5)% | ||||||||||||||||
Same-store sales $ change | $(1.2) | $1.9 | $(1.3) | $(19.2) | |||||||||||||||
Sales change from new and closed stores, net | $11.3 | $5.2 | $23.3 | $17.9 | |||||||||||||||
Sales per square foot | $49 | $48 | $135 | $134 | |||||||||||||||
Square footage (thousand sq. ft.) | 6,394 | 6,274 | 6,394 | 6,274 | |||||||||||||||
Stores opened | 16 | 19 | 54 | 51 | |||||||||||||||
Stores closed | 17 | 20 | 33 | 61 | |||||||||||||||
Ending stores | 914 | 908 | 914 | 908 | |||||||||||||||
Net SalesNet sales increased $10.1 million, or 3.3%, to $311.7$272.1 million in the third quarter of 2004 as compared to $301.6 million in the thirdfirst quarter of the prior year. This increase is attributable to higher sales from new stores offset by a modestand the same-store sales declineincrease of 0.4% reflecting lower traffic counts.1.5%. Sales of athletic footwear were strong during the quarter; however, sandal sales have been slower than anticipated, which could result in additional markdowns. During the thirdfirst quarter of 2004,2005, we opened 1620 new stores and closed
13
17, 12, resulting in 914927 stores at the end of the thirdfirst quarter as compared to 908897 at the end of the thirdfirst quarter of the prior year. Sales per square foot were $49, up slightly from $48 in$44, equal to the year ago period.
Net sales increased $22.0 million, or 2.6%, to $853.6 million in the first nine months of 2004 as compared to $831.6 million in the first nine months of the prior year. While same-store sales for the first nine months of 2004 were down 0.2% compared to the first nine months of the prior year, sales from net new stores totaled $23.3 million. We opened 54 new stores and closed 33 during the first nine months of 2004, resulting in 914 stores at the end of the third quarter.
Gross profit increased $10.8 million, or 2.9%, to $379.9 million in the first nine months of 2004 as compared to $369.1 million in the first nine months of the prior year. The gross profit increase of 2.9% is primarily attributed to the 2.6% increase in net sales. As a percent of net sales, our gross profit rate increased slightly to 44.5% in the first nine months of 2004 as compared to 44.4% in the first nine months of the prior year.
lower markdowns.
Selling and administrative expenseseffectively leveraged its expense base.
Operating EarningsOperating earnings increased $1.4 million, or 5.9%, to $24.8 million for the third quarter of 2004 as compared to $23.4 million in the third quarter of the prior year. This increase was driven by the $10.1$16.6 million increase in net sales partially offset byand the decline in thehigher gross profit rate.
Operating earnings
SPECIALTY RETAIL |
Thirteen Weeks Ended | |||||||||||||||||||
AS RESTATED | |||||||||||||||||||
April 30, 2005 | May 1, 2004 | ||||||||||||||||||
($ millions, except per square foot) | % of Net Sales | % of Net Sales | |||||||||||||||||
Operating Results | |||||||||||||||||||
Net sales | $ | 53.3 | 100.0% | $ | 48.2 | 100.0% | |||||||||||||
Cost of goods sold | 28.4 | 53.3% | 24.1 | 50.1% | |||||||||||||||
Gross profit | 24.9 | 46.7% | 24.1 | 49.9% | |||||||||||||||
Selling and administrative expenses | 28.4 | 53.3% | 26.6 | 55.0% | |||||||||||||||
Operating loss | $ | (3.5 | ) | (6.6)% | $ | (2.5 | ) | (5.1)% | |||||||||||
Key Metrics | |||||||||||||||||||
Same-store sales % change | 0.1% | 2.3% | |||||||||||||||||
Same-store sales $ change | $ | 0.1 | $ | 1.0 | |||||||||||||||
Sales change from new and closed stores, net | $ | (0.1) | $ | 0.1 | |||||||||||||||
Impact of changes in Canadian exchange rate on sales | $ | 1.3 | $ | 1.4 | |||||||||||||||
Increase in sales of e-commerce subsidiary | $ | 3.8 | $ | 1.2 | |||||||||||||||
Sales per square foot, excluding e-commerce subsidiary | $ | 76 | $ | 75 | |||||||||||||||
Square footage (thousand sq. ft.) | 586 | 578 | |||||||||||||||||
Stores acquired upon Bennett acquisition | 12 | - | |||||||||||||||||
Stores opened | 1 | 9 | |||||||||||||||||
Stores closed | 10 | 8 | |||||||||||||||||
Ending stores | 378 | 379 |
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($ millions, except per square foot) | % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||
Operating Results | |||||||||||||||||||
Net sales | $ | 49.9 | 100.0% | $ | 49.8 | 100.0% | $ | 143.5 | 100.0% | $ | 142.3 | 100.0% | |||||||
Cost of goods sold | 26.0 | 52.1% | 25.6 | 51.4% | 75.9 | 52.9% | 74.4 | 52.3% | |||||||||||
Gross profit | 23.9 | 47.9% | 24.2 | 48.6% | 67.6 | 47.1% | 67.9 | 47.7% | |||||||||||
Selling and administrative expenses | 25.4 | 50.9% | 24.4 | 48.9% | 73.9 | 51.5% | 70.4 | 49.5% | |||||||||||
Operating loss | $ | (1.5 | ) | (3.0)% | $ | (0.2 | ) | (0.3)% | $ | (6.3 | ) | (4.4)% | $ | (2.5 | ) | (1.8)% | |||
Key Metrics | |||||||||||||||||||
Same-store sales % change | (2.8)% | (0.9)% | (1.6)% | (0.9)% | |||||||||||||||
Same-store sales $ change | $(1.4) | $(0.3) | $(2.3) | $(1.1) | |||||||||||||||
Sales change from new and closed stores, net | $0.5 | $(2.1) | $0.8 | $(11.3) | |||||||||||||||
Impact of changes in Canadian exchange rate on sales | $1.0 | $2.3 | $2.7 | $5.3 | |||||||||||||||
Sales per square foot | $81 | $85 | $236 | $238 | |||||||||||||||
Square footage (thousand sq. ft.) | 586 | 575 | 586 | 575 | |||||||||||||||
Stores opened | 4 | 1 | 13 | 4 | |||||||||||||||
Stores transferred, net | - | - | 4 | - | |||||||||||||||
Stores closed | 3 | 4 | 14 | 10 | |||||||||||||||
Ending stores | 381 | 383 | 381 | 383 | |||||||||||||||
Net SalesNet sales increased $0.1 million, or 0.2%, to $49.9 million in the third quarter of 2004 as compared to $49.8 million in the third quarter of the prior year. The favorable impact of the Canadian exchange rate improved net sales by $1.0$1.3 million but was offset by a same-storeand sales decline of 2.8%our e-commerce subsidiary, Shoes.com, Inc., increased $3.8 million, or 135%. For our Canadiandomestic stores, same-store sales increased 2.4%1.0%, while domesticCanadian stores experienced a same-store decline of 5.7%1.4%. During the thirdfirst quarter of 2004,2005, we opened 4 newacquired 12 stores with our acquisition of Bennett (8 Via Spiga retail stores and 4 leased shoe departments in department stores). We opened one new store and closed 310 resulting in 381378 stores at the end of the thirdfirst quarter of 20042005 as compared to 383379 at the end of the thirdfirst quarter of the prior year. Sales per square foot declinedincreased to $81$76 from $85$75 in the year ago period.
Net sales
Gross ProfitGross profit decreased $0.3 million, or 1.2%, to $23.9 million in the third quarter of 2004 as compared to $24.2 million in the third quarter of the prior year. As a percentage of net sales, our gross profit rate declined to 47.9%46.7% in the thirdfirst quarter from 48.6%49.9% in the year ago quarter. This decline was driven by lower initial markups resulting from more promotional pricing.
Gross profit decreased $0.3 million, or 0.4%,higher markdowns recorded to $67.6 millionclear seasonal inventory in our stores and a relative increase in the first nine monthsportion of 2004 as compared to $67.9 million in the first nine months of the prior year. Ase-commerce sales, which carry a percent of sales, ourlower gross profit rate decreased to 47.1% in the first nine months of 2004 as compared to 47.7% in the first nine months of the prior year, due to lower initial markups resulting from
15rate.
more promotional pricing, and the transition in the Canadian stores from domestically produced footwear to higher-grade imported product.
Selling and administrative expenses increasedto $3.5 million, or 4.9%, to $73.9 million in the first nine months of 2004 as compared to $70.4 million in the first nine months of the prior year. Approximately $1.3 million of the increase is due to changes in the Canadian exchange rate. The remaining increase is due to a combination of increased retail facilities costs, noncash asset impairment charges and increased consulting fees, offset by reduced compensation costs associated with incentive compensation plans.
Operating EarningsNaturalizer Retail's operating loss increased to $1.5 million in the third quarter of 20042005 as compared to a loss of $0.2$2.5 million in the thirdfirst quarter of the prior year. The higher current period loss was due to the same-store sales decline, lower gross profit rates and higher selling and administrative expenses.
The operating loss of $6.3rates.
WHOLESALE OPERATIONS |
Thirteen Weeks Ended | |||||||||||||||||||
April 30, 2005 | May 1, 2004 | ||||||||||||||||||
($ millions) | % of Net Sales | % of Net Sales | |||||||||||||||||
Operating Results | |||||||||||||||||||
Net sales | $ | 181.3 | 100.0% | $ | 171.5 | 100.0% | |||||||||||||
Cost of goods sold | 124.8 | 68.7% | 117.2 | 68.3% | |||||||||||||||
Gross profit | 56.5 | 31.3% | 54.3 | 31.7% | |||||||||||||||
Selling and administrative expenses | 39.0 | 21.5% | 41.5 | 24.2% | |||||||||||||||
Operating earnings | $ | 17.5 | 9.8% | $ | 12.8 | 7.5% | |||||||||||||
Key Metrics | |||||||||||||||||||
Unfilled order position at end of period, including $72.6 million from the recently acquired Bennett business | $ | 275.5 | $ | 176.9 |
($ millions) | % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||
Operating Results | |||||||||||||||||||
Net sales | $ | 148.7 | 100.0% | $ | 140.1 | 100.0% | $ | 457.1 | 100.0% | $ | 419.0 | 100.0% | |||||||
Cost of goods sold | 103.9 | 69.9% | 94.7 | 67.6% | 313.4 | 68.6% | 281.2 | 67.1% | |||||||||||
Gross profit | 44.8 | 30.1% | 45.4 | 32.4% | 143.7 | 31.4% | 137.8 | 32.9% | |||||||||||
Selling and administrative expenses | 34.4 | 23.1% | 29.9 | 21.4% | 111.6 | 24.4% | 96.7 | 23.1% | |||||||||||
Operating earnings | $ | 10.4 | 7.0% | $ | 15.5 | 11.0% | $ | 32.1 | 7.0% | $ | 41.1 | 9.8% | |||||||
Key Metrics | |||||||||||||||||||
Unfilled order position at End of period | $199.2 | $187.9 | |||||||||||||||||
Net SalesNet sales
Net sales increased $38.1 million, or 9.1%, to $457.1 million in the first nine months of 2004 as compared to $419.0 million in the first nine months of the prior year. This increase was primarily due to sales of Bass footwear. In addition, we have experienced solid sales gains in our Lifestride and Mens & Athletics businesses. Our Lifestride business has increased by 11.1% and our Men's and Athletics' business has posted a 4.6% sales gain. Offsetting these increases were weakness in our
16
Children's business, which experienced a 22.5% sales decline and our Naturalizer business, which experienced a 4.6% sales decline.
Gross ProfitGross profit decreased $0.6 million, or 1.2%, to $44.8 million in the third quarter of 2004 as compared to $45.4 million in the third quarter of the prior year. As a percentage of net sales, our gross profit rate declined to 30.1%31.3% in the thirdfirst quarter from 32.4%31.7% in the thirdfirst quarter of the prior year. Thisyear.This decline is primarily due to higher allowances granted to our department store customers within our Naturalizer, Bass, Dr. Scholl’s and Dr. Scholl'sSantana wholesale divisions and higher markdownsinventory markdowns.
Gross profit increased $5.9Administrative Expenses
Selling and Administrative ExpensesSelling and administrative expenses increased $4.5 million, or 15.1%, to $34.4 million for the third quarter of 2004 as compared to $29.9 million in the third quarter of the prior year, due primarily to increased sellingthe non-recurrence of $3.3 million of transition and administrativeassimilation costs associated with the Bass footwear line. Excludingline, which were incurred in the first quarter of 2004. Partially offsetting these decreases were increased costs associated with Bass marketing, marketing coststhe Bennett operations of approximately $0.8 million.
Selling and administrative expenses increased $14.9 million, or 15.4%, to $111.6$12.8 million in the first nine months of 2004 as compared to $96.7 million in the first nine monthsquarter of the prior year. This increaseimprovement is due to the increase in net sales, lower selling and administrative expenses, the addition of the Bennett operating results, which contributed $1.2 million of operating earnings during the period, and the non-recurrence of $3.3 million of transition and assimilation costs related to the Bass footwear line of approximately $5.1 million and increased selling and administrative costs associated with the Bass footwear line. Partially offsetting these factorsline, which were benefits from reduced compensation costs associated with stock-based and incentive compensation plans.
Operating EarningsOperating earnings decreased $5.1 million, or 32.9%, to $10.4 million for the third quarter of 2004 as compared to $15.5 million in the third quarter of the prior year. This decrease is due to weakness in our Children's and Naturalizer products, lower gross profit rates and the operating loss within the Bass division.
Operating earnings decreased $9.0 million, or 21.8%, to $32.1 millionincurred in the first nine monthsquarter of 2004 as compared to $41.1 million in the first nine months of the prior year. This decrease is due to weakness in our Children's and Naturalizer businesses, Bass transition and assimilation costs and the operating loss within the Bass division.2004.
OTHER SEGMENT |
Net SalesNet sales of Effective January 30, 2005, we began reporting Shoes.com, increased $2.5 million to $4.5 million inInc. within the third quarter of 2004 as compared to $2.0 million inSpecialty Retail segment. Shoes.com, Inc. had previously been accounted for within the third quarter of the prior year. Net sales increased $5.7 million to $11.1 million in the first nine months of 2004 as compared to $5.4 million in the first nine months of the prior year. This increase reflects continuing strong sales growth due to increased Web site traffic and improved conversion rates.
Operating EarningsThe Shoes.com business generated an operating loss of $0.2 million in the third quarter of 2004, even with the third quarter of the prior year. For the first nine months of 2004, the Shoes.com business generated an operating loss of $0.3 million compared to an operating loss of $0.5 million for the prior year. The earnings improvement is due to a favorable settlement to discontinue operation of a former affiliate's Web site of $0.5 million received in the second quarter of 2004, offset by increased warehouse and distribution expenses.
17
Other Corporate Expenses
segment.
Forenvironmental litigation recorded in the first nine monthsquarter of 2004, unallocated corporate administrative and other costs were $18.92004.
LIQUIDITY AND CAPITAL RESOURCES |
($ millions) | April 30, 2005 | May 1, 2004 | Increase/ (Decrease) | ||||||
Current maturities of long-term debt | $ | 79.5 | $ | 43.0 | $ | 36.5 | |||
Long-term debt, including current maturities | 200.0 | 100.0 | 100.0 | ||||||
Total short- and long-term debt | $ | 279.5 | $ | 143.0 | $ | 136.5 |
Borrowings
($ millions) | October 30, 2004 | November 1, 2003 | Increase/ (Decrease) | ||||||
Notes payable | $ | 43.5 | $ | 16.0 | $ | 27.5 | |||
Long-term debt, including current maturities | 100.0 | 103.5 | (3.5 | ) | |||||
Total short- and long-term debt | $ | 143.5 | $ | 119.5 | $ | 24.0 |
Total debt obligations have increased by $24.0 million, or 20.1%, to $143.5 million at October 30, 2004 as compared to $119.5 million at November 1, 2003. Interest expense decreased $0.3 million, or 12.2%, to $2.0 million in the third quarter of 2004 as compared to $2.3 million in the third quarter of the prior year. The reduction in interest expense wasis a result of $1.0 million of expense recorded for bank commitment fees incurred in funding the acquisition of Bennett.
The Company entered into an Amended and Restatedmerge or consolidate with another entity or sell substantially all of our assets.
On March 14, 2005, we entered into the First Amendment to the Agreement to permit the acquisition of Bennett and the issuance of 8.75% Senior Notes due 2012.
182005.
($ millions) | October 30, 2004 | November 1, 2003 | Increase/ (Decrease) | ||||||
Net cash provided (used) by operating activities | $ | 23.9 | $ | 75.6 | $ | (51.7 | ) | ||
Net cash provided (used) by investing activities | (23.7 | ) | (21.3 | ) | (2.4 | ) | |||
Net cash provided (used) by financing activities | 18.9 | (33.7 | ) | 52.6 | |||||
Increase in cash and cash equivalents | $ | 19.1 | $ | 20.6 | $ | (1.5 | ) |
($ millions) | April 30, 2005 | May 1, 2004 | Increase/ (Decrease) | ||||||
Net cash provided (used) by operating activities | $ | 29.9 | $ | (1.9 | ) | $ | 31.8 | ||
Net cash provided (used) by investing activities | (215.4 | ) | (9.6 | ) | (205.8 | ) | |||
Net cash provided (used) by financing activities | 131.8 | 22.3 | 109.5 | ||||||
Increase in cash and cash equivalents | $ | (53.7 | ) | $ | 10.8 | $ | (64.5 | ) |
October 31, 2004 | November 1, 2003 | January 31, 2004 | |||
Working capital ($ millions) | $ 321.3 | $ 283.3 | $ 293.8 | ||
Current ratio | 2.3:1 | 2.2:1 | 2.2:1 | ||
Total debt as a percentage of total capitalization | 26.9% | 25.8% | 25.2% |
April 30, 2005 | May 1, 2004 | January 29, 2005 | |||
Working capital($ millions) | $269.1 | $299.8 | $281.3 | ||
Current ratio | 1.8:1 | 2.3:1 | 1.8:1 | ||
Total debt as a percentage of total Capitalization | 41.5% | 28.5% | 26.6% |
Bennett acquisition.
Cash provided by operating activities was $23.9 million in the first nine months of 2004 as compared to $75.6 million last year, a difference of $51.7 million. This difference primarily reflects the investment of approximately $10.8 million in Bass inventory and approximately $5.9 million of accounts receivable from sales of Bass footwear.
Cash used for investing activities was $23.7 million in the first nine months of 2004 as compared to $21.3 million last year. Investing activities primarily include capital expenditures. Our capital expenditures are relatively consistent with the prior year and are in line with our planned levels. The majority of our capital expenditures in the third quarter were used to both retrofit existing stores and open new stores in our retail divisions.
Cash provided by financing activities was $18.9 million in the first nine months of 2004 as compared to cash used for financing activities of $33.7 million last year, a difference of $52.6 million. This difference represents an increase in our short-term notes payable of $24.0 million since the beginning of the year as compared to debt reductions totaling $33.0 million in the first nine months of last year. The increase in short-term notes payable was used to fund operations, including the Bass inventory and accounts receivable as well as the related transition and assimilation costs. In connection with its Amended and Restated Credit Agreement, the Company incurred $1.3 million in debt issuance costs, whichthese current period earnings are being deferred and amortizedgenerated. With regard to expense overany other accumulated unremitted foreign earnings, our intention is to reinvest these earnings indefinitely or to repatriate the five-year term of the agreement.
earnings only when it is tax-effective to do so.
192004.
The Company
CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
FORWARD-LOOKING STATEMENTS |
ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
ITEM 4 | CONTROLS AND PROCEDURES |
20
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraud may occur and not be detected.
PART II | OTHER INFORMATION |
ITEM 1 | LEGAL PROCEEDINGS |
All legal costs associated with litigation are expensed as incurred.
We have also filed suit
We have also filed suit against our insurance carriers and are seeking recovery of certain defense costs, indemnity for the costs incurred for investigation and remediation ofrelated to the Redfield site and for the damages awarded in the Antolovich class action and other relief. In prior years,related damages.
We have completed our remediation efforts at our closed New York tannery and two associated landfills. In 1995, state environmental authorities reclassified the status of these sites as being properly closed and requiring only continued maintenance and monitoring over the next 20 years. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other landfills.
21
While we currently do not operate manufacturing facilities, prior operations included numerous manufacturing and other facilities for which we may have responsibility under various environmental laws to address conditions that may be identified in the future.
The Company is a guarantorguarantee of an Industrial Development Bond financing of $3.5 million for a manufacturing and warehouse facility in Bedford County, Pennsylvania. The outstanding principal on this Industrial Development Bond is $3.0 million. These facilities and the business that operated them were sold to another party in 1985, which assumed thisthe bond obligation. This financing is scheduled to be paid annually in 2005 through 2009. During October 2004, theThe current owner of the manufacturing and warehouse facility has filed for bankruptcy protection and is seeking liquidation ofliquidating its assets. Management believes the maximum amountAlthough we will pursue recovery of potential future payments under this guarantee, including interest due through maturity, is $3.5 million. Whilethese costs, the ultimate outcome is uncertain, management believes that the fair market valueuncertain. Accordingly, we recorded our estimate of the facility is sufficient to covermaximum exposure, $3.5 million, as a charge in the payments duefourth quarter of 2004. We made a payment under this guarantee of $0.7 million during the Industrial Development Bond. Accordingly, the Company has not recorded any chargefirst quarter of 2005 and have an accrued liability of $2.8 million at April 30, 2005 related to this guarantee.
There have been no material developments duringmatter.
ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During
In May 2000, the Board of Directors authorized a stock repurchase program authorizing the repurchase of up to 2 million shares of our outstanding common stock. The Company can utilize the repurchase program to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase program does not have an expiration date. Under this plan, 928,900 shares have been repurchased and the remaining availability is 1,071,100 shares as of the end of the quarter.2005.
Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number of Shares that May Yet Be Purchased Under the Program (1) | |||||||
January 30, 2005 - February 26, 2005 | - | $ | - | - | 1,071,100 | ||||||
February 27, 2005 - April 2, 2005 | 31,380 | (2) | 33.60 | (2) | - | 1,071,100 | |||||
April 3, 2005 - April 30, 2005 | 1,281 | (2) | 33.81 | (2) | - | 1,071,100 | |||||
Total | 32,661 | $ | 33.61 | - | 1,071,100 |
1) | In May 2000, the Board of Directors authorized a stock repurchase program authorizing the repurchase of up to 2 million shares of our outstanding common stock. The Company can utilize the repurchase program to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase program does not have an expiration date. Under this plan, 928,900 shares have been repurchased and the remaining availability is 1,071,100 shares as of the end of the quarter. |
2) | Represents shares that were tendered by employees related to certain share-based awards. These shares were tendered in satisfaction of the exercise price of stock options and/or to satisfy minimum tax withholding amounts for non-qualified stock options, restricted stock and stock performance awards. Accordingly, these share purchases are not considered a part of our publicly announced stock repurchase program. |
ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None
1. | The shareholders elected three directors, Ronald A. Fromm, Steven W. Korn and Patricia G. McGinnis for terms of three years each. The voting for each director was as follows: |
Directors | For | Withheld | ||
Ronald A. Fromm | 15,891,773 | 1,352,671 | ||
Steven W. Korn | 16,196,290 | 1,048,154 | ||
Patricia G. McGinnis | 16,217,923 | 1,026,521 |
2. | The shareholders approved amendments to the Incentive and Stock Compensation Plan of 2002. The voting was as follows: |
For | Against | Abstaining | ||
11,172,558 | 3,646,932 | 81,371 |
ITEM 5 | OTHER INFORMATION |
22
ITEM 6 | EXHIBITS |
(3) | (i) | Certificate of Incorporation of the Company incorporated herein by reference from Exhibit 3 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 4, 2002. | |
(ii) | Bylaws of the Company as amended through February 5, 2004, incorporated herein by reference from Exhibit 3 (b) to the | ||
(31.1) | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(31.2) | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(32.1) | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES |
Date: | ||
Senior Vice President and Chief Financial Officer on Behalf of the Corporation and as the Principal Financial Officer |
23