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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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[X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended |
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[ ] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____________ to _____________ |
Commission file number: 1-2191
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BROWN SHOE COMPANY, INC. | |
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New York | 43-0197190 |
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8300 Maryland Avenue | 63105 |
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(314) 854-4000 | |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Rþ No £¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes Rþ No £¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £¨ No Rþ
As of May 31,August 30, 2013, 43,150,24843,195,068 common shares were outstanding.
1
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PART I | FINANCIAL INFORMATION |
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ITEM 1 | FINANCIAL STATEMENTS |
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BROWN SHOE COMPANY, INC. |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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| (Unaudited) |
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| (Unaudited) |
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($ thousands) |
| May 4, 2013 |
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| April 28, 2012 |
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| February 2, 2013 |
| August 3, 2013 |
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| July 28, 2012 |
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| February 2, 2013 |
Assets |
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Current assets |
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Cash and cash equivalents | $ | 44,669 |
| $ | 39,792 |
| $ | 68,223 | $ | 53,137 |
| $ | 47,397 |
| $ | 68,223 |
Receivables, net |
| 96,734 |
| 115,911 |
| 111,392 |
| 120,054 |
| 107,534 |
| 111,392 | ||||
Inventories, net |
| 485,923 |
| 475,557 |
| 503,688 |
| 615,916 |
| 585,969 |
| 503,688 | ||||
Prepaid expenses and other current assets |
| 43,167 |
| 41,375 |
| 42,016 |
| 51,845 |
| 44,425 |
| 42,016 | ||||
Current assets – held for sale |
| 12,496 |
| – |
| – | ||||||||||
Current assets – discontinued operations |
| 39,159 |
| 65,515 |
| 47,109 |
| 1,661 |
| 66,655 |
| 47,109 | ||||
Total current assets |
| 722,148 |
| 738,150 |
| 772,428 |
| 842,613 |
| 851,980 |
| 772,428 | ||||
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Other assets |
| 115,591 |
| 137,479 |
| 119,695 |
| 113,764 |
| 135,790 |
| 119,695 | ||||
Goodwill |
| 16,755 |
| 16,755 |
| 16,755 |
| 13,954 |
| 13,954 |
| 13,954 | ||||
Intangible assets, net |
| 64,241 |
| 65,220 |
| 65,749 |
| 62,734 |
| 63,775 |
| 65,749 | ||||
Non current assets – discontinued operations |
| 38,673 |
| 58,667 |
| 51,776 |
| – |
| 55,155 |
| 54,577 | ||||
Property and equipment |
| 415,576 |
| 426,448 |
| 437,745 |
| 428,764 |
| 427,852 |
| 437,745 | ||||
Allowance for depreciation |
| (278,277) |
| (301,897) |
| (292,889) |
| (280,809) |
| (294,332) |
| (292,889) | ||||
Net property and equipment |
| 137,299 |
| 124,551 |
| 144,856 |
| 147,955 |
| 133,520 |
| 144,856 | ||||
Total assets | $ | 1,094,707 |
| $ | 1,140,822 |
| $ | 1,171,259 | $ | 1,181,020 |
| $ | 1,254,174 |
| $ | 1,171,259 |
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Liabilities and Equity |
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Current liabilities |
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Borrowings under revolving credit agreement | $ | 66,000 |
| $ | 124,000 |
| $ | 105,000 | $ | 23,000 |
| $ | 116,000 |
| $ | 105,000 |
Trade accounts payable |
| 188,948 |
| 172,894 |
| 213,660 |
| 309,806 |
| 284,190 |
| 213,660 | ||||
Other accrued expenses |
| 118,632 |
| 129,852 |
| 137,190 |
| 143,735 |
| 142,215 |
| 137,190 | ||||
Current liabilities – held for sale |
| 5,306 |
| – |
| – | ||||||||||
Current liabilities – discontinued operations |
| 16,183 |
| 15,118 |
| 13,259 |
| 3,536 |
| 16,688 |
| 13,259 | ||||
Total current liabilities |
| 395,069 |
| 441,864 |
| 469,109 |
| 480,077 |
| 559,093 |
| 469,109 | ||||
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Other liabilities |
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Long-term debt |
| 198,870 |
| 198,680 |
| 198,823 |
| 198,917 |
| 198,726 |
| 198,823 | ||||
Deferred rent |
| 35,631 |
| 29,746 |
| 33,711 |
| 36,196 |
| 29,371 |
| 33,711 | ||||
Other liabilities |
| 45,435 |
| 47,569 |
| 36,719 |
| 39,429 |
| 50,673 |
| 36,719 | ||||
Non current liabilities – discontinued operations |
| 6,768 |
| 9,969 |
| 6,996 |
| – |
| 8,613 |
| 6,996 | ||||
Total other liabilities |
| 286,704 |
| 285,964 |
| 276,249 |
| 274,542 |
| 287,383 |
| 276,249 | ||||
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Equity |
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Common stock |
| 432 |
| 428 |
| 429 |
| 432 |
| 429 |
| 429 | ||||
Additional paid-in capital |
| 123,099 |
| 115,912 |
| 121,593 |
| 124,543 |
| 117,815 |
| 121,593 | ||||
Accumulated other comprehensive income |
| 225 |
| 10,233 |
| 884 | ||||||||||
Accumulated other comprehensive (loss) income |
| (27) |
| 8,759 |
| 884 | ||||||||||
Retained earnings |
| 288,434 |
| 285,439 |
| 302,223 |
| 300,770 |
| 279,898 |
| 302,223 | ||||
Total Brown Shoe Company, Inc. shareholders’ equity |
| 412,190 |
| 412,012 |
| 425,129 |
| 425,718 |
| 406,901 |
| 425,129 | ||||
Noncontrolling interests |
| 744 |
| 982 |
| 772 |
| 683 |
| 797 |
| 772 | ||||
Total equity |
| 412,934 |
| 412,994 |
| 425,901 |
| 426,401 |
| 407,698 |
| 425,901 | ||||
Total liabilities and equity | $ | 1,094,707 |
| $ | 1,140,822 |
| $ | 1,171,259 | $ | 1,181,020 |
| $ | 1,254,174 |
| $ | 1,171,259 |
See notes to condensed consolidated financial statements.
2
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BROWN SHOE COMPANY, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||||||||
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| (Unaudited) | (Unaudited) | ||||||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended |
| Twenty-six Weeks Ended | ||||||||||||
| May 4, |
| April 28, | August 3, |
| July 28, |
| August 3, |
| July 28, | ||||||
($ thousands, except per share amounts) |
| 2013 |
| 2012 | 2013 |
| 2012 |
| 2013 |
| 2012 | |||||
Net sales | $ | 588,656 |
| $ | 598,179 | $ | 621,706 |
| $ | 564,897 |
| $ | 1,210,362 |
| $ | 1,163,076 |
Cost of goods sold |
| 348,640 |
| 363,925 |
| 367,080 |
| 337,243 |
| 715,720 |
| 701,168 | ||||
Gross profit |
| 240,016 |
| 234,254 |
| 254,626 |
| 227,654 |
| 494,642 |
| 461,908 | ||||
Selling and administrative expenses |
| 213,879 |
| 211,475 |
| 231,071 |
| 211,706 |
| 444,950 |
| 423,181 | ||||
Restructuring and other special charges, net |
| 519 |
| 10,188 |
| 743 |
| 7,326 |
| 1,262 |
| 17,514 | ||||
Impairment of assets held for sale |
| 4,660 |
| – |
| – |
| – |
| 4,660 |
| – | ||||
Operating earnings |
| 20,958 |
| 12,591 |
| 22,812 |
| 8,622 |
| 43,770 |
| 21,213 | ||||
Interest expense |
| (5,721) |
| (6,036) |
| (5,192) |
| (5,645) |
| (10,913) |
| (11,681) | ||||
Interest income |
| 68 |
| 83 |
| 82 |
| 77 |
| 150 |
| 160 | ||||
Earnings before income taxes from continuing operations |
| 15,305 |
| 6,638 |
| 17,702 |
| 3,054 |
| 33,007 |
| 9,692 | ||||
Income tax provision |
| (7,946) |
| (2,616) |
| (4,081) |
| (1,241) |
| (12,027) |
| (3,857) | ||||
Net earnings from continuing operations |
| 7,359 |
| 4,022 |
| 13,621 |
| 1,813 |
| 20,980 |
| 5,835 | ||||
Discontinued operations: |
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Loss from discontinued operations, net of tax of $3,583 and $1,623, respectively |
| (5,637) |
| (2,394) | ||||||||||||
Impairment charge on net assets of discontinued operations |
| (12,554) |
| – | ||||||||||||
Net loss from discontinued operations |
| (18,191) |
| (2,394) | ||||||||||||
Net (loss) earnings |
| (10,832) |
| 1,628 | ||||||||||||
Earnings (loss) from discontinued operations, net of tax benefit of $2,588, $2,923, $6,171 and $4,546, respectively |
| 620 |
| (4,527) |
| (5,017) |
| (6,921) | ||||||||
Impairment of net assets/disposition of discontinued operations, net of $0 tax |
| 1,042 |
| – |
| (11,512) |
| – | ||||||||
Net earnings (loss) from discontinued operations |
| 1,662 |
| (4,527) |
| (16,529) |
| (6,921) | ||||||||
Net earnings (loss) |
| 15,283 |
| (2,714) |
| 4,451 |
| (1,086) | ||||||||
Net loss attributable to noncontrolling interests |
| (70) |
| (67) |
| (74) |
| (179) |
| (144) |
| (246) | ||||
Net (loss) earnings attributable to Brown Shoe Company, Inc. | $ | (10,762) |
| $ | 1,695 | |||||||||||
Net earnings (loss) attributable to Brown Shoe Company, Inc. | $ | 15,357 |
| $ | (2,535) |
| $ | 4,595 |
| $ | (840) | |||||
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Basic earnings (loss) per common share: |
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From continuing operations | $ | 0.18 |
| $ | 0.10 | $ | 0.32 |
| $ | 0.05 |
| $ | 0.51 |
| $ | 0.15 |
From discontinued operations |
| (0.44) |
| (0.06) |
| 0.04 |
| (0.11) |
| (0.40) |
| (0.17) | ||||
Basic (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders | $ | (0.26) |
| $ | 0.04 | |||||||||||
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders | $ | 0.36 |
| $ | (0.06) |
| $ | 0.11 |
| $ | (0.02) | |||||
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Diluted earnings (loss) per common share: |
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From continuing operations | $ | 0.18 |
| $ | 0.10 | $ | 0.31 |
| $ | 0.05 |
| $ | 0.50 |
| $ | 0.15 |
From discontinued operations |
| (0.44) |
| (0.06) |
| 0.04 |
| (0.11) |
| (0.40) |
| (0.17) | ||||
Diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders | $ | (0.26) |
| $ | 0.04 | |||||||||||
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders | $ | 0.35 |
| $ | (0.06) |
| $ | 0.10 |
| $ | (0.02) | |||||
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Dividends per common share | $ | 0.07 |
| $ | 0.07 | $ | 0.07 |
| $ | 0.07 |
| $ | 0.14 |
| $ | 0.14 |
See notes to condensed consolidated financial statements.
3
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BROWN SHOE COMPANY, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||
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| (Unaudited) | ||||
| Thirteen Weeks Ended | ||||
| May 4, |
| April 28, | ||
($ thousands) |
| 2013 |
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| 2012 |
Net (loss) earnings | $ | (10,832) |
| $ | 1,628 |
Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustment |
| (690) |
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| 988 |
Pension and other post retirement benefits adjustments, net of tax of $85 |
| 145 |
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Unrealized losses on derivative financial instruments, net of tax of $36 and $136, respectively |
| (27) |
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| (383) |
Net gains from derivatives reclassified into earnings, net of tax of $45 and $9, respectively |
| (87) |
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| (9) |
Other comprehensive (loss) income, net of tax |
| (659) |
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| 596 |
Comprehensive (loss) income |
| (11,491) |
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| 2,224 |
Comprehensive loss attributable to noncontrolling interests |
| (28) |
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| (65) |
Comprehensive (loss) income attributable to Brown Shoe Company, Inc. | $ | (11,463) |
| $ | 2,289 |
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BROWN SHOE COMPANY, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||
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| (Unaudited) |
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| Thirteen Weeks Ended |
| Twenty-six Weeks Ended | ||||||||
| August 3, |
| July 28, |
| August 3, |
| July 28, | ||||
($ thousands) |
| 2013 |
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| 2012 |
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| 2013 |
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| 2012 |
Net earnings (loss) | $ | 15,283 |
| $ | (2,714) |
| $ | 4,451 |
| $ | (1,086) |
Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustment |
| (900) |
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| (1,000) |
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| (1,590) |
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| (12) |
Pension and other post retirement benefits adjustments, net of tax of $85, $0, $170 and $0, respectively |
| 136 |
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| – |
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| 281 |
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Unrealized gains (losses) on derivative financial instruments, net of tax of $283, $308, $247 and $444, respectively |
| 662 |
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| (507) |
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| 635 |
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| (890) |
Net (gains) losses from derivatives reclassified into earnings, net of tax of $80, $20, $125 and $11, respectively |
| (150) |
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| 33 |
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| (237) |
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| 24 |
Other comprehensive loss, net of tax |
| (252) |
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| (1,474) |
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| (911) |
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| (878) |
Comprehensive income (loss) |
| 15,031 |
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| (4,188) |
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| 3,540 |
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| (1,964) |
Comprehensive loss attributable to noncontrolling interests |
| (61) |
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| (185) |
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| (89) |
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| (250) |
Comprehensive income (loss) attributable to Brown Shoe Company, Inc. | $ | 15,092 |
| $ | (4,003) |
| $ | 3,629 |
| $ | (1,714) |
See notes to condensed consolidated financial statements.
4
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BROWN SHOE COMPANY, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| (Unaudited) | |||||
| (Unaudited) | Twenty-six Weeks Ended | ||||||||
| Thirteen Weeks Ended |
| August 3, |
| July 28, | |||||
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| May 4, |
| April 28, | ||||||
($ thousands) |
| 2013 |
| 2012 |
| 2013 |
| 2012 | ||
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Operating Activities |
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Net (loss) earnings | $ | (10,832) |
| $ | 1,628 | |||||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: |
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Net earnings (loss) | $ | 4,451 |
| $ | (1,086) | |||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
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Depreciation |
| 8,803 |
| 8,104 |
| 17,636 |
| 16,429 | ||
Amortization of capitalized software |
| 3,276 |
| 3,283 |
| 6,467 |
| 6,559 | ||
Amortization of intangibles |
| 1,726 |
| 1,893 |
| 3,233 |
| 3,738 | ||
Amortization of debt issuance costs |
| 629 |
| 629 |
| 1,256 |
| 1,256 | ||
Share-based compensation expense |
| 1,617 |
| 1,444 |
| 2,935 |
| 3,275 | ||
Tax benefit related to share-based plans |
| (1,962) |
| (753) |
| (2,798) |
| (738) | ||
Loss on disposal of facilities and equipment |
| 68 |
| 456 |
| 191 |
| 1,358 | ||
Impairment charges for facilities and equipment |
| 366 |
| 2,756 |
| 959 |
| 3,131 | ||
Impairment of assets held for sale |
| 4,660 |
| – |
| 4,660 |
| – | ||
Impairment of net assets of discontinued operations |
| 12,554 |
| – | ||||||
Impairment of intangible assets |
| – |
| 5,777 | ||||||
Impairment of net assets/disposition of discontinued operations |
| 11,512 |
| – | ||||||
Net loss on sale of subsidiaries |
| 576 |
| – | ||||||
Deferred rent |
| 1,920 |
| (2,615) |
| 2,485 |
| (2,990) | ||
Provision for doubtful accounts |
| 307 |
| 950 |
| 331 |
| 1,008 | ||
Changes in operating assets and liabilities: |
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Changes in operating assets and liabilities, net of dispositions: |
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Receivables |
| 16,363 |
| 13,587 |
| (8,605) |
| 18,997 | ||
Inventories |
| 17,223 |
| 49,251 |
| (112,625) |
| (59,363) | ||
Prepaid expenses and other current and noncurrent assets |
| 653 |
| 6,377 |
| (6,372) |
| 2,864 | ||
Trade accounts payable |
| (26,561) |
| (8,268) |
| 96,932 |
| 103,668 | ||
Accrued expenses and other liabilities |
| (1,565) |
| 1,900 |
| 11,729 |
| 16,961 | ||
Other, net |
| (3,284) |
| (724) |
| 536 |
| (1,484) | ||
Net cash provided by operating activities |
| 25,961 |
| 79,898 |
| 35,489 |
| 119,360 | ||
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Investing Activities |
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Purchases of property and equipment |
| (7,367) |
| (5,622) |
| (27,797) |
| (24,146) | ||
Capitalized software |
| (1,040) |
| (1,386) |
| (2,638) |
| (2,956) | ||
Proceeds from sale of assets |
| 1,500 |
| – | ||||||
Net cash used for investing activities |
| (6,907) |
| (7,008) | ||||||
Proceeds from sale of subsidiaries, net of cash balance of $4,370 |
| 69,347 |
| – | ||||||
Net cash provided by (used for) investing activities |
| 38,912 |
| (27,102) | ||||||
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Financing Activities |
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|
|
|
|
| ||
Borrowings under revolving credit agreement |
| 383,000 |
| 165,000 |
| 685,000 |
| 334,000 | ||
Repayments under revolving credit agreement |
| (422,000) |
| (242,000) |
| (767,000) |
| (419,000) | ||
Dividends paid |
| (3,027) |
| (2,999) |
| (6,048) |
| (6,005) | ||
Issuance of common stock under share-based plans, net |
| (2,070) |
| (2,148) |
| (2,780) |
| (2,058) | ||
Tax benefit related to share-based plans |
| 1,962 |
| 753 |
| 2,798 |
| 738 | ||
Net cash used for financing activities |
| (42,135) |
| (81,394) |
| (88,030) |
| (92,325) | ||
Effect of exchange rate changes on cash and cash equivalents |
| (473) |
| 614 |
| (1,457) |
| (218) | ||
Decrease in cash and cash equivalents |
| (23,554) |
| (7,890) |
| (15,086) |
| (285) | ||
Cash and cash equivalents at beginning of period |
| 68,223 |
| 47,682 |
| 68,223 |
| 47,682 | ||
Cash and cash equivalents at end of period | $ | 44,669 |
| $ | 39,792 | $ | 53,137 |
| $ | 47,397 |
See notes to condensed consolidated financial statements.
5
|
|
BROWN SHOE COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
|
Note 1 | Basis of Presentation |
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Brown Shoe Company, Inc. (the “Company”). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas and Easter holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings (loss) earnings attributable to Brown Shoe Company, Inc.
For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended February 2, 2013.
Note 2 | Impact of New Accounting Pronouncements |
In FebruaryMarch 2013, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard provides guidance on releasing cumulative translation adjustments to net earnings when an entity ceases to have a controlling financial interest in a subsidiary or business within a foreign entity. The cumulative translation adjustments should be released only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resides. This standard is effective prospectively for reporting periods beginning after December 15, 2013. The adoption of this newly issued guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net earnings are presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income, but only if the amount is required under U.S. Generally Accepted Accounting Principles ("U.S. GAAP") to be reclassified to net earnings in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net earnings, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this guidance on February 3, 2013. See Note 9 to the condensed consolidated financial statements for additional information.
6
Note 3 | Discontinued Operations |
The Company’s discontinued operations included the Avia and Nevados brands of the American Sporting Goods Corporation – Subsequent Eventdivision, as well as the Etienne Aigner and Vera Wang brands. In aggregate, discontinued operations included $3.8 million and $24.3 million of net sales in the thirteen and twenty-six week periods ended August 3, 2013, respectively. Discontinued operations included $34.4 million and $62.6 million of net sales for the thirteen and twenty-six week periods ended July 28, 2012, respectively.
Discontinued operations included a loss before income taxes of $2.0 million and $11.2 million in the thirteen and twenty-six week periods ended August 3, 2013, respectively. Also included in discontinued operations was a $1.0 million gain and $11.5 million of costs associated with the Company’s impairment of net assets/disposition of discontinued operations for the thirteen and twenty-six weeks ended August 3, 2013, respectively. For the thirteen and twenty-six week periods ended July 28, 2012, discontinued operations included a loss before income taxes of $7.5 million and $11.5 million, respectively.
American Sporting Goods Corporation
On May 14, 2013, Brown Shoe International Corp. (“BSIC”), the sole shareholder of American Sporting Goods Corporation, entered into and simultaneously closed a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company, BSIC and Galaxy Brand Holdings, Inc. (“Buyer”), pursuant to which Buyer acquired all of the outstanding capital stock of American Sporting Goods Corporation from BSIC and the Company agreed to provide certain transition services. In connection with the transaction, American Sporting Goods Corporation sold inventory to a third party unaffiliated with Buyer and distributed certain assets to BSIC. The aggregate purchase price for the Stock Purchase Agreementstock of American Sporting Goods Corporation and the provision of such transition services was $74.0 million, subject to working capital adjustments, minus the amount of the pre-closing cash dividend declared by American Sporting Goods Corporation and paid to BSIC, representing proceeds from American Sporting Goods Corporation’s sale of inventory.
The Company purchased American Sporting Goods Corporation, comprised of Avia, Nevados, Ryka, AND 1 and other businesses, on February 17, 2011 and subsequently sold AND 1 during fiscal 2011. The Avia and Nevados businesses were sold under the Stock Purchase Agreement and the Company retained and is operating Ryka and other businesses. In this document “ASG” refers to the subsidiary disposed on May 14, 2013, including the Avia and Nevados brands and excluding the Ryka brand and other retained businesses.
The Company received $60.3 million in cash and a promissory note of $12.0 million at closing, from the sale of stock, the sale of inventory and for the provision of transitional services, less working capital adjustments. The promissory note is due November 14, 2013, earns interest at a 3% annual rate and is secured by a guarantee by ASG and a lien on certain assets of ASG.
The operations of ASG were considered held for sale as of May 4, 2013 and were classified as discontinued operations. The Company expects to purchase an insignificant amount of footwear from ASG for sale in its retail operations subsequent to the sale. During the first quarters of 2013 and 2012, the Company’s retail operations purchased $1.5 million and $2.8 million, respectively, of Avia and Nevados footwear. As a result of the impending sale, the Company recorded an impairment charge in the first quarter of 2013 of $12.6 million ($12.6 million after-tax, $0.30 per diluted share), representing the difference in the fair value less costs to sell as compared to the carrying value of the net assets to be sold. This impairment charge isDuring the second quarter of 2013, the Company recognized a gain upon disposition of subsidiary of $1.0 million ($1.0 million after tax, $0.02 per diluted share). These charges are reflected in the condensed consolidated statement of earnings as a component of discontinued operations and as a reduction of non current assets – discontinued operations in the condensed consolidated balance sheet.operations. ASG was previously included in the Wholesale Operations segment.
Loss from discontinued operations in the first quarter of 2013 included $18.3 million of net sales and $1.2 million of earnings before income taxes. In the first quarter of 2012, loss from discontinued operations included $19.4 million of net sales and $2.9 million of loss before income taxes.
Etienne Aigner
During the second quarter of 2012, the Company terminated the Etienne Aigner license agreement due to a dispute with the licensor. On April 29, 2013, an agreement to resolve the dispute was reached, pursuant to which the Company agreed to pay Etienne Aigner $6.5 million. The financial results of Etienne Aigner and the $6.5 million settlement have beenare reflected as a component of discontinued operations.
Loss from discontinued operations in the first quarterThe results of 2013 included $0.2 million of net sales and $7.0 million of loss before income taxes. In the first quarter of 2012, loss from discontinued operations included $6.0 million of net sales and $0.2 million of loss before income taxes. These resultsEtienne Aigner were previously included in the Wholesale Operations segment.
Vera Wang
During the first quarter of 2013, the Company communicated its intention not to renew the Vera Wang license agreement. Loss fromThe financial results of Vera Wang are reflected as a component of discontinued operations in the first quarteroperations. The results of 2013 included $2.0 million of net sales and $3.4 million of loss before income taxes. In the first quarter of 2012, loss from discontinued operations included $2.9 million of net sales and $0.9 million of loss before income taxes. These resultsVera Wang were previously included in the Wholesale Operations segment.
6
The detail of ASG, Etienne Aigner and Vera Wang assets and liabilities reported as discontinued operations in the condensed consolidated balance sheet are as follows:
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| May 4, |
| April 28, |
| February 2, | August 3, |
| July 28, |
| February 2, | ||||||
($ thousands) |
| 2013 |
| 2012 |
| 2013 |
| 2013 |
| 2012 |
| 2013 | ||||
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| ||
Discontinued Assets |
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|
| ||
Current assets |
|
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|
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|
| ||
Receivables, net | $ | 12,166 |
| $ | 23,577 |
| $ | 14,291 | $ | 387 |
| $ | 26,482 |
| $ | 14,291 |
Inventories, net |
| 23,250 |
| 37,262 |
| 29,587 |
| 700 |
| 35,099 |
| 29,587 | ||||
Prepaid expenses and other current assets |
| 3,743 |
| 4,676 |
| 3,231 |
| 574 |
| 5,074 |
| 3,231 | ||||
Total current assets |
| 39,159 |
| 65,515 |
| 47,109 |
| 1,661 |
| 66,655 |
| 47,109 | ||||
Other assets |
| 287 |
| 699 |
| 419 |
| – |
| 606 |
| 419 | ||||
Goodwill |
| 10,295 |
| 22,849 |
| 22,849 |
| – |
| 25,650 |
| 25,650 | ||||
Intangible assets, net |
| 27,057 |
| 33,873 |
| 27,275 |
| – |
| 27,695 |
| 27,275 | ||||
Property and equipment, net |
| 1,034 |
| 1,246 |
| 1,233 |
| – |
| 1,204 |
| 1,233 | ||||
Total assets | $ | 77,832 |
| $ | 124,182 |
| $ | 98,885 | $ | 1,661 |
| $ | 121,810 |
| $ | 101,686 |
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| ||||
Discontinued Liabilities |
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| ||||
Current liabilities |
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| ||||
Trade accounts payable | $ | 4,642 |
| $ | 9,486 |
| $ | 9,082 | $ | 942 |
| $ | 10,065 |
| $ | 9,082 |
Other accrued expenses |
| 11,541 |
| 5,632 |
| 4,177 |
| 2,594 |
| 6,623 |
| 4,177 | ||||
Total current liabilities |
| 16,183 |
| 15,118 |
| 13,259 |
| 3,536 |
| 16,688 |
| 13,259 | ||||
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|
|
|
| ||||||||||
Other liabilities |
| 6,768 |
| 9,969 |
| 6,996 |
| – |
| 8,613 |
| 6,996 | ||||
Total liabilities | $ | 22,951 |
| $ | 25,087 |
| $ | 20,255 | $ | 3,536 |
| $ | 25,301 |
| $ | 20,255 |
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Note 4 |
|
As part of its portfolio realignment efforts, the Company entered into an agreement to sell certain of its supply chain and sourcing assets (“Sale Agreement”) on April 30, 2013 for $9.0 million, $1.5 million in cash and a $7.5 million promissory note, subject to working capital adjustments. The sale closed during the second quarter of 2013. The promissory note will be paid inrequires installments over two years with the first payment of $3.0 million due no later than 45 days from the closing date withand the remaining balance payable in eight quarterly payments of $562,500, subject to working capital adjustments, plus accrued interest of 5%, compounded monthly, starting no later than three months after the closing date. The Company received the first payment of $3.0 million under the promissory note during the second quarter of 2013. As part of the Sale Agreement, the Company agreed to purchase a minimum of four million pairs of shoes each year for the next two years at market pricing, which can be fulfilled from anya defined group of the facilities owned by the purchaser, manypurchaser.
During the first quarter of which2013, the Company has historically used for sourcing. The promissory note and purchase commitment constitute significant continuing involvement, therefore,recognized an impairment charge of $4.7 million ($4.7 million after tax, $0.11 per diluted share), which represented the excess net asset value over the estimated fair value of the assets less costs to sell. During the second quarter of 2013, the Company recognized a loss on the sale of these supply chain and sourcing assets were not classified as discontinued operations.
The Company classified the related assets and liabilities of the supply chain and sourcing assets as held for sale as of May 4, 2013 on the condensed consolidated balance sheet and recognized an impairment loss of $4.7$0.6 million ($4.70.6 million after-tax, $0.11after tax, $0.01 per diluted share) representing the fair value less costs to sell compared to the net assets. This impairment charge is reflected in the condensed consolidated statement of earnings as impairment of assets held for sale and as a reduction of current assets – held for sale in the condensed consolidated balance sheet.. The financial results of the supply chain and sourcing assets arehave been included in the Wholesale Operations segment as continuing operations.operations through the date of sale.
7
The detail of assets and liabilities reported as held for sale in the condensed consolidated balance sheet at May 4, 2013 are as follows:
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8
Note 5 | Earnings (Loss) |
The Company uses the two-class method to compute basic and diluted earnings (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders for the periods ended May 4,August 3, 2013 and AprilJuly 28, 2012:
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| Thirteen Weeks Ended | Thirteen Weeks Ended |
| Twenty-six Weeks Ended | ||||||||||||
| May 4, |
| April 28, | August 3, |
| July 28, |
| August 3, |
| July 28, | ||||||
($ thousands, except per share amounts) |
| 2013 |
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| 2012 |
| 2013 |
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| 2012 |
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| 2013 |
| 2012 | |
NUMERATOR |
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Net earnings from continuing operations | $ | 7,359 |
| $ | 4,022 | $ | 13,621 |
| $ | 1,813 |
| $ | 20,980 |
| $ | 5,835 |
Net loss attributable to noncontrolling interests |
| 70 |
|
| 67 |
| 74 |
|
| 179 |
|
| 144 |
| 246 | |
Net earnings allocated to participating securities |
| – |
|
| (155) |
| (580) |
|
| – |
|
| (266) |
| – | |
Net earnings from continuing operations |
| 7,429 |
|
| 3,934 |
| 13,115 |
|
| 1,992 |
|
| 20,858 |
| 6,081 | |
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| |
Net loss from discontinued operations |
| (18,191) |
|
| (2,394) | |||||||||||
Net earnings (loss) from discontinued operations |
| 1,662 |
|
| (4,527) |
|
| (16,529) |
| (6,921) | ||||||
Net earnings allocated to participating securities |
| – |
|
| – |
| (71) |
|
| – |
|
| – |
| – | |
Net loss from discontinued operations |
| (18,191) |
|
| (2,394) | |||||||||||
Net (loss) earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities | $ | (10,762) |
| $ | 1,540 | |||||||||||
Net earnings (loss) from discontinued operations |
| 1,591 |
|
| (4,527) |
|
| (16,529) |
| (6,921) | ||||||
Net earnings (loss) attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities | $ | 14,706 |
| $ | (2,535) |
| $ | 4,329 |
| $ | (840) | |||||
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DENOMINATOR |
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Denominator for basic continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders |
| 41,070 |
|
| 40,422 |
| 41,348 |
|
| 40,687 |
|
| 41,209 |
| 40,555 | |
Dilutive effect of share-based awards for continuing operations and discontinued operations |
| 198 |
|
| 322 |
| 316 |
|
| 88 |
|
| 267 |
| 223 | |
Denominator for diluted continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders |
| 41,268 |
|
| 40,744 |
| 41,664 |
|
| 40,775 |
|
| 41,476 |
| 40,778 | |
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Basic earnings (loss) per common share: |
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From continuing operations | $ | 0.18 |
| $ | 0.10 | $ | 0.32 |
| $ | 0.05 |
| $ | 0.51 |
| $ | 0.15 |
From discontinued operations |
| (0.44) |
|
| (0.06) |
| 0.04 |
|
| (0.11) |
|
| (0.40) |
| (0.17) | |
Basic (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders | $ | (0.26) |
| $ | 0.04 | |||||||||||
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders | $ | 0.36 |
| $ | (0.06) |
| $ | 0.11 |
| $ | (0.02) | |||||
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Diluted earnings (loss) per common share: |
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From continuing operations | $ | 0.18 |
| $ | 0.10 | $ | 0.31 |
| $ | 0.05 |
| $ | 0.50 |
| $ | 0.15 |
From discontinued operations |
| (0.44) |
|
| (0.06) |
| 0.04 |
|
| (0.11) |
|
| (0.40) |
| (0.17) | |
Diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders | $ | (0.26) |
| $ | 0.04 | |||||||||||
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders | $ | 0.35 |
| $ | (0.06) |
| $ | 0.10 |
| $ | (0.02) |
Options to purchase 432,466134,247 and 1,345,2561,147,160 shares of common stock for the thirteen weeks and 224,153 and 1,251,131 shares of common stock for the twenty-six weeks ended May 4,August 3, 2013 and AprilJuly 28, 2012, respectively, were not included in the denominator for diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders because the effect would be antidilutive.
Note 6 |
|
Portfolio Realignment
The Company's portfolio realignment efforts include the sale of ASG; the sale of the AND 1 division; exiting certain women’s specialty and private label brands; exiting the children’s wholesale business; the sale and closure of sourcing and supply chain assets; closing or relocating numerous underperforming or poorly aligned retail stores; the termination of the Etienne Aigner license agreement; the election not to renew the Vera Wang license in accordance with agreement terms and other infrastructure changes. These portfolio realignment efforts began in 2011 and will continue through 2013. The Company expects to incur an immaterial amount of additional costs during the second half of 2013 related to its portfolio realignment initiatives.
DuringThe following is a summary of the first quarter of 2013, the Company incurred costs related to theseCompany’s portfolio realignment activities of $28.8 million ($24.6 million after-tax, or $0.58 per diluted share). Of the $28.8 million, $17.2 million ($17.2 million after-tax, or $0.41 per diluted share) was related to non-cash impairment chargesexpense (income) for our continuing and $11.6 million ($7.3 million after-tax, or $0.17 per diluted share) related todiscontinued operations:
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| Thirteen Weeks Ended |
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| Twenty-six Weeks Ended | ||||||||||||
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| Loss |
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| Loss | |||
($ millions, except per share data) |
| Pre-tax Expense (Income) |
| After-tax Expense (Income) |
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| (Earnings) Per Diluted Share |
| Pre-tax Expense (Income) |
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| After-tax Expense (Income) |
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| (Earnings) Per Diluted Share | |||
August 3, 2013 |
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Continuing Operations |
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Business exits and cost reductions | $ | 0.7 | $ | 0.5 |
| $ | 0.01 | $ | 1.2 |
| $ | 0.8 |
| $ | 0.02 | |||
Non-cash impairments/dispositions |
| – |
| – |
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| – |
| 4.7 |
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| 4.7 |
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| 0.11 | |||
Total Continuing Operations |
| 0.7 |
| 0.5 |
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| 0.01 |
| 5.9 |
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| 5.5 |
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| 0.13 | |||
Discontinued Operations |
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Business exits and cost reductions |
| 2.1 |
| (0.7) |
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| (0.01) |
| 13.3 |
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| 6.4 |
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| 0.13 | |||
Non-cash impairments/dispositions |
| (1.0) |
| (1.0) |
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| (0.02) |
| 11.5 |
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| 11.5 |
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| 0.28 | |||
Total Discontinued Operations |
| 1.1 |
| (1.7) |
|
| (0.03) |
| 24.8 |
|
| 17.9 |
|
| 0.41 | |||
Total | $ | 1.8 | $ | (1.2) |
| $ | (0.02) | $ | 30.7 |
| $ | 23.4 |
| $ | 0.54 | |||
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July 28, 2012 |
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Continuing Operations |
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Business exits and cost reductions | $ | 5.1 | $ | 3.5 |
| $ | 0.08 | $ | 16.6 |
| $ | 11.0 |
| $ | 0.26 | |||
Non-cash impairments/dispositions |
| – |
| – |
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| – |
| – |
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| – |
|
| – | |||
Total Continuing Operations |
| 5.1 |
| 3.5 |
|
| 0.08 |
| 16.6 |
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| 11.0 |
|
| 0.26 | |||
Discontinued Operations |
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Business exits and cost reductions |
| 7.3 |
| 4.5 |
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| 0.11 |
| 7.8 |
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| 4.8 |
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| 0.11 | |||
Non-cash impairments/dispositions |
| – |
| – |
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| – |
| – |
|
| – |
|
| – | |||
Total Discontinued Operations |
| 7.3 |
| 4.5 |
|
| 0.11 |
| 7.8 |
|
| 4.8 |
|
| 0.11 | |||
Total | $ | 12.4 | $ | 8.0 |
| $ | 0.19 | $ | 24.4 |
| $ | 15.8 |
| $ | 0.37 |
The business exits and transaction costs. Ofcost reductions of the $17.2 millionCompany’s continuing operations were recorded within restructuring and other special charges, net and cost of non-cash impairment charges, $12.5 million was reflected asgoods sold in the condensed consolidated statements of earnings. The business exits and cost reductions of the Company’s discontinued operations and $4.7 million was reflected aswere recorded within earnings (loss) from discontinued operations, net of tax, in the condensed consolidated statements of earnings. The non-cash impairments/dispositions of the Company’s continuing operations were recorded within impairment of assets held for sale in the condensed consolidated statementstatements of earnings. AllThe non-cash impairment chargesimpairments/dispositions of the Company’s discontinued operations were recorded within impairment of net assets/disposition of discontinued operations in the condensed consolidated statements of earnings. The non-cash impairments/dispositions are included in Other in the following table.
All of the $0.7 million of continuing operations costs incurred during the second quarter of 2013 was included in the Wholesale Operations segment. Of the $11.6$5.1 million $11.1of continuing operations costs incurred during the second quarter of 2012, $2.5 million wasis included in discontinued operations and $0.5the Specialty Retail segment, $2.0 million in restructuring and other special charges, net, in the condensed consolidating statement of earnings. Of the $11.1 million, $10.0 million wasis included in the Wholesale Operations segment, and the $1.1 million was included in the Other segment. The $0.5 million was recorded in the Wholesale Operations segment.
During the first quarter of 2012, the Company incurred costs related to these portfolio realignment activities of $12.1 million ($7.9 million after-tax, or $0.18 per diluted share). These costs were reflected on the condensed consolidated statement of earnings as $10.2 million in restructuring and other special charges, net, $1.3 million in cost of goods sold and $0.6 million in discontinued operations. Of the $10.2 million in restructuring and other special charges, net, $7.0$0.3 million is included in the Famous Footwear segment $1.9and $0.3 million is included in the Other segment.
All of the $5.9 million of continuing operations costs incurred during the first half of 2013 was included in the Wholesale Operations segment. Of the $16.6 million of continuing operations costs incurred during the first half of 2012, $7.3 million is included in the Famous Footwear segment, $5.1 million is included in the Wholesale Operations segment, $0.8$3.5 million is included in the Specialty Retail segment and $0.5$0.7 million is included in the Other segment. Of the $1.3 million in cost of goods sold, $1.1 million was included in the Wholesale Operations segment and $0.2 million is included in the Specialty Retail segment. The $0.6 million was recorded in the Wholesale Operations segment.
The Company expects to incur an additional $3 million to $5 million in 2013 related to its portfolio realignment initiatives.
The following is a summary of the charges and settlements by category of costs:
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| Total by Classification | ||||||||
($ millions) |
| Employee |
| Markdowns and Royalty Shortfalls |
|
| Facility |
|
| Other |
|
| Total |
| Employee |
| Markdowns and Royalty Shortfalls |
|
| Facility |
|
| Other |
| Total |
| Continuing Operations |
|
| Discontinued Operations | ||||
Reserve balance at January 28, 2012 | $ | 5.8 |
| $ | 1.6 |
| $ | 1.3 |
| $ | 1.3 |
| $ | 10.0 | $ | 5.8 |
| $ | 1.6 |
| $ | 1.3 |
| $ | 1.3 |
| $ | 10.0 |
| $ | 10.0 |
| $ | – |
Additional charges in 2012 |
| 6.0 |
| 3.1 |
| 11.4 |
| 9.4 |
| 29.9 |
| 6.0 |
|
| 3.1 |
| 11.4 |
|
| 9.4 |
| 29.9 |
|
| 21.9 |
|
| 8.0 | ||||||
Amounts settled in 2012 |
| (10.1) |
| (4.5) |
| (9.4) |
| (10.4) |
| (34.4) |
| (10.1) |
|
| (4.5) |
| (9.4) |
|
| (10.4) |
| (34.4) |
|
| (26.6) |
|
| (7.8) | ||||||
Reserve balance at February 2, 2013 | $ | 1.7 |
| $ | 0.2 |
| $ | 3.3 |
| $ | 0.3 |
| $ | 5.5 | $ | 1.7 |
| $ | 0.2 |
| $ | 3.3 |
| $ | 0.3 |
| $ | 5.5 |
| $ | 5.3 |
| $ | 0.2 |
Additional charges in first quarter 2013 |
| 0.4 |
| 3.0 |
| 0.1 |
| 25.3 |
| 28.8 |
| 0.4 |
|
| 3.0 |
| 0.1 |
|
| 25.3 |
| 28.8 |
|
| 5.2 |
|
| 23.6 | ||||||
Amounts settled in first quarter 2013 |
| (1.0) |
| (2.8) |
| (0.8) |
| (18.2) |
| (22.8) |
| (1.0) |
|
| (2.8) |
| (0.8) |
|
| (18.2) |
| (22.8) |
|
| (7.0) |
|
| (15.8) | ||||||
Reserve balance at May 4, 2013 | $ | 1.1 |
| $ | 0.4 |
| $ | 2.6 |
| $ | 7.4 |
| $ | 11.5 | $ | 1.1 |
| $ | 0.4 |
| $ | 2.6 |
| $ | 7.4 |
| $ | 11.5 |
| $ | 3.5 |
| $ | 8.0 |
Additional charges (recoveries) in second quarter 2013 |
| 2.3 |
|
| (0.4) |
| – |
|
| (0.1) |
| 1.8 |
|
| 0.7 |
|
| 1.1 | ||||||||||||||||
Amounts settled in second quarter 2013 |
| (1.0) |
|
| 0.3 |
| (0.6) |
|
| (7.0) |
| (8.3) |
|
| (1.8) |
|
| (6.5) | ||||||||||||||||
Reserve balance at August 3, 2013 | $ | 2.4 |
| $ | 0.3 |
| $ | 2.0 |
| $ | 0.3 |
| $ | 5.0 |
| $ | 2.4 |
| $ | 2.6 |
Integration Related Costs
During the first quarterhalf of 2012, the Company incurred integration costs related to ASG of $0.7 million ($0.4 million after-tax, or $0.01 per diluted share). All of, with no charges during the first half of 2013. These costs were recognized as earnings (loss) from discontinued operations.
Organizational Change
During the second quarter and first half of 2012, the Company incurred costs of $2.3 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) related to an organizational change at the corporate headquarters. These costs were recognized as restructuring and other special charges, net and included in the Wholesale Operations segment as a component of discontinued operations.Other segment.
98
Note 7 | Business Segment Information |
Applicable business segment information is as follows for the periods ended May 4,August 3, 2013 and AprilJuly 28, 2012:
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|
| Famous |
| Wholesale |
| Specialty |
|
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|
|
| Famous |
| Wholesale |
| Specialty |
|
|
|
| ||||||||
($ thousands) |
| Footwear |
| Operations |
| Retail |
| Other |
| Total |
| Footwear |
| Operations |
| Retail |
| Other |
| Total | ||||||||
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Thirteen Weeks Ended May 4, 2013 | ||||||||||||||||||||||||||||
External sales | $ | 352,279 |
| $ | 181,625 |
| $ | 54,752 |
| $ | – |
| $ | 588,656 | ||||||||||||||
Intersegment sales |
| 606 |
| 36,729 |
| – |
| – |
| 37,335 | ||||||||||||||||||
Operating earnings (loss) |
| 29,042 |
| 3,107 |
| (1,329) |
| (9,862) |
| 20,958 | ||||||||||||||||||
Segment assets - continuing operations |
| 450,900 |
| 356,903 |
| 60,685 |
| 135,891 |
| 1,004,379 | ||||||||||||||||||
Segment assets - held for sale |
| – |
| 12,496 |
| – |
| – |
| 12,496 | ||||||||||||||||||
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|
|
|
|
|
| ||||||||||||||||||
Thirteen Weeks Ended April 28, 2012 |
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|
|
|
|
| ||||||||||||||||||
Thirteen Weeks Ended August 3, 2013 | Thirteen Weeks Ended August 3, 2013 | |||||||||||||||||||||||||||
External sales | $ | 347,107 |
| $ | 194,941 |
| $ | 56,131 |
| $ | – |
| $ | 598,179 | $ | 388,259 |
| $ | 180,440 |
| $ | 53,007 |
| $ | – |
| $ | 621,706 |
Intersegment sales |
| 559 |
| 47,868 |
| – |
| – |
| 48,427 |
| 604 |
| 64,203 |
| – |
| – |
| 64,807 | ||||||||
Operating earnings (loss) |
| 18,301 |
| 5,875 |
| (3,527) |
| (8,058) |
| 12,591 |
| 28,969 |
| 8,196 |
| (1,826) |
| (12,527) |
| 22,812 | ||||||||
Segment assets - continuing operations |
| 431,820 |
| 384,528 |
| 56,702 |
| 143,590 |
| 1,016,640 |
| 529,944 |
| 428,664 |
| 83,852 |
| 136,899 |
| 1,179,359 | ||||||||
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| ||||||||
Thirteen Weeks Ended July 28, 2012 |
|
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|
|
|
| ||||||||||||||||||
External sales | $ | 350,318 |
| $ | 160,584 |
| $ | 53,995 |
| $ | – |
| $ | 564,897 | ||||||||||||||
Intersegment sales |
| 466 |
| 53,926 |
| – |
| – |
| 54,392 | ||||||||||||||||||
Operating earnings (loss) |
| 20,539 |
| 4,789 |
| (5,795) |
| (10,911) |
| 8,622 | ||||||||||||||||||
Segment assets - continuing operations |
| 512,892 |
| 430,881 |
| 48,568 |
| 140,023 |
| 1,132,364 | ||||||||||||||||||
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|
|
|
|
|
|
| ||||||||||||||||||
Twenty-six Weeks Ended August 3, 2013 | Twenty-six Weeks Ended August 3, 2013 | |||||||||||||||||||||||||||
External sales | $ | 740,538 |
| $ | 362,065 |
| $ | 107,759 |
| $ | – |
| $ | 1,210,362 | ||||||||||||||
Intersegment sales |
| 1,210 |
| 100,933 |
| – |
| – |
| 102,143 | ||||||||||||||||||
Operating earnings (loss) |
| 58,011 |
| 11,303 |
| (3,155) |
| (22,389) |
| 43,770 | ||||||||||||||||||
|
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|
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|
|
|
|
| ||||||||||||||||||
Twenty-six Weeks Ended July 28, 2012 |
|
|
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|
|
|
|
|
|
| ||||||||||||||||||
External sales | $ | 697,425 |
| $ | 355,525 |
| $ | 110,126 |
| $ | – |
| $ | 1,163,076 | ||||||||||||||
Intersegment sales |
| 1,024 |
| 101,793 |
| – |
| – |
| 102,817 | ||||||||||||||||||
Operating earnings (loss) |
| 38,840 |
| 10,664 |
| (9,322) |
| (18,969) |
| 21,213 |
The Other segment includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments.
During the thirteen weeks ended May 4, 2013, operating earnings (loss) included portfolio realignment costs of $5.2 million, all of which were recorded in the Wholesale Operations segment.
During the thirteen weeks ended April 28, 2012, operating earnings (loss) included portfolio realignment costs of $11.5 million. Of the $11.5 million, $7.0 million was included in the Famous Footwear segment, $3.0 million was included in the Wholesale Operations segment, $1.0 million was included in the Specialty Retail segment and $0.5 million was included in the Other segment.
Following is a reconciliation of operating earnings to earnings before income taxes from continuing operations:
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|
| |||
| Thirteen Weeks Ended | Thirteen Weeks Ended |
| Twenty-six Weeks Ended | ||||||||||||
| May 4, |
| April 28, | August 3, |
| July 28, |
| August 3, |
| July 28, | ||||||
($ thousands) |
| 2013 |
|
| 2012 |
| 2013 |
|
| 2012 |
|
| 2013 |
|
| 2012 |
Operating earnings | $ | 20,958 |
| $ | 12,591 | $ | 22,812 |
| $ | 8,622 |
| $ | 43,770 |
| $ | 21,213 |
Interest expense |
| (5,721) |
|
| (6,036) |
| (5,192) |
|
| (5,645) |
|
| (10,913) |
|
| (11,681) |
Interest income |
| 68 |
|
| 83 |
| 82 |
|
| 77 |
|
| 150 |
|
| 160 |
Earnings before income taxes from continuing operations | $ | 15,305 |
| $ | 6,638 | $ | 17,702 |
| $ | 3,054 |
| $ | 33,007 |
| $ | 9,692 |
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|
|
109
Note 8 | Goodwill and Intangible Assets |
Goodwill and intangible assets were attributable to the Company's operating segments as follows:
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| ||||
| May 4, |
| April 28, |
| February 2, | August 3, |
| July 28, |
| February 2, | ||||||
($ thousands) |
| 2013 |
| 2012 |
| 2013 |
| 2013 |
| 2012 |
| 2013 | ||||
|
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Intangible Assets |
|
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|
|
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|
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|
|
|
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|
|
|
|
|
Famous Footwear | $ | 2,800 |
| $ | 2,800 |
| $ | 2,800 | $ | 2,800 |
| $ | 2,800 |
| $ | 2,800 |
Wholesale Operations |
| 118,003 |
| 113,003 |
| 118,003 |
| 118,003 |
| 113,035 |
| 118,003 | ||||
Specialty Retail |
| 200 |
| 200 |
| 200 |
| 200 |
| 200 |
| 200 | ||||
Total intangible assets |
| 121,003 |
| 116,003 |
| 121,003 |
| 121,003 |
| 116,035 |
| 121,003 | ||||
Accumulated amortization |
| (56,762) |
| (50,783) |
| (55,254) |
| (58,269) |
| (52,260) |
| (55,254) | ||||
Total intangible assets, net |
| 64,241 |
| 65,220 |
| 65,749 |
| 62,734 |
| 63,775 |
| 65,749 | ||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale Operations |
| 16,755 |
| 16,755 |
| 16,755 |
| 13,954 |
| 13,954 |
| 13,954 | ||||
Total goodwill |
| 16,755 |
| 16,755 |
| 16,755 |
| 13,954 |
| 13,954 |
| 13,954 | ||||
Goodwill and intangible assets, net | $ | 80,996 |
| $ | 81,975 |
| $ | 82,504 | $ | 76,688 |
| $ | 77,729 |
| $ | 79,703 |
Intangible assets, primarily owned trademarks, of $21.0 million as of May 4,August 3, 2013, AprilJuly 28, 2012 and February 2, 2013 are not subject to amortization. All remaining intangible assets, primarily owned and licensed trademarks, are subject to amortization and have useful lives ranging from four to 20 years as of May 4,August 3, 2013. Amortization expense related to intangible assets was $1.7$1.5 million and $1.9$1.8 million for the thirteen weeks and $3.2 million and $3.7 million for the twenty-six weeks ended May 4,August 3, 2013 and AprilJuly 28, 2012, respectively.
As more fully described in Note 3, subsequent to the first quarter of 2013, the Company sold ASG. The related assets were classified within discontinued operations in the condensed consolidated balance sheet as of May 4, 2013 and retrospectively for prior periods. The ASG intangible assets classified as discontinued operations totaled $29.0 million as of May 4, 2013, April 28, 2012 and February 2, 2013 along with accumulated amortization of $1.9 million, $1.1 million and $1.7 million, respectively. In addition, goodwill attributable to Avia and Nevados of $22.8 million was classified within discontinued operations in the condensed consolidated balance sheet as of May 4, 2013, April 28, 2012 and February 2, 2013, respectively.
During the first quarter of 2013, the Company recognized an impairment charge of $12.6 million, representing the difference in the fair value less costs to sell as compared to the net assets to be sold. This impairment charge was recognized within discontinued operations in the condensed consolidated balance sheet and condensed consolidated statement of earnings related to the estimated loss on sale of ASG.
Also in the first quarter of 2013, the Company classified Etienne Aigner and its related assets as discontinued operations with retrospective presentation for prior periods. The Etienne Aigner trademark intangible asset of $13.0 million and accumulated amortization of $7.0 million was classified as discontinued operations in the condensed consolidated balance sheet as of April 28, 2012. The Company recognized an impairment charge of $5.8 million to reduce the Etienne Aigner intangible asset to zero in the second quarter of 2012.
The increase in the intangible assets of the Wholesale Operations segment from April 28, 2012 to February 2, 2013 and May 4, 2013 is primarily related to the acquisition of a trademark, partially offset by amortization.
11
Note 9 | Shareholders’ Equity |
The following tables set forth the changes in Brown Shoe Company, Inc. shareholders’ equity and noncontrolling interests for the thirteentwenty-six weeks ended May 4, 2013:August 3, 2013 and July 28, 2012, respectively:
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($ thousands) | Brown Shoe Company, Inc. Shareholders’ Equity |
| Noncontrolling Interests |
| Total Equity | Brown Shoe Company, Inc. Shareholders’ Equity |
| Noncontrolling Interests |
| Total Equity | ||||||
Equity at February 2, 2013 | $ | 425,129 |
| $ | 772 |
| $ | 425,901 | $ | 425,129 |
| $ | 772 |
| $ | 425,901 |
Net loss |
| (10,762) |
| (70) |
| (10,832) | ||||||||||
Net earnings (loss) |
| 4,595 |
| (144) |
| 4,451 | ||||||||||
Other comprehensive (loss) income |
| (659) |
| 42 |
| (617) |
| (911) |
| 55 |
| (856) | ||||
Dividends declared |
| (3,027) |
| – |
| (3,027) |
| (6,048) |
| – |
| (6,048) | ||||
Issuance of common stock under share-based plans, net |
| (2,070) |
| – |
| (2,070) |
| (2,780) |
| – |
| (2,780) | ||||
Tax benefit related to share-based plans |
| 1,962 |
| – |
| 1,962 |
| 2,798 |
| – |
| 2,798 | ||||
Share-based compensation expense |
| 1,617 |
| – |
| 1,617 |
| 2,935 |
| – |
| 2,935 | ||||
Equity at May 4, 2013 | $ | 412,190 |
| $ | 744 |
| $ | 412,934 | ||||||||
Equity at August 3, 2013 | $ | 425,718 |
| $ | 683 |
| $ | 426,401 |
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|
|
($ thousands) | Brown Shoe Company, Inc. Shareholders’ Equity |
| Noncontrolling Interests |
| Total Equity | |||
Equity at January 28, 2012 | $ | 412,669 |
| $ | 1,047 |
| $ | 413,716 |
Net loss |
| (840) |
|
| (246) |
|
| (1,086) |
Other comprehensive loss |
| (878) |
|
| (4) |
|
| (882) |
Dividends declared |
| (6,005) |
|
| – |
|
| (6,005) |
Issuance of common stock under share-based plans, net |
| (2,058) |
|
| – |
|
| (2,058) |
Tax benefit related to share-based plans |
| 738 |
|
| – |
|
| 738 |
Share-based compensation expense |
| 3,275 |
|
| – |
|
| 3,275 |
Equity at July 28, 2012 | $ | 406,901 |
| $ | 797 |
| $ | 407,698 |
Accumulated Other Comprehensive (Loss) Income (Loss)
The following table sets forth the changes in accumulated other comprehensive (loss) income (loss) by component: component for the thirteen and twenty-six weeks ended August 3, 2013:
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| |||||||
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| Accumulated |
|
|
|
|
|
| Accumulated | ||||||||
|
| Accumulated |
| Accumulated |
| Accumulated |
| Other | Accumulated |
| Accumulated |
| Accumulated |
| Other | ||||||||
|
| Currency |
| Derivative |
| Postretirement |
| Comprehensive | Currency |
| Derivative |
| Postretirement |
| Comprehensive | ||||||||
($ thousands) |
| Translation |
| Transactions |
| Transactions |
| Income (Loss) | Translation |
| Transactions |
| Transactions |
| Income (Loss) | ||||||||
Balance February 2, 2013 |
| $ | 6,912 |
| $ | (81) |
| $ | (5,947) |
| $ | 884 | $ | 6,912 |
| $ | (81) |
| $ | (5,947) |
| $ | 884 |
Other comprehensive loss before reclassifications |
| (690) |
| (27) |
| – |
| (717) |
| (690) |
| (27) |
| – |
| (717) | |||||||
Amounts reclassified from accumulated other comprehensive income |
|
| – |
| (87) |
| 145 |
| 58 | ||||||||||||||
Amounts reclassified from accumulated other comprehensive (loss) income |
| – |
| (87) |
| 145 |
| 58 | |||||||||||||||
Other comprehensive (loss) income |
|
| (690) |
| (114) |
| 145 |
| (659) |
| (690) |
| (114) |
| 145 |
| (659) | ||||||
Balance May 4, 2013 |
| $ | 6,222 |
| $ | (195) |
| $ | (5,802) |
| $ | 225 | $ | 6,222 |
| $ | (195) |
| $ | (5,802) |
| $ | 225 |
Other comprehensive (loss) income before reclassifications |
| (900) |
| 662 |
| – |
| (238) | |||||||||||||||
Amounts reclassified from accumulated other comprehensive (loss) income |
| – |
| (150) |
| 136 |
| (14) | |||||||||||||||
Other comprehensive (loss) income |
| (900) |
| 512 |
| 136 |
| (252) | |||||||||||||||
Balance August 3, 2013 | $ | 5,322 |
| $ | 317 |
| $ | (5,666) |
| $ | (27) |
The following table sets forth the reclassifications out of accumulated other comprehensive (loss) income (loss) and the related tax effect by component:component for the twenty-six weeks ended August 3, 2013:
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| Derivative |
| Postretirement |
| Tax Benefit |
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| Derivative |
|
| Postretirement |
|
| Tax |
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|
|
| ||||
($ thousands) |
| Transactions |
| Transactions |
| (Provision) |
| Total |
| Transactions |
|
| Transactions |
|
| Effect |
|
| Total |
| ||||
Selling and administrative expenses: |
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|
|
|
|
|
|
| ||||||||||||||||
Net gains from derivative financial instruments |
| $ | (132) |
| $ | – |
| $ | 45 |
| $ | (87) | $ | (362) |
| $ | – |
| $ | 125 |
| $ | (237) |
|
Pension and other postretirement benefits actuarial loss |
| – |
| 228 |
| (85) |
| 143 |
| – |
|
| 445 |
|
| (168) |
|
| 277 |
| ||||
Pension benefits prior service expense |
| – |
| 2 |
| – |
| 2 |
| – |
|
| 6 |
|
| (2) |
|
| 4 |
| ||||
|
| $ | (132) |
| $ | 230 |
| $ | (40) |
| $ | 58 | $ | (362) |
| $ | 451 |
| $ | (45) |
| $ | 44 |
|
Share-Based CompensationReclassifications related to pension and other postretirement benefits impacted selling and administrative expenses on the condensed consolidated statement of earnings. See Note 12 to the condensed consolidated financial statements for additional information related to derivative financial instruments.
Note 10 | Share-Based Compensation |
During the firstsecond quarter of 2013, the Company granted 4,000 stock options to certain employees with a weighted-average exercise price and grant date fair value of $17.00 and $9.46, respectively. These options vest in four equal increments, 25% vesting over each of the next four years, with a term of ten years. Share-based compensation expense is recognized on a straight-line basis separately for each vesting portion of the stock option award.
The Company granted 367,78529,150 restricted shares to certain employees with a weighted-average grant date fair value of $16.99 during the first quarter of 2013.$20.44. The restricted shares vest in four years and share-based compensation expense will be recognized on a straight-line basis over the four-year period.
The Company granted 70,225 performance share units during the first quarter of 2013 with a weighted-average grant date fair value of $17.00. Vesting of performance-based units is dependent upon the financial performance of the Company and the attainment of certain financial goals over the next three years and during the cumulative three year period. Performance share units are payable in cash based on the Company’s stock price upon payout. The performance share units may pay out at a maximum of 200% of the target number of units. Share-based compensation expense is being recognized based on the fair value of the award on the date of grant and the anticipated number of units to be awarded in accordance with the vesting schedule of the units over the three-year service period. The performance share units are settled in cash, and as a result, marked to market each period.
The Company recognized share-based compensation expense of $1.6$1.3 million and $1.4$1.8 million during the first quarter ofthirteen weeks and $2.9 million and $3.3 million during the twenty-six weeks ended August 3, 2013 and first quarter ofJuly 28, 2012, respectively. The Company issued 521,736122,475 shares of common stock during the first quarter ofthirteen weeks ended August 3, 2013 for restricted stock 2010grants, stock options exercised and directors’ fees. The Company issued 644,211 shares of common stock during the twenty-six weeks ended August 3, 2013 for restricted stock grants, stock performance awards, stock options exercised and directors’ fees. During the first quarter ofthirteen and twenty-six weeks ended August 3, 2013, the Company cancelled restricted stock awards of 28,00056,500 and 84,500 shares, respectively, as a result of forfeitures.
The Company also granted 1,30755,545 restricted stock units to non-employee directors with a weighted-average grant date fair value of $15.93$21.31 during the firstsecond quarter of 2013. AllOf the 55,545 restricted stock units granted, 1,095 restricted stock units vested and compensation was fully recognized during the firstsecond quarter of 2013 immediately vestedand 54,450 of the restricted stock units vest in one year, and compensation expense was fully recognized.will be recognized ratably over the one-year period based upon the fair value of the restricted stock units, as remeasured at the end of each period.
Note | Retirement and Other Benefit Plans |
The following tables set forth the components of net periodic benefit (income) cost (income) for the Company, including domestic and Canadian plans:
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| Pension Benefits |
| Other Postretirement Benefits | Pension Benefits |
| Other Postretirement Benefits | ||||||||||||
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||||||||||||
| May 4, | April 28, |
| May 4, | April 28, | August 3, | July 28, |
| August 3, | July 28, | ||||||||
($ thousands) |
| 2013 |
| 2012 |
|
| 2013 |
| 2012 |
| 2013 |
| 2012 |
|
| 2013 |
| 2012 |
Service cost | $ | 2,891 | $ | 2,986 |
| $ | – | $ | – | $ | 2,583 | $ | 2,844 |
| $ | – | $ | – |
Interest cost |
| 3,331 |
| 3,184 |
|
| 35 |
| 40 |
| 3,304 |
| 3,180 |
|
| 35 |
| 36 |
Expected return on assets |
| (6,179) |
| (6,279) |
|
| – |
| – |
| (6,197) |
| (6,261) |
|
| – |
| – |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain) |
| 248 |
| 80 |
|
| (20) |
| (13) |
| 237 |
| 45 |
|
| (20) |
| (23) |
Prior service expense |
| 2 |
| – |
|
| – |
| – |
| 4 |
| 4 |
|
| – |
| – |
Net transition asset |
| – |
| (11) |
|
| – |
| – |
| – |
| (11) |
|
| – |
| – |
Total net periodic benefit cost (income) | $ | 293 | $ | (40) |
| $ | 15 | $ | 27 | |||||||||
Total net periodic benefit (income) cost | $ | (69) | $ | (199) |
| $ | 15 | $ | 13 |
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|
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|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Other Postretirement Benefits | ||||||
| Twenty-six Weeks Ended |
| Twenty-six Weeks Ended | ||||||
| August 3, | July 28, |
| August 3, | July 28, | ||||
($ thousands) |
| 2013 |
| 2012 |
|
| 2013 |
| 2012 |
Service cost | $ | 5,474 | $ | 5,830 |
| $ | – | $ | – |
Interest cost |
| 6,635 |
| 6,364 |
|
| 70 |
| 76 |
Expected return on assets |
| (12,376) |
| (12,540) |
|
| – |
| – |
Amortization of: |
|
|
|
|
|
|
|
|
|
Actuarial loss (gain) |
| 485 |
| 125 |
|
| (40) |
| (36) |
Prior service expense |
| 6 |
| 4 |
|
| – |
| – |
Net transition asset |
| – |
| (22) |
|
| – |
| – |
Total net periodic benefit cost (income) | $ | 224 | $ | (239) |
| $ | 30 | $ | 40 |
|
|
Credit Agreement
On January 7, 2011, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Third Amended and Restated Credit Agreement, which was further amended on February 17, 2011 (as so amended, the “Credit Agreement”). The Credit Agreement matures on January 7, 2016 and provides for a revolving credit facility in an aggregate amount of up to $530.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at the Company’s option of up to $150.0 million from time to time during the term of the Credit Agreement (the “general purpose accordion feature”) subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on the London Inter-Bank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits the Company’s ability to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of (i) 15.0% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million for three consecutive business days, or an event of default occurs, the lenders may assume dominion and control over the Company’s cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security document supporting the agreement to be in full force and effect and a change of control event. In addition, if the excess availability falls below the greater of (i) 12.5% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million, and the fixed charge coverage ratio is less than 1.0 to 1.0, the Company would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of May 4, 2013.
At May 4, 2013, the Company had $66.0 million in borrowings outstanding and $8.9 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $413.8 million at May 4, 2013.
On May 14, 2013, subsequent to the end of the first quarter of 2013, ASG was sold and ceased to be a borrower under the Credit Agreement. The proceeds from the sale will be utilized to pay down the revolving credit facility. See Note 3 to the condensed consolidated financial statements for further information on the sale of ASG.
$200 Million Senior Notes Due 2019
On May 11, 2011, the Company issued $200.0 million aggregate principal amount of 7.125% Senior Notes due 2019 (the “2019 Senior Notes”). The Company used a portion of the net proceeds to call and redeem the outstanding 8.75% senior notes due in 2012. The Company used the remaining net proceeds for general corporate purposes, including repaying amounts outstanding under the Credit Agreement.
The 2019 Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of the Company that is an obligor under the Credit Agreement. Interest on the 2019 Senior Notes is payable on May 15 and November 15 of each year. The 2019 Senior Notes mature on May 15, 2019. Prior to May 15, 2014, the Company may redeem some or all of the 2019 Senior Notes at a redemption price equal to the sum of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest, plus a “make whole” premium. After May 15, 2014, the Company may redeem all or a part of the 2019 Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, if redeemed during the 12-month period beginning on May 15 of the years indicated below:
|
|
|
|
|
|
Year | Percentage | |
2014 | 105.344 | % |
2015 | 103.563 | % |
2016 | 101.781 | % |
2017 and thereafter | 100.000 | % |
In addition, prior to May 15, 2014, the Company may redeem up to 35% of the 2019 Senior Notes with the proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest thereon, if any, to the redemption date.
The 2019 Senior Notes also contain certain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of May 4, 2013, the Company was in compliance with all covenants and restrictions relating to the 2019 Senior Notes.
On May 14, 2013, subsequent to the end of the first quarter of 2013, ASG was sold and ceased to be a guarantor under the 2019 Senior Notes. See Note 3 to the condensed consolidated financial statements for further information on the sale of ASG.
Note 12 | Risk Management and Derivatives |
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.
Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major financial institutions and have varying maturities through MayAugust 2014. Credit risk is managed through the continuous monitoring of exposures to such counterparties.
The Company principally uses foreign currency forward contracts as cash flow hedges to offset a portion of the effects of exchange rate fluctuations. The Company’s cash flow exposures include anticipated foreign currency transactions, such as foreign currency denominated sales, costs, expenses, intercompany charges, as well as collections and payments. The Company performs a quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any hedge ineffectiveness in the condensed consolidated statement of earnings. Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion of the hedge is reported in the Company’s condensed consolidated statement of earnings. The amount of hedge ineffectiveness for the thirteen weeks and twenty-six weeks ended May 4,August 3, 2013 and AprilJuly 28, 2012 was not material.
The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s condensed consolidated balance sheet at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive (loss) income and reclassified to earnings in the period that the hedged transaction is recognized in earnings.
As of May 4,August 3, 2013, AprilJuly 28, 2012 and February 2, 2013, the Company had forward contracts maturing at various dates through MayAugust 2014, MayAugust 2013 and January 2014, respectively. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.
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| ||||
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|
|
|
|
| ||||
| Contract Amount | Contract Amount | ||||||||||||||
(U.S. $ equivalent in thousands) | May 4, 2013 |
| April 28, 2012 |
| February 2, 2013 | August 3, 2013 |
| July 28, 2012 |
| February 2, 2013 | ||||||
Financial Instruments |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars) | $ | 17,869 |
| $ | 21,924 |
| $ | 18,442 | $ | 20,397 |
| $ | 19,937 |
| $ | 18,442 |
Chinese yuan |
| 15,460 |
| 18,831 |
| 15,544 |
| 15,128 |
| 28,403 |
| 15,544 | ||||
Euro |
| 6,080 |
| 12,260 |
| 3,459 |
| 7,064 |
| 6,626 |
| 3,459 | ||||
Japanese yen |
| 1,500 |
| 1,332 |
| 1,665 |
| 1,370 |
| 1,392 |
| 1,665 | ||||
New Taiwanese dollars |
| 679 |
| 859 |
| 734 |
| 684 |
| 884 |
| 734 | ||||
Great Britain pounds sterling |
| – |
| 202 |
| 63 |
| – |
| 210 |
| 63 | ||||
Other currencies |
| 728 |
| 1,340 |
| 729 |
| 728 |
| 1,335 |
| 729 | ||||
Total financial instruments | $ | 42,316 |
| $ | 56,748 |
| $ | 40,636 | $ | 45,371 |
| $ | 58,787 |
| $ | 40,636 |
12
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheet as of May 4,August 3, 2013, AprilJuly 28, 2012 and February 2, 2013 are as follows:
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| ||||
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|
|
|
|
| ||||
| Asset Derivatives |
| Liability Derivatives | Asset Derivatives |
| Liability Derivatives | ||||||||||||
($ thousands) | Balance Sheet Location |
| Fair Value |
| Balance Sheet Location |
| Fair Value | Balance Sheet Location |
| Fair Value |
| Balance Sheet Location |
| Fair Value | ||||
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|
|
|
|
|
|
|
Foreign exchange forward contracts: | Foreign exchange forward contracts: |
|
|
|
|
|
|
|
| Foreign exchange forward contracts: |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 4, 2013 | Prepaid expenses and other current assets |
| $ | 181 |
| Other accrued expenses |
| $ | 477 | |||||||||
August 3, 2013 | Prepaid expenses and other current assets |
| $ | 467 |
| Other accrued expenses |
| $ | 194 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2012 | Prepaid expenses and other current assets |
|
| 304 |
| Other accrued expenses |
|
| 958 | |||||||||
July 28, 2012 | Prepaid expenses and other current assets |
|
| 78 |
| Other accrued expenses |
|
| 1,151 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2013 | Prepaid expenses and other current assets |
|
| 380 |
| Other accrued expenses |
|
| 373 | Prepaid expenses and other current assets |
|
| 380 |
| Other accrued expenses |
|
| 373 |
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
For the thirteen weeks ended May 4,August 3, 2013 and AprilJuly 28, 2012, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:
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|
|
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||||||||||||
($ thousands) | May 4, 2013 |
| April 28, 2012 | August 3, 2013 |
| July 28, 2012 | ||||||||||||
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|
|
Foreign exchange forward contracts: |
| Gain (Loss) Recognized in OCI on Derivatives |
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
|
| Gain (Loss) Recognized in OCI on Derivatives |
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
| Gain (Loss) Recognized in OCI on Derivatives |
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
|
| Gain (Loss) Recognized in OCI on Derivatives |
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
|
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|
|
Net sales | $ | 9 | $ | 54 |
| $ | 56 | $ | – | $ | 108 | $ | 94 |
| $ | (34) | $ | (14) |
Cost of goods sold |
| 85 |
| 21 |
|
| (345) |
| (8) |
| 460 |
| 6 |
|
| (531) |
| 86 |
Selling and administrative expenses |
| (158) |
| 57 |
|
| (220) |
| (10) |
| 368 |
| 130 |
|
| (252) |
| (19) |
Interest expense |
| 1 |
| – |
|
| (10) |
| – |
| 9 |
| – |
|
| 2 |
| – |
During 2012, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statement of earnings was as follows:
|
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|
|
($ thousands) | Fiscal Year Ended February 2, 2013 | |||||||||||||
| Twenty-six Weeks Ended |
| Twenty-six Weeks Ended | |||||||||||
($ in thousands) | August 3, 2013 |
| July 28, 2012 | |||||||||||
Foreign exchange forward contracts: |
| Gain (Loss) Recognized in OCI on Derivatives |
|
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
| Gain (Loss) Recognized in OCI on Derivatives |
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
|
| Gain (Loss) Recognized in OCI on Derivatives |
| Gain (Loss) Reclassified from Accumulated OCI into Earnings |
|
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|
|
|
|
|
Net sales | $ | 6 |
| $ | (27) | $ | 117 | $ | 148 |
| $ | 21 | $ | (14) |
Cost of goods sold |
| (546) |
|
| (325) |
| 545 |
| 27 |
|
| (876) |
| 78 |
Selling and administrative expenses |
| (9) |
|
| (16) |
| 210 |
| 187 |
|
| (471) |
| (29) |
Interest expense |
| (7) |
|
| – |
| 10 |
| – |
|
| (8) |
| – |
All of the gains and losses currently included within accumulated other comprehensive income associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 13 to the condensed consolidated financial statements.
|
|
Note 13 | Fair Value Measurements |
Fair Value Hierarchy
FASB guidance on fair value measurements and disclosures specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
Money Market Funds
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations. The Company does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan Assets and Liabilities
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participant generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified as trading securities within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs that is equal to the number of shares of the Company’s common stock which the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. When the participating director terminates his or her service as a director, the Company will pay the cash value of the deferred compensation to the director (or to the designated beneficiary in the event of death) in annual installments over a five-year or ten-year period, or in a lump sum, at the director’s election. The cash amount payable will be based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair market value at fiscal quarter-end on or following termination of the director’s service and calculated based on the mean of the high and low price of an equivalent number of shares of the Company’s common stock on the last trading day of the fiscal quarter. The plan also provides for earlier payment of a participating director’s account if the board determines that the participant has a demonstrated financial hardship. The accounts of participants continue to earn dividend equivalents on the account balance. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are reported in selling and administrative expenses in the Company’s condensed consolidated statement of earnings. The fair value of the liabilities is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency (Level 1).
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments are disclosed within Note 12 to the condensed consolidated financial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at May 4,August 3, 2013, AprilJuly 28, 2012 and February 2, 2013. The Company did not have any transfers between Level 1 and Level 2 during 2012 or the thirteentwenty-six weeks ended May 4,August 3, 2013.
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| Fair Value Measurements |
|
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| Fair Value Measurements | ||||||||||||||||
($ thousands) |
| Total |
|
| Level 1 |
| Level 2 |
| Level 3 |
|
| Total |
|
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Asset (Liability) |
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As of May 4, 2013: |
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As of August 3, 2013: |
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| |||||||||||||||
Cash equivalents – money market funds | $ | 6,505 |
| $ | 6,505 |
| $ | – |
| $ | – |
| $ | 11,757 |
| $ | 11,757 |
| $ | – |
| $ | – |
|
Non-qualified deferred compensation plan assets |
| 1,692 |
|
| 1,692 |
|
| – |
| – |
|
| 1,867 |
|
| 1,867 |
|
| – |
| – |
| ||
Non-qualified deferred compensation plan liabilities |
| (1,692) |
|
| (1,692) |
|
| – |
| – |
|
| (1,867) |
|
| (1,867) |
|
| – |
| – |
| ||
Deferred compensation plan liabilities for non-employee directors |
| (1,170) |
|
| (1,170) |
|
| – |
|
| – |
|
| (1,648) |
|
| (1,648) |
|
| – |
|
| – |
|
Derivative financial instruments, net |
| (296) |
|
| – |
|
| (296) |
|
| – |
|
| 273 |
|
| – |
|
| 273 |
|
| – |
|
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| ||||||
As of April 28, 2012: |
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As of July 28, 2012: |
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| |||||||||||||||
Cash equivalents – money market funds | $ | 29,696 |
| $ | 29,696 |
| $ | – |
| $ | – |
| $ | 36,340 |
| $ | 36,340 |
| $ | – |
| $ | – |
|
Non-qualified deferred compensation plan assets |
| 1,177 |
|
| 1,177 |
|
| – |
| – |
|
| 1,225 |
|
| 1,225 |
|
| – |
| – |
| ||
Non-qualified deferred compensation plan liabilities |
| (1,177) |
|
| (1,177) |
|
| – |
| – |
|
| (1,225) |
|
| (1,225) |
|
| – |
| – |
| ||
Deferred compensation plan liabilities for non-employee directors |
| (610) |
|
| (610) |
|
| – |
|
| – |
|
| (908) |
|
| (908) |
|
| – |
|
| – |
|
Derivative financial instruments, net |
| (654) |
|
| – |
|
| (654) |
|
| – |
|
| (1,073) |
|
| – |
|
| (1,073) |
|
| – |
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| ||||||
As of February 2, 2013: |
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| ||||||
Cash equivalents – money market funds | $ | 27,223 |
| $ | 27,223 |
| $ | – |
| $ | – |
| $ | 27,223 |
| $ | 27,223 |
| $ | – |
| $ | – |
|
Non-qualified deferred compensation plan assets |
| 1,411 |
|
| 1,411 |
|
| – |
| – |
|
| 1,411 |
|
| 1,411 |
|
| – |
| – |
| ||
Non-qualified deferred compensation plan liabilities |
| (1,411) |
|
| (1,411) |
|
| – |
| – |
|
| (1,411) |
|
| (1,411) |
|
| – |
| – |
| ||
Deferred compensation plan liabilities for non-employee directors |
| (1,139) |
|
| (1,139) |
|
| – |
| – |
|
| (1,139) |
|
| (1,139) |
|
| – |
| – |
| ||
Derivative financial instruments, net |
| 7 |
|
| – |
|
| 7 |
|
| – |
|
| 7 |
|
| – |
|
| 7 |
|
| – |
|
1310
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC 820, Fair Value Measurements and Disclosures. Long-lived assets held and used with a carrying amount of $71.5$89.4 million were assessed for indicators of impairment and written down to their fair value, resulting in impairment charges of $0.4 million for the thirteen weeks ended May 4,August 3, 2013. Of the $0.4 million impairment charge included in selling and administrative expenses, $0.3 million related to the Famous Footwear segment and $0.1 million related to the Specialty Retail segment. An impairment charge of $0.7 million was recorded for the twenty-six weeks ended August 3, 2013. Of the $0.7 million impairment charge included in selling and administrative expenses, $0.5 million related to the Famous Footwear segment and $0.2 million related to the Specialty Retail segment.
During the first quarter of 2013, the Company entered intorecognized an agreementimpairment charge of $4.7 million ($4.7 million after tax, $0.11 per diluted share) related to sell certain of its supply chain and sourcing assets, resulting in an impairment chargewhich represented the excess net asset value over the estimated fair value of $4.7 million. The impairment charge was recorded in the condensed consolidated statement of earnings in the Wholesale Operations segment. This transaction closed in the second quarter of 2013.assets less costs to sell. The fair value of net assets was estimated based on the anticipated sales proceeds. This is considered a Level 2 input as the assets were not sold on an active market. The impairment charge was recorded as impairment of assets held for sale in the condensed consolidated statement of earnings and was included in the Wholesale Operations segment. These assets were sold in the second quarter of 2013, and the Company recognized an additional loss on sale of $0.6 million. See Note 4 and Note 6 to the condensed consolidated financial statements for additional information.
Subsequent toDuring the firstsecond quarter of 2013, the Company sold ASG. The assets of ASG were determined to be held for sale at May 4, 2013, and an impairment charge of $12.6 million was recorded in the first quarter of 2013 within the discontinued operations section of the condensed consolidated statement of earnings and isearnings. The Company recognized a gain on disposition of $1.0 million in the second quarter of 2013. ASG was previously included within the Wholesale Operations segment. The fair value of assets was estimated based on the anticipated sales proceeds.proceeds less costs to sell. This is considered a Level 2 input as the assets were not sold on an active market. See Note 3 and Note 6 to the condensed consolidated financial statements for additional information.
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables, trade accounts payable and borrowings under the revolving credit agreement approximate their carrying values due to the short-term nature of these instruments.
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| May 4, 2013 |
| April 28, 2012 |
| February 2, 2013 |
| August 3, 2013 |
| July 28, 2012 |
| February 2, 2013 | ||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
($ thousands) |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
Senior Notes | $ | 198,870 | $ | 209,000 | $ | 198,680 | $ | 194,000 | $ | 198,823 | $ | 208,000 | $ | 198,917 | $ | 212,500 | $ | 198,726 | $ | 197,000 | $ | 198,823 | $ | 208,000 |
The Company’s Senior Notes fair value was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).
Note 14 | Income Taxes |
The Company’s effective tax rate can vary considerably from period to period, depending on a number of factors. The Company’s consolidated effective tax rate from continuing operations was 51.9%23.1% for the firstsecond quarter of 2013, compared to 39.4%40.6% for the second quarter of 2012 and 36.4% for the first quarterhalf of last year.2013 as compared to 39.8% in the first half of 2012. The increasedecrease in the Company’s effective tax rate this quarter was due toand the non-deductible naturefirst half of the $4.7 million impairment charge described2013 reflects a higher anticipated mix of international earnings in Note 4.lower tax jurisdictions.
11
Note 15 | Related Party Transactions |
C. banner International Holdings Limited
The Company entered intohas a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) (formerly known as Hongguo International Holdings Limited) to market Naturalizer footwear in China. The Company is a 51% owner of the joint venture (“B&H Footwear”), with CBI owning the other 49%. B&H Footwear began operations in 2007 and distributes the Naturalizer brand in department store shops and free-standing stores in several of China’s largest cities. In addition, B&H Footwear sells Naturalizer footwear to CBI on a wholesale basis. CBI then sells Naturalizer products through retail stores in China. During the thirteen and twenty-six weeks ended May 4,August 3, 2013, the Company, through its consolidated subsidiary, B&H Footwear, sold $1.0$1.2 million and $2.2 million of Naturalizer footwear on a wholesale basis to CBI, with $1.6$1.1 million and $2.6 million in corresponding sales during the thirteen and twenty-six weeks ended AprilJuly 28, 2012.
Note 16 | Commitments and Contingencies |
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified workplan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the workplan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be $15.9 million as of May 4,August 3, 2013. The Company expects to spend approximately $0.2 million in each of the next five years and $14.9 million in the aggregate thereafter related to the on-site remediation.
The cumulative expenditures for both on-site and off-site remediation through May 4,August 3, 2013 were $26.1$26.4 million. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at May 4,August 3, 2013 is $7.8$8.0 million, of which $7.0$7.2 million is recorded within other liabilities and $0.8 million is recorded within other accrued expenses. Of the total $7.8$8.0 million reserve, $4.8 million is for on-site remediation and $3.0$3.2 million is for off-site remediation.
Other
The Company has completed its remediation efforts at its 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 through 2024. The Company has an accrued liability of $1.5 million at May 4,August 3, 2013, related to these sites, which has been discounted at 6.4%. On an undiscounted basis, this liability would be $2.0 million. The Company expects to spend approximately $0.2 million in each of the next five years and $1.0 million in the aggregate thereafter related to these sites. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
Based on information currently available, the Company has an accrued liability of $9.4$9.5 million as of May 4,August 3, 2013, to complete the cleanup, maintenance and monitoring at all sites. Of the $9.4$9.5 million liability, $8.4$8.5 million is recorded in other liabilities and $1.0 million is recorded in other accrued expenses. The Company continues to evaluate its estimated costs in conjunction with its environmental consultants and records its best estimate of such liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
Etienne Aigner License Termination
During the second quarter of 2012, the Company terminated the Etienne Aigner license agreement, due to a dispute with the licensor. The term of the former license agreement extended through 2018. The former license agreement would have required guaranteed minimum royalty payments to the licensor of an additional $20.9 million between July 12, 2012 and contract expiration in 2018. The licensor disputed the basis on which the Company terminated the former license agreement, which resulted in the parties seeking binding arbitration of their dispute. On October 8, 2012, the Company instituted the arbitration proceedings alleging that the licensor breached the license agreement and was seeking damages. On October 19, 2012, the licensor responded by denying the Company’s allegations, asserting its own claims for breach of the license agreement and sought damages. On April 29, 2013, an agreement to resolve the dispute and dismiss the arbitration proceedings was reached, pursuant to which the Company agreed to pay Etienne Aigner $6.5 million. This settlement charge was recorded as a component of discontinued operations within the condensed consolidated statement of earnings in the first quarter of 2013.
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.
Note 17 | Financial Information for the Company and its Subsidiaries |
Brown Shoe Company, Inc. issued senior notes, which are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under its existing agreement. The following table presents the consolidating financial information for each of Brown Shoe Company, Inc. (“Parent”), the Guarantors and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”), together with consolidating eliminations, as of and for the periods indicated. The Guarantors are 100% owned by the Parent. On May 14, 2013, subsequent toduring the end of the firstsecond quarter of 2013, ASG was sold and ceased to be a borrower under the Credit Agreement. ASG is included as a “Guarantor” in the financial statements below.through the sale date. The proceeds from the sale will bewere utilized to pay down the Company’s revolving credit facility. See Note 3 to the condensed consolidated financial statements for further information on the sale of ASG.
The consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that the information, presented in lieu of complete financial statements for each of the Guarantors, provides meaningful information to allow investors to determine the nature of the assets held by, and operations and cash flows of, each of the consolidated groups.
12
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UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||
AS OF AUGUST 3, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | – |
| $ | 32,793 |
| $ | 20,344 |
| $ | – |
| $ | 53,137 |
Receivables, net |
| 86,129 |
|
| 2,014 |
|
| 31,911 |
|
| – |
|
| 120,054 |
Inventories, net |
| 128,503 |
|
| 477,659 |
|
| 9,754 |
|
| – |
|
| 615,916 |
Prepaid expenses and other current assets |
| 54,017 |
|
| (860) |
|
| (1,312) |
|
| – |
|
| 51,845 |
Current assets – discontinued operations |
| 1,638 |
|
| – |
|
| 23 |
|
| – |
|
| 1,661 |
Total current assets |
| 270,287 |
|
| 511,606 |
|
| 60,720 |
|
| – |
|
| 842,613 |
Other assets |
| 97,053 |
|
| 16,110 |
|
| 601 |
|
| – |
|
| 113,764 |
Goodwill and intangible assets, net |
| 57,514 |
|
| 19,174 |
|
| – |
|
| – |
|
| 76,688 |
Property and equipment, net |
| 26,637 |
|
| 118,878 |
|
| 2,440 |
|
| – |
|
| 147,955 |
Investment in subsidiaries |
| 839,981 |
|
| 31,336 |
|
| – |
|
| (871,317) |
|
| – |
Total assets | $ | 1,291,472 |
| $ | 697,104 |
| $ | 63,761 |
| $ | (871,317) |
| $ | 1,181,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement | $ | 23,000 |
| $ | – |
| $ | – |
| $ | – |
| $ | 23,000 |
Trade accounts payable |
| 77,854 |
|
| 193,996 |
|
| 37,956 |
|
| – |
|
| 309,806 |
Other accrued expenses |
| 65,241 |
|
| 73,883 |
|
| 4,611 |
|
| – |
|
| 143,735 |
Current liabilities – discontinued operations |
| 3,488 |
|
| – |
|
| 48 |
|
| – |
|
| 3,536 |
Total current liabilities |
| 169,583 |
|
| 267,879 |
|
| 42,615 |
|
| – |
|
| 480,077 |
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 198,917 |
|
| – |
|
| – |
|
| – |
|
| 198,917 |
Other liabilities |
| 24,049 |
|
| 50,559 |
|
| 1,017 |
|
| – |
|
| 75,625 |
Intercompany payable (receivable) |
| 473,205 |
|
| (461,315) |
|
| (11,890) |
|
| – |
|
| – |
Total other liabilities |
| 696,171 |
|
| (410,756) |
|
| (10,873) |
|
| – |
|
| 274,542 |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Shoe Company, Inc. shareholders’ equity |
| 425,718 |
|
| 839,981 |
|
| 31,336 |
|
| (871,317) |
|
| 425,718 |
Noncontrolling interests |
| – |
|
| – |
|
| 683 |
|
| – |
|
| 683 |
Total equity |
| 425,718 |
|
| 839,981 |
|
| 32,019 |
|
| (871,317) |
|
| 426,401 |
Total liabilities and equity | $ | 1,291,472 |
| $ | 697,104 |
| $ | 63,761 |
| $ | (871,317) |
| $ | 1,181,020 |
13
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|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||
FOR THE THIRTEEN WEEKS ENDED AUGUST 3, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net sales | $ | 180,153 |
| $ | 444,821 |
| $ | 57,468 |
| $ | (60,736) |
| $ | 621,706 |
Cost of goods sold |
| 138,906 |
|
| 241,656 |
|
| 47,254 |
|
| (60,736) |
|
| 367,080 |
Gross profit |
| 41,247 |
|
| 203,165 |
|
| 10,214 |
|
| – |
|
| 254,626 |
Selling and administrative expenses |
| 65,770 |
|
| 165,689 |
|
| (388) |
|
| – |
|
| 231,071 |
Restructuring and other special charges, net |
| 167 |
|
| 576 |
|
| – |
|
| – |
|
| 743 |
Equity in (earnings) loss of subsidiaries |
| (36,429) |
|
| (12,043) |
|
| – |
|
| 48,472 |
|
| – |
Operating earnings (loss) |
| 11,739 |
|
| 48,943 |
|
| 10,602 |
|
| (48,472) |
|
| 22,812 |
Interest expense |
| (5,192) |
|
| – |
|
| – |
|
| – |
|
| (5,192) |
Interest income |
| 10 |
|
| 68 |
|
| 4 |
|
| – |
|
| 82 |
Intercompany interest income (expense) |
| 3,475 |
|
| (3,607) |
|
| 132 |
|
| – |
|
| – |
Earnings (loss) before income taxes from continuing operations |
| 10,032 |
|
| 45,404 |
|
| 10,738 |
|
| (48,472) |
|
| 17,702 |
Income tax benefit (provision) |
| 4,259 |
|
| (9,607) |
|
| 1,267 |
|
| – |
|
| (4,081) |
Net earnings (loss) from continuing operations |
| 14,291 |
|
| 35,797 |
|
| 12,005 |
|
| (48,472) |
|
| 13,621 |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of tax |
| 1,066 |
|
| (410) |
|
| (36) |
|
| – |
|
| 620 |
Impairment of net assets/disposition of discontinued operations |
| – |
|
| 1,042 |
|
| – |
|
| – |
|
| 1,042 |
Net Earnings (loss) from discontinued operations |
| 1,066 |
|
| 632 |
|
| (36) |
|
| – |
|
| 1,662 |
Net earnings (loss) |
| 15,357 |
|
| 36,429 |
|
| 11,969 |
|
| (48,472) |
|
| 15,283 |
Net loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (74) |
|
| – |
|
| (74) |
Net earnings (loss) attributable to Brown Shoe Company, Inc. | $ | 15,357 |
| $ | 36,429 |
| $ | 12,043 |
| $ | (48,472) |
| $ | 15,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) | $ | 15,105 |
| $ | 35,969 |
| $ | 11,969 |
| $ | (48,012) |
| $ | 15,031 |
Comprehensive loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (61) |
|
| – |
|
| (61) |
Comprehensive income (loss) attributable to Brown Shoe Company, Inc. | $ | 15,105 |
| $ | 35,969 |
| $ | 12,030 |
| $ | (48,012) |
| $ | 15,092 |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||
AS OF MAY 4, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | – |
| $ | 29,202 |
| $ | 15,467 |
| $ | – |
| $ | 44,669 |
Receivables, net |
| 67,017 |
|
| 6,079 |
|
| 23,638 |
|
| – |
|
| 96,734 |
Inventories, net |
| 79,768 |
|
| 400,139 |
|
| 6,016 |
|
| – |
|
| 485,923 |
Prepaid expenses and other current assets |
| 41,977 |
|
| 1,251 |
|
| (61) |
|
| – |
|
| 43,167 |
Current assets - held for sale |
| – |
|
| – |
|
| 12,496 |
|
| – |
|
| 12,496 |
Current assets - discontinued operations |
| 2,542 |
|
| 36,605 |
|
| 12 |
|
| – |
|
| 39,159 |
Total current assets |
| 191,304 |
|
| 473,276 |
|
| 57,568 |
|
| – |
|
| 722,148 |
Other assets |
| 98,431 |
|
| 16,562 |
|
| 598 |
|
| – |
|
| 115,591 |
Goodwill and intangible assets, net |
| 36,203 |
|
| 19,538 |
| �� | 25,255 |
|
| – |
|
| 80,996 |
Non current assets - discontinued operations |
| – |
|
| 1,321 |
|
| 37,352 |
|
| – |
|
| 38,673 |
Property and equipment, net |
| 26,484 |
|
| 108,416 |
|
| 2,399 |
|
| – |
|
| 137,299 |
Investment in subsidiaries |
| 759,545 |
|
| (28,096) |
|
| (3,597) |
|
| (727,852) |
|
| – |
Total assets | $ | 1,111,967 |
| $ | 591,017 |
| $ | 119,575 |
| $ | (727,852) |
| $ | 1,094,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement | $ | 66,000 |
| $ | – |
| $ | – |
| $ | – |
| $ | 66,000 |
Trade accounts payable |
| 31,065 |
|
| 129,630 |
|
| 28,253 |
|
| – |
|
| 188,948 |
Other accrued expenses |
| 55,497 |
|
| 59,651 |
|
| 3,484 |
|
| – |
|
| 118,632 |
Current liabilities - held for sale |
| – |
|
| – |
|
| 5,306 |
|
| – |
|
| 5,306 |
Current liabilities - discontinued operations |
| 11,343 |
|
| 4,796 |
|
| 44 |
|
| – |
|
| 16,183 |
Total current liabilities |
| 163,905 |
|
| 194,077 |
|
| 37,087 |
|
| – |
|
| 395,069 |
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 198,870 |
|
| – |
|
| – |
|
| – |
|
| 198,870 |
Other liabilities |
| 26,685 |
|
| 50,003 |
|
| 4,378 |
|
| – |
|
| 81,066 |
Non current liabilities - discontinued operations |
| (1,105) |
|
| (2,535) |
|
| 10,408 |
|
| – |
|
| 6,768 |
Intercompany payable (receivable) |
| 311,422 |
|
| (410,073) |
|
| 98,651 |
|
| – |
|
| – |
Total other liabilities |
| 535,872 |
|
| (362,605) |
|
| 113,437 |
|
| – |
|
| 286,704 |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Shoe Company, Inc. shareholders’ equity |
| 412,190 |
|
| 759,545 |
|
| (31,693) |
|
| (727,852) |
|
| 412,190 |
Noncontrolling interests |
| – |
|
| – |
|
| 744 |
|
| – |
|
| 744 |
Total equity |
| 412,190 |
|
| 759,545 |
|
| (30,949) |
|
| (727,852) |
|
| 412,934 |
Total liabilities and equity | $ | 1,111,967 |
| $ | 591,017 |
| $ | 119,575 |
| $ | (727,852) |
| $ | 1,094,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 3, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net sales | $ | 338,934 |
| $ | 863,359 |
| $ | 100,072 |
| $ | (92,003) |
| $ | 1,210,362 |
Cost of goods sold |
| 255,236 |
|
| 471,612 |
|
| 80,875 |
|
| (92,003) |
|
| 715,720 |
Gross profit |
| 83,698 |
|
| 391,747 |
|
| 19,197 |
|
| – |
|
| 494,642 |
Selling and administrative expenses |
| 115,770 |
|
| 325,541 |
|
| 3,639 |
|
| – |
|
| 444,950 |
Restructuring and other special charges, net |
| 686 |
|
| 576 |
|
| – |
|
| – |
|
| 1,262 |
Impairment of assets held for sale |
| – |
|
| – |
|
| 4,660 |
|
| – |
|
| 4,660 |
Equity in (earnings) loss of subsidiaries |
| (39,474) |
|
| 1,061 |
|
| – |
|
| 38,413 |
|
| – |
Operating earnings (loss) |
| 6,716 |
|
| 64,569 |
|
| 10,898 |
|
| (38,413) |
|
| 43,770 |
Interest expense |
| (10,822) |
|
| (91) |
|
| – |
|
| – |
|
| (10,913) |
Interest income |
| 13 |
|
| 132 |
|
| 5 |
|
| – |
|
| 150 |
Intercompany interest income (expense) |
| 6,929 |
|
| (7,186) |
|
| 257 |
|
| – |
|
| – |
Earnings (loss) before income taxes from continuing operations |
| 2,836 |
|
| 57,424 |
|
| 11,160 |
|
| (38,413) |
|
| 33,007 |
Income tax benefit (provision) |
| 7,641 |
|
| (20,173) |
|
| 505 |
|
| – |
|
| (12,027) |
Net earnings (loss) from continuing operations |
| 10,477 |
|
| 37,251 |
|
| 11,665 |
|
| (38,413) |
|
| 20,980 |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, net of tax |
| (5,882) |
|
| 1,181 |
|
| (316) |
|
| – |
|
| (5,017) |
Impairment of net assets/disposition of discontinued operations |
| – |
|
| 1,042 |
|
| (12,554) |
|
| – |
|
| (11,512) |
Net (loss) earnings from discontinued operations |
| (5,882) |
|
| 2,223 |
|
| (12,870) |
|
| – |
|
| (16,529) |
Net earnings (loss) | $ | 4,595 |
| $ | 39,474 |
| $ | (1,205) |
| $ | (38,413) |
| $ | 4,451 |
Net loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (144) |
|
| – |
|
| (144) |
Net earnings (loss) attributable to Brown Shoe Company, Inc. | $ | 4,595 |
| $ | 39,474 |
| $ | (1,061) |
| $ | (38,413) |
| $ | 4,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) | $ | 3,684 |
| $ | 38,457 |
| $ | (1,205) |
| $ | (37,396) |
| $ | 3,540 |
Comprehensive loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (89) |
|
| – |
|
| (89) |
Comprehensive income (loss) attributable to Brown Shoe Company, Inc. | $ | 3,684 |
| $ | 38,457 |
| $ | (1,116) |
| $ | (37,396) |
| $ | 3,629 |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net sales | $ | 158,781 |
| $ | 418,538 |
| $ | 42,604 |
| $ | (31,267) |
| $ | 588,656 |
Cost of goods sold |
| 116,330 |
|
| 229,956 |
|
| 33,621 |
|
| (31,267) |
|
| 348,640 |
Gross profit |
| 42,451 |
|
| 188,582 |
|
| 8,983 |
|
| – |
|
| 240,016 |
Selling and administrative expenses |
| 50,000 |
|
| 159,852 |
|
| 4,027 |
|
| – |
|
| 213,879 |
Restructuring and other special charges, net |
| 519 |
|
| – |
|
| – |
|
| – |
|
| 519 |
Impairment of assets held for sale |
| – |
|
| – |
|
| 4,660 |
|
| – |
|
| 4,660 |
Equity in (earnings) loss of subsidiaries |
| (2,975) |
|
| 13,174 |
|
| 225 |
|
| (10,424) |
|
| – |
Operating (loss) earnings |
| (5,093) |
|
| 15,556 |
|
| 71 |
|
| 10,424 |
|
| 20,958 |
Interest expense |
| (5,630) |
|
| (91) |
|
| – |
|
| – |
|
| (5,721) |
Interest income |
| 3 |
|
| 64 |
|
| 1 |
|
| – |
|
| 68 |
Intercompany interest income (expense) |
| 3,454 |
|
| (3,579) |
|
| 125 |
|
| – |
|
| – |
(Loss) earnings before income taxes from continuing operations |
| (7,266) |
|
| 11,950 |
|
| 197 |
|
| 10,424 |
|
| 15,305 |
Income tax benefit (provision) |
| 3,382 |
|
| (10,566) |
|
| (762) |
|
| – |
|
| (7,946) |
Net (loss) earnings from continuing operations |
| (3,884) |
|
| 1,384 |
|
| (565) |
|
| 10,424 |
|
| 7,359 |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, net of tax |
| (6,948) |
|
| 1,591 |
|
| (280) |
|
| – |
|
| (5,637) |
Impairment charge on net assets of discontinued operations |
| – |
|
| – |
|
| (12,554) |
|
| – |
|
| (12,554) |
Net (loss) earnings from discontinued operations |
| (6,948) |
|
| 1,591 |
|
| (12,834) |
|
| – |
|
| (18,191) |
Net (loss) earnings |
| (10,832) |
|
| 2,975 |
|
| (13,399) |
|
| 10,424 |
|
| (10,832) |
Net loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (70) |
|
| – |
|
| (70) |
Net (loss) earnings attributable to Brown Shoe Company, Inc. | $ | (10,832) |
| $ | 2,975 |
| $ | (13,329) |
| $ | 10,424 |
| $ | (10,762) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income | $ | (11,491) |
| $ | 2,411 |
| $ | (13,392) |
| $ | 10,981 |
| $ | (11,491) |
Comprehensive loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (28) |
|
| – |
|
| (28) |
Comprehensive (loss) income attributable to Brown Shoe Company, Inc. | $ | (11,491) |
| $ | 2,411 |
| $ | (13,364) |
| $ | 10,981 |
| $ | (11,463) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS | ||||||||||||||
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 3, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net cash provided by operating activities | $ | 1,555 |
| $ | 26,015 |
| $ | 7,919 |
| $ | – |
| $ | 35,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
| (1,656) |
|
| (25,612) |
|
| (529) |
|
| – |
|
| (27,797) |
Capitalized software |
| (2,383) |
|
| (248) |
|
| (7) |
|
| – |
|
| (2,638) |
Proceeds from sale of subsidiaries, net of cash balance |
| – |
|
| 69,347 |
|
| – |
|
| – |
|
| 69,347 |
Net cash (used for) provided by investing activities |
| (4,039) |
|
| 43,487 |
|
| (536) |
|
| – |
|
| 38,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement |
| 685,000 |
|
| – |
|
| – |
|
| – |
|
| 685,000 |
Repayments under revolving credit agreement |
| (767,000) |
|
| – |
|
| – |
|
| – |
|
| (767,000) |
Dividends paid |
| (6,048) |
|
| – |
|
| – |
|
| – |
|
| (6,048) |
Issuance of common stock under share-based plans, net |
| (2,780) |
|
| – |
|
| – |
|
| – |
|
| (2,780) |
Tax benefit related to share-based plans |
| 2,798 |
|
| – |
|
| – |
|
| – |
|
| 2,798 |
Intercompany financing |
| 90,514 |
|
| (67,312) |
|
| (23,202) |
|
| – |
|
| – |
Net cash provided by (used for) financing activities |
| 2,484 |
|
| (67,312) |
|
| (23,202) |
|
| – |
|
| (88,030) |
Effect of exchange rate changes on cash and cash equivalents |
| – |
|
| (1,457) |
|
| – |
|
| – |
|
| (1,457) |
Increase (decrease) in cash and cash equivalents |
| – |
|
| 733 |
|
| (15,819) |
|
| – |
|
| (15,086) |
Cash and cash equivalents at beginning of period |
| – |
|
| 32,060 |
|
| 36,163 |
|
| – |
|
| 68,223 |
Cash and cash equivalents at end of period | $ | – |
| $ | 32,793 |
| $ | 20,344 |
| $ | – |
| $ | 53,137 |
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS | ||||||||||||||
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net cash (used for) provided by operating activities | $ | (27,728) |
| $ | 44,941 |
| $ | 8,748 |
| $ | – |
| $ | 25,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
| (778) |
|
| (6,406) |
|
| (183) |
|
| – |
|
| (7,367) |
Capitalized software |
| (1,040) |
|
| – |
|
| – |
|
| – |
|
| (1,040) |
Proceeds from sale of assets |
| 1,500 |
|
| – |
|
| – |
|
| – |
|
| 1,500 |
Net cash used for investing activities |
| (318) |
|
| (6,406) |
|
| (183) |
|
| – |
|
| (6,907) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement |
| 383,000 |
|
| – |
|
| – |
|
| – |
|
| 383,000 |
Repayments under revolving credit agreement |
| (422,000) |
|
| – |
|
| – |
|
| – |
|
| (422,000) |
Dividends paid |
| (3,027) |
|
| – |
|
| – |
|
| – |
|
| (3,027) |
Issuance of common stock under share-based plans, net |
| (2,070) |
|
| – |
|
| – |
|
| – |
|
| (2,070) |
Tax benefit related to share-based plans |
| 1,962 |
|
| – |
|
| – |
|
| – |
|
| 1,962 |
Intercompany financing |
| 70,181 |
|
| (40,920) |
|
| (29,261) |
|
| – |
|
| – |
Net cash provided by (used for) financing activities |
| 28,046 |
|
| (40,920) |
|
| (29,261) |
|
| – |
|
| (42,135) |
Effect of exchange rate changes on cash and cash equivalents |
| – |
|
| (473) |
|
| – |
|
| – |
|
| (473) |
Decrease in cash and cash equivalents |
| – |
|
| (2,858) |
|
| (20,696) |
|
| – |
|
| (23,554) |
Cash and cash equivalents at beginning of period |
| – |
|
| 32,060 |
|
| 36,163 |
|
| – |
|
| 68,223 |
Cash and cash equivalents at end of period | $ | – |
| $ | 29,202 |
| $ | 15,467 |
| $ | – |
| $ | 44,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||
AS OF FEBRUARY 2, 2013 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | – |
| $ | 32,060 |
| $ | 36,163 |
| $ | – |
| $ | 68,223 |
Receivables, net |
| 67,571 |
|
| 6,593 |
|
| 37,228 |
|
| – |
|
| 111,392 |
Inventories, net |
| 92,683 |
|
| 394,468 |
|
| 16,537 |
|
| – |
|
| 503,688 |
Prepaid expenses and other current assets |
| 14,523 |
|
| 26,524 |
|
| 969 |
|
| – |
|
| 42,016 |
Current assets – discontinued operations |
| 5,447 |
|
| 41,553 |
|
| 109 |
|
| – |
|
| 47,109 |
Total current assets |
| 180,224 |
|
| 501,198 |
|
| 91,006 |
|
| – |
|
| 772,428 |
Other assets |
| 99,527 |
|
| 19,320 |
|
| 848 |
|
| – |
|
| 119,695 |
Goodwill and intangible assets, net |
| 37,270 |
|
| 19,901 |
|
| 22,532 |
|
| – |
|
| 79,703 |
Non current assets – discontinued operations |
| – |
|
| 1,652 |
|
| 52,925 |
|
| – |
|
| 54,577 |
Property and equipment, net |
| 27,931 |
|
| 108,224 |
|
| 8,701 |
|
| – |
|
| 144,856 |
Investment in subsidiaries |
| 765,729 |
|
| 91,136 |
|
| 113,033 |
|
| (969,898) |
|
| – |
Total assets | $ | 1,110,681 |
| $ | 741,431 |
| $ | 289,045 |
| $ | (969,898) |
| $ | 1,171,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement | $ | 105,000 |
| $ | – |
| $ | – |
| $ | – |
| $ | 105,000 |
Trade accounts payable |
| 53,350 |
|
| 118,096 |
|
| 42,214 |
|
| – |
|
| 213,660 |
Other accrued expenses |
| 51,751 |
|
| 78,293 |
|
| 7,146 |
|
| – |
|
| 137,190 |
Current liabilities – discontinued operations |
| 3,754 |
|
| 9,396 |
|
| 109 |
|
| – |
|
| 13,259 |
Total current liabilities |
| 213,855 |
|
| 205,785 |
|
| 49,469 |
|
| – |
|
| 469,109 |
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 198,823 |
|
| – |
|
| – |
|
| – |
|
| 198,823 |
Other liabilities |
| 17,042 |
|
| 48,986 |
|
| 4,402 |
|
| – |
|
| 70,430 |
Non current liabilities – discontinued operations |
| (1,145) |
|
| (2,328) |
|
| 10,469 |
|
| – |
|
| 6,996 |
Intercompany payable (receivable) |
| 256,977 |
|
| (389,774) |
|
| 132,797 |
|
| – |
|
| – |
Total other liabilities |
| 471,697 |
|
| (343,116) |
|
| 147,668 |
|
| – |
|
| 276,249 |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Shoe Company, Inc. shareholders’ equity |
| 425,129 |
|
| 878,762 |
|
| 91,136 |
|
| (969,898) |
|
| 425,129 |
Noncontrolling interests |
| – |
|
| – |
|
| 772 |
|
| – |
|
| 772 |
Total equity |
| 425,129 |
|
| 878,762 |
|
| 91,908 |
|
| (969,898) |
|
| 425,901 |
Total liabilities and equity | $ | 1,110,681 |
| $ | 741,431 |
| $ | 289,045 |
| $ | (969,898) |
| $ | 1,171,259 |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||
AS OF JULY 28, 2012 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | – |
| $ | 30,760 |
| $ | 16,637 |
| $ | – |
| $ | 47,397 |
Receivables, net |
| 77,006 |
|
| 7,156 |
|
| 23,372 |
|
| – |
|
| 107,534 |
Inventories, net |
| 109,014 |
|
| 461,135 |
|
| 15,820 |
|
| – |
|
| 585,969 |
Prepaid expenses and other current assets |
| 40,646 |
|
| 1,224 |
|
| 2,555 |
|
| – |
|
| 44,425 |
Current assets – discontinued operations |
| 21,182 |
|
| 45,425 |
|
| 48 |
|
| – |
|
| 66,655 |
Total current assets |
| 247,848 |
|
| 545,700 |
|
| 58,432 |
|
| – |
|
| 851,980 |
Other assets |
| 116,254 |
|
| 18,688 |
|
| 848 |
|
| – |
|
| 135,790 |
Goodwill and intangible assets, net |
| 39,402 |
|
| 15,600 |
|
| 22,727 |
|
| – |
|
| 77,729 |
Non current assets – discontinued operations |
| – |
|
| 1,810 |
|
| 53,345 |
|
| – |
|
| 55,155 |
Property and equipment, net |
| 23,470 |
|
| 101,042 |
|
| 9,008 |
|
| – |
|
| 133,520 |
Investment in subsidiaries |
| 829,881 |
|
| 70,656 |
|
| – |
|
| (900,537) |
|
| – |
Total assets | $ | 1,256,855 |
| $ | 753,496 |
| $ | 144,360 |
| $ | (900,537) |
| $ | 1,254,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement | $ | 116,000 |
| $ | – |
| $ | – |
| $ | – |
| $ | 116,000 |
Trade accounts payable |
| 71,212 |
|
| 179,634 |
|
| 33,344 |
|
| – |
|
| 284,190 |
Other accrued expenses |
| 59,806 |
|
| 73,339 |
|
| 9,070 |
|
| – |
|
| 142,215 |
Current liabilities – discontinued operations |
| 10,288 |
|
| 6,348 |
|
| 52 |
|
| – |
|
| 16,688 |
Total current liabilities |
| 257,306 |
|
| 259,321 |
|
| 42,466 |
|
| – |
|
| 559,093 |
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 198,726 |
|
| – |
|
| – |
|
| – |
|
| 198,726 |
Other liabilities |
| 32,563 |
|
| 43,742 |
|
| 3,739 |
|
| – |
|
| 80,044 |
Intercompany payable (receivable) |
| 362,584 |
|
| (379,128) |
|
| 16,544 |
|
| – |
|
| – |
Non current liabilities – discontinued operations |
| (1,225) |
|
| (320) |
|
| 10,158 |
|
| – |
|
| 8,613 |
Total other liabilities |
| 592,648 |
|
| (335,706) |
|
| 30,441 |
|
| – |
|
| 287,383 |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Shoe Company, Inc. shareholders’ equity |
| 406,901 |
|
| 829,881 |
|
| 70,656 |
|
| (900,537) |
|
| 406,901 |
Noncontrolling interests |
| – |
|
| – |
|
| 797 |
|
| – |
|
| 797 |
Total equity |
| 406,901 |
|
| 829,881 |
|
| 71,453 |
|
| (900,537) |
|
| 407,698 |
Total liabilities and equity | $ | 1,256,855 |
| $ | 753,496 |
| $ | 144,360 |
| $ | (900,537) |
| $ | 1,254,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||
AS OF FEBRUARY 2, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | – |
| $ | 32,060 |
| $ | 36,163 |
| $ | – |
| $ | 68,223 |
Receivables, net |
| 67,571 |
|
| 6,593 |
|
| 37,228 |
|
| – |
|
| 111,392 |
Inventories, net |
| 92,683 |
|
| 394,468 |
|
| 16,537 |
|
| – |
|
| 503,688 |
Prepaid expenses and other current assets |
| 14,523 |
|
| 26,524 |
|
| 969 |
|
| – |
|
| 42,016 |
Current assets - discontinued operations |
| 5,447 |
|
| 41,553 |
|
| 109 |
|
| – |
|
| 47,109 |
Total current assets |
| 180,224 |
|
| 501,198 |
|
| 91,006 |
|
| – |
|
| 772,428 |
Other assets |
| 99,527 |
|
| 19,320 |
|
| 848 |
|
| – |
|
| 119,695 |
Goodwill and intangible assets, net |
| 37,270 |
|
| 19,901 |
|
| 25,333 |
|
| – |
|
| 82,504 |
Non current assets - discontinued operations |
| – |
|
| 1,652 |
|
| 50,124 |
|
| – |
|
| 51,776 |
Property and equipment, net |
| 27,931 |
|
| 108,224 |
|
| 8,701 |
|
| – |
|
| 144,856 |
Investment in subsidiaries |
| 765,729 |
|
| 91,136 |
|
| 113,033 |
|
| (969,898) |
|
| – |
Total assets | $ | 1,110,681 |
| $ | 741,431 |
| $ | 289,045 |
| $ | (969,898) |
| $ | 1,171,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement | $ | 105,000 |
| $ | – |
| $ | – |
| $ | – |
| $ | 105,000 |
Trade accounts payable |
| 53,350 |
|
| 118,096 |
|
| 42,214 |
|
| – |
|
| 213,660 |
Other accrued expenses |
| 51,751 |
|
| 78,293 |
|
| 7,146 |
|
| – |
|
| 137,190 |
Current liabilities - discontinued operations |
| 3,754 |
|
| 9,396 |
|
| 109 |
|
| – |
|
| 13,259 |
Total current liabilities |
| 213,855 |
|
| 205,785 |
|
| 49,469 |
|
| – |
|
| 469,109 |
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 198,823 |
|
| – |
|
| – |
|
| – |
|
| 198,823 |
Other liabilities |
| 17,042 |
|
| 48,986 |
|
| 4,402 |
|
| – |
|
| 70,430 |
Non current liabilities - discontinued operations |
| (1,145) |
|
| (2,328) |
|
| 10,469 |
|
| – |
|
| 6,996 |
Intercompany payable (receivable) |
| 256,977 |
|
| (389,774) |
|
| 132,797 |
|
| – |
|
| – |
Total other liabilities |
| 471,697 |
|
| (343,116) |
|
| 147,668 |
|
| – |
|
| 276,249 |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Shoe Company, Inc. shareholders’ equity |
| 425,129 |
|
| 878,762 |
|
| 91,136 |
|
| (969,898) |
|
| 425,129 |
Noncontrolling interests |
| – |
|
| – |
|
| 772 |
|
| – |
|
| 772 |
Total equity |
| 425,129 |
|
| 878,762 |
|
| 91,908 |
|
| (969,898) |
|
| 425,901 |
Total liabilities and equity | $ | 1,110,681 |
| $ | 741,431 |
| $ | 289,045 |
| $ | (969,898) |
| $ | 1,171,259 |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||
AS OF APRIL 28, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | – |
| $ | 27,450 |
| $ | 12,342 |
| $ | – |
| $ | 39,792 |
Receivables, net |
| 84,634 |
|
| 6,305 |
|
| 24,972 |
|
| – |
|
| 115,911 |
Inventories, net |
| 70,581 |
|
| 391,630 |
|
| 13,346 |
|
| – |
|
| 475,557 |
Prepaid expenses and other current assets |
| 38,498 |
|
| 1,565 |
|
| 1,312 |
|
| – |
|
| 41,375 |
Current assets - discontinued operations |
| 14,327 |
|
| 51,127 |
|
| 61 |
|
| – |
|
| 65,515 |
Total current assets |
| 208,040 |
|
| 478,077 |
|
| 52,033 |
|
| – |
|
| 738,150 |
Other assets |
| 117,615 |
|
| 18,999 |
|
| 865 |
|
| – |
|
| 137,479 |
Goodwill and intangible assets, net |
| 40,467 |
|
| 15,880 |
|
| 25,628 |
|
| – |
|
| 81,975 |
Non current assets - discontinued operations |
| 5,981 |
|
| 1,945 |
|
| 50,741 |
|
| – |
|
| 58,667 |
Property and equipment, net |
| 23,463 |
|
| 91,560 |
|
| 9,528 |
|
| – |
|
| 124,551 |
Investment in subsidiaries |
| 817,259 |
|
| 63,885 |
|
| – |
|
| (881,144) |
|
| – |
Total assets | $ | 1,212,825 |
| $ | 670,346 |
| $ | 138,795 |
| $ | (881,144) |
| $ | 1,140,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement | $ | 124,000 |
| $ | – |
| $ | – |
| $ | – |
| $ | 124,000 |
Trade accounts payable |
| 22,435 |
|
| 116,475 |
|
| 33,984 |
|
| – |
|
| 172,894 |
Other accrued expenses |
| 50,613 |
|
| 69,069 |
|
| 10,170 |
|
| – |
|
| 129,852 |
Current liabilities - discontinued operations |
| 7,098 |
|
| 7,961 |
|
| 59 |
|
| – |
|
| 15,118 |
Total current liabilities |
| 204,146 |
|
| 193,505 |
|
| 44,213 |
|
| – |
|
| 441,864 |
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 198,680 |
|
| – |
|
| – |
|
| – |
|
| 198,680 |
Other liabilities |
| 29,352 |
|
| 46,997 |
|
| 966 |
|
| – |
|
| 77,315 |
Non current liabilities - discontinued operations |
| – |
|
| (2,991) |
|
| 12,960 |
|
| – |
|
| 9,969 |
Intercompany payable (receivable) |
| 368,635 |
|
| (384,424) |
|
| 15,789 |
|
| – |
|
| – |
Total other liabilities |
| 596,667 |
|
| (340,418) |
|
| 29,715 |
|
| – |
|
| 285,964 |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Shoe Company, Inc. shareholders’ equity |
| 412,012 |
|
| 817,259 |
|
| 63,885 |
|
| (881,144) |
|
| 412,012 |
Noncontrolling interests |
| – |
|
| – |
|
| 982 |
|
| – |
|
| 982 |
Total equity |
| 412,012 |
|
| 817,259 |
|
| 64,867 |
|
| (881,144) |
|
| 412,994 |
Total liabilities and equity | $ | 1,212,825 |
| $ | 670,346 |
| $ | 138,795 |
| $ | (881,144) |
| $ | 1,140,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||
FOR THE THIRTEEN WEEKS ENDED JULY 28, 2012 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net sales | $ | 154,463 |
| $ | 416,187 |
| $ | 47,146 |
| $ | (52,899) |
| $ | 564,897 |
Cost of goods sold |
| 121,376 |
|
| 230,633 |
|
| 38,133 |
|
| (52,899) |
|
| 337,243 |
Gross profit |
| 33,087 |
|
| 185,554 |
|
| 9,013 |
|
| – |
|
| 227,654 |
Selling and administrative expenses |
| 43,749 |
|
| 166,521 |
|
| 1,436 |
|
| – |
|
| 211,706 |
Restructuring and other special charges, net |
| 4,612 |
|
| 2,714 |
|
| – |
|
| – |
|
| 7,326 |
Equity in (earnings) loss of subsidiaries |
| (13,900) |
|
| (6,601) |
|
| – |
|
| 20,501 |
|
| – |
Operating (loss) earnings |
| (1,374) |
|
| 22,920 |
|
| 7,577 |
|
| (20,501) |
|
| 8,622 |
Interest expense |
| (5,559) |
|
| (86) |
|
| – |
|
| – |
|
| (5,645) |
Interest income |
| – |
|
| 63 |
|
| 14 |
|
| – |
|
| 77 |
Intercompany interest income (expense) |
| 3,120 |
|
| (3,227) |
|
| 107 |
|
| – |
|
| – |
(Loss) earnings before income taxes from continuing operations |
| (3,813) |
|
| 19,670 |
|
| 7,698 |
|
| (20,501) |
|
| 3,054 |
Income tax benefit (provision) |
| 4,701 |
|
| (5,183) |
|
| (759) |
|
| – |
|
| (1,241) |
Net earnings (loss) from continuing operations |
| 888 |
|
| 14,487 |
|
| 6,939 |
|
| (20,501) |
|
| 1,813 |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
| (3,423) |
|
| (587) |
|
| (517) |
|
| – |
|
| (4,527) |
Net loss from discontinued operations |
| (3,423) |
|
| (587) |
|
| (517) |
|
| – |
|
| (4,527) |
Net (loss) earnings |
| (2,535) |
|
| 13,900 |
|
| 6,422 |
|
| (20,501) |
|
| (2,714) |
Net loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (179) |
|
| – |
|
| (179) |
Net (loss) earnings attributable to Brown Shoe Company, Inc. | $ | (2,535) |
| $ | 13,900 |
| $ | 6,601 |
| $ | (20,501) |
| $ | (2,535) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income | $ | (3,083) |
| $ | 12,969 |
| $ | 6,427 |
| $ | (20,501) |
| $ | (4,188) |
Comprehensive loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (185) |
|
| – |
|
| (185) |
Comprehensive (loss) income attributable to Brown Shoe Company, Inc. | $ | (3,083) |
| $ | 12,969 |
| $ | 6,612 |
| $ | (20,501) |
| $ | (4,003) |
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||
FOR THE THIRTEEN WEEKS ENDED APRIL 28, 2012 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net sales | $ | 181,844 |
| $ | 418,409 |
| $ | 43,822 |
| $ | (45,896) |
| $ | 598,179 |
Cost of goods sold |
| 138,064 |
|
| 233,976 |
|
| 37,781 |
|
| (45,896) |
|
| 363,925 |
Gross profit |
| 43,780 |
|
| 184,433 |
|
| 6,041 |
|
| – |
|
| 234,254 |
Selling and administrative expenses |
| 39,210 |
|
| 162,820 |
|
| 9,445 |
|
| – |
|
| 211,475 |
Restructuring and other special charges, net |
| 3,662 |
|
| 6,526 |
|
| – |
|
| – |
|
| 10,188 |
Equity in (earnings) loss of subsidiaries |
| (1,269) |
|
| 3,759 |
|
| – |
|
| (2,490) |
|
| – |
Operating earnings (loss) |
| 2,177 |
|
| 11,328 |
|
| (3,404) |
|
| 2,490 |
|
| 12,591 |
Interest expense |
| (5,940) |
|
| (96) |
|
| – |
|
| – |
|
| (6,036) |
Interest income |
| – |
|
| 61 |
|
| 22 |
|
| – |
|
| 83 |
Intercompany interest income (expense) |
| 3,409 |
|
| (3,515) |
|
| 106 |
|
| – |
|
| – |
(Loss) earnings before income taxes from continuing operations |
| (354) |
|
| 7,778 |
|
| (3,276) |
|
| 2,490 |
|
| 6,638 |
Income tax benefit (provision) |
| 2,506 |
|
| (4,805) |
|
| (317) |
|
| – |
|
| (2,616) |
Net earnings (loss) from continuing operations |
| 2,152 |
|
| 2,973 |
|
| (3,593) |
|
| 2,490 |
|
| 4,022 |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
| (457) |
|
| (1,704) |
|
| (233) |
|
| – |
|
| (2,394) |
Net loss from discontinued operations |
| (457) |
|
| (1,704) |
|
| (233) |
|
| – |
|
| (2,394) |
Net earnings (loss) |
| 1,695 |
|
| 1,269 |
|
| (3,826) |
|
| 2,490 |
|
| 1,628 |
Net loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (67) |
|
| – |
|
| (67) |
Net earnings (loss) attributable to Brown Shoe Company, Inc. | $ | 1,695 |
| $ | 1,269 |
| $ | (3,759) |
| $ | 2,490 |
| $ | 1,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) | $ | 1,663 |
| $ | 1,898 |
| $ | (3,827) |
| $ | 2,490 |
| $ | 2,224 |
Comprehensive loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (65) |
|
| – |
|
| (65) |
Comprehensive income (loss) attributable to Brown Shoe Company, Inc. | $ | 1,663 |
| $ | 1,898 |
| $ | (3,762) |
| $ | 2,490 |
| $ | 2,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | ||||||||||||||
FOR THE TWENTY-SIX WEEKS ENDED JULY 28, 2012 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net sales | $ | 336,307 |
| $ | 834,596 |
| $ | 90,968 |
| $ | (98,795) |
| $ | 1,163,076 |
Cost of goods sold |
| 259,440 |
|
| 464,609 |
|
| 75,914 |
|
| (98,795) |
|
| 701,168 |
Gross profit |
| 76,867 |
|
| 369,987 |
|
| 15,054 |
|
| – |
|
| 461,908 |
Selling and administrative expenses |
| 82,959 |
|
| 329,553 |
|
| 10,669 |
|
| – |
|
| 423,181 |
Restructuring and other special charges, net |
| 8,274 |
|
| 9,240 |
|
| – |
|
| – |
|
| 17,514 |
Equity in (earnings) loss of subsidiaries |
| (15,169) |
|
| (2,842) |
|
| – |
|
| 18,011 |
|
| – |
Operating earnings (loss) |
| 803 |
|
| 34,036 |
|
| 4,385 |
|
| (18,011) |
|
| 21,213 |
Interest expense |
| (11,499) |
|
| (182) |
|
| – |
|
| – |
|
| (11,681) |
Interest income |
| – |
|
| 124 |
|
| 36 |
|
| – |
|
| 160 |
Intercompany interest income (expense) |
| 6,529 |
|
| (6,742) |
|
| 213 |
|
| – |
|
| – |
(Loss) earnings before income taxes from continuing operations |
| (4,167) |
|
| 27,236 |
|
| 4,634 |
|
| (18,011) |
|
| 9,692 |
Income tax benefit (provision) |
| 7,207 |
|
| (9,901) |
|
| (1,163) |
|
| – |
|
| (3,857) |
Net earnings (loss) from continuing operations |
| 3,040 |
|
| 17,335 |
|
| 3,471 |
|
| (18,011) |
|
| 5,835 |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
| (3,880) |
|
| (2,166) |
|
| (875) |
|
| – |
|
| (6,921) |
Net loss from discontinued operations |
| (3,880) |
|
| (2,166) |
|
| (875) |
|
| – |
|
| (6,921) |
Net (loss) earnings |
| (840) |
|
| 15,169 |
|
| 2,596 |
|
| (18,011) |
|
| (1,086) |
Net loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (246) |
|
| – |
|
| (246) |
Net (loss) earnings attributable to Brown Shoe Company, Inc. | $ | (840) |
| $ | 15,169 |
| $ | 2,842 |
| $ | (18,011) |
| $ | (840) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income | $ | (1,420) |
|
| 14,867 |
|
| 2,600 |
|
| (18,011) |
|
| (1,964) |
Comprehensive loss attributable to noncontrolling interests |
| – |
|
| – |
|
| (250) |
|
| – |
|
| (250) |
Comprehensive (loss) income attributable to Brown Shoe Company, Inc. | $ | (1,420) |
| $ | 14,867 |
| $ | 2,850 |
| $ | (18,011) |
| $ | (1,714) |
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS | ||||||||||||||
FOR THE TWENTY-SIX WEEKS ENDED JULY 28, 2012 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net cash provided by operating activities | $ | 31,083 |
| $ | 71,866 |
| $ | 16,411 |
| $ | – |
| $ | 119,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
| (1,525) |
|
| (21,738) |
|
| (883) |
|
| – |
|
| (24,146) |
Capitalized software |
| (2,953) |
|
| – |
|
| (3) |
|
| – |
|
| (2,956) |
Net cash used for investing activities |
| (4,478) |
|
| (21,738) |
|
| (886) |
|
| – |
|
| (27,102) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement |
| 334,000 |
|
| – |
|
| – |
|
| – |
|
| 334,000 |
Repayments under revolving credit agreement |
| (419,000) |
|
| – |
|
| – |
|
| – |
|
| (419,000) |
Dividends paid |
| (6,005) |
|
| – |
|
| – |
|
| – |
|
| (6,005) |
Issuance of common stock under share-based plans, net |
| (2,058) |
|
| – |
|
| – |
|
| – |
|
| (2,058) |
Tax benefit related to share-based plans |
| 738 |
|
| – |
|
| – |
|
| – |
|
| 738 |
Intercompany financing |
| 70,106 |
|
| (53,482) |
|
| (16,624) |
|
| – |
|
| – |
Net cash used for financing activities |
| (22,219) |
|
| (53,482) |
|
| (16,624) |
|
| – |
|
| (92,325) |
Effect of exchange rate changes on cash and cash equivalents |
| – |
|
| (218) |
|
| – |
|
| – |
|
| (218) |
Increase (decrease) in cash and cash equivalents |
| 4,386 |
|
| (3,572) |
|
| (1,099) |
|
| – |
|
| (285) |
Cash and cash equivalents at beginning of period |
| (4,386) |
|
| 34,332 |
|
| 17,736 |
|
| – |
|
| 47,682 |
Cash and cash equivalents at end of period | $ | – |
| $ | 30,760 |
| $ | 16,637 |
| $ | – |
| $ | 47,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS | ||||||||||||||
FOR THE THIRTEEN WEEKS ENDED APRIL 28, 2012 | ||||||||||||||
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
($ thousands) |
| Parent |
|
| Guarantors |
|
| Guarantors |
|
| Eliminations |
|
| Total |
Net cash provided by operating activities | $ | 11,044 |
| $ | 56,717 |
| $ | 12,137 |
| $ | – |
| $ | 79,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
| (433) |
|
| (5,038) |
|
| (151) |
|
| – |
|
| (5,622) |
Capitalized software |
| (1,386) |
|
| – |
|
| – |
|
| – |
|
| (1,386) |
Net cash used for investing activities |
| (1,819) |
|
| (5,038) |
|
| (151) |
|
| – |
|
| (7,008) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement |
| 165,000 |
|
| – |
|
| – |
|
| – |
|
| 165,000 |
Repayments under revolving credit agreement |
| (242,000) |
|
| – |
|
| – |
|
| – |
|
| (242,000) |
Dividends paid |
| (2,999) |
|
| – |
|
| – |
|
| – |
|
| (2,999) |
Issuance of common stock under share-based plans, net |
| (2,148) |
|
| – |
|
| – |
|
| – |
|
| (2,148) |
Tax benefit related to share-based plans |
| 753 |
|
| – |
|
| – |
|
| – |
|
| 753 |
Intercompany financing |
| 76,555 |
|
| (59,175) |
|
| (17,380) |
|
| – |
|
| – |
Net cash used for financing activities |
| (4,839) |
|
| (59,175) |
|
| (17,380) |
|
| – |
|
| (81,394) |
Effect of exchange rate changes on cash and cash equivalents |
| – |
|
| 614 |
|
| – |
|
| – |
|
| 614 |
Increase (decrease) in cash and cash equivalents |
| 4,386 |
|
| (6,882) |
|
| (5,394) |
|
| – |
|
| (7,890) |
Cash and cash equivalents at beginning of period |
| (4,386) |
|
| 34,332 |
|
| 17,736 |
|
| – |
|
| 47,682 |
Cash and cash equivalents at end of period | $ | – |
| $ | 27,450 |
| $ | 12,342 |
| $ | – |
| $ | 39,792 |
21
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ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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OVERVIEW |
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Our firstsecond quarter 2013financial results exceeded our expectations. Both retail and wholesale businesses contributed to this quarter’s success, as Famous Footwear delivered record setting second quarter net sales and operating earnings and our Wholesale Operations division reported a net sales improvement of over 12%. In addition, our second quarter results reflect an improved gross profit rate within both our wholesale and retail divisions, as well as record first quarter operating earnings for our Famous Footwear segment.divisions. Our net sales increase and a higher gross profit rate and lower restructuring charges led to an increase in firstsecond quarter operating earnings. We have also utilized our strong operating cash flow to reduce borrowings under our revolving credit agreement.
The following is a summary of the financial highlights for the firstsecond quarter of 2013:
· | Consolidated net sales |
Due to the inclusion of the 53rd week in fiscal 2012, one week of our heavy back-to-school selling season shifted into the second quarter of 2013 from the third quarter, as compared to 2012. We believe the impact of this fiscal calendar shift resulted in an increase in net sales at Famous Footwear in the second quarter of approximately $15 million as compared to the second quarter of 2012. In addition, within our Wholesale Operations segment, we also experienced a shift of approximately $7 million, due to the acceleration of wholesale orders at the request of our retail partners as well as supply chain improvements which have allowed us to deliver product to market earlier than was previously possible. In total, these timing differences impacted net sales favorably in the second quarter of 2013 by approximately $22 million.
· | Consolidated operating earnings were |
· | Consolidated net |
The following items impacted our firstsecond quarter results in 2013 and 2012 and should be considered in evaluating the comparability of our results:
· | Portfolio realignment – Our portfolio realignment efforts include the sale of our Avia and Nevados divisions; the sale of AND 1; exiting certain women’s specialty and private label brands; exiting the children’s wholesale business; the sale and closure of certain sourcing and supply chain assets; closing or relocating numerous underperforming or poorly aligned retail stores; the termination of the Etienne Aigner license agreement; the election not to renew the Vera Wang license and other infrastructure changes. In total, we incurred costs of |
· |
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Our debt-to-capital ratio, as defined herein, decreased to 39.1%34.2% at May 4,August 3, 2013, compared to 43.9%43.6% at AprilJuly 28, 2012 primarily due to the $58.0 million decrease inand 41.6% at February 2, 2013, reflecting lower borrowings under our revolving credit agreement, driven bydue to the cash proceeds of $60.3 million from the sale of our strong financial performanceAvia and resulting cash provided by operating activities over the last twelve months. Our debt-to-capital ratio decreased from 41.6% at February 2, 2013, reflecting our $39.0 million decrease in borrowings under our revolving credit agreement, driven by ourNevados divisions as well as strong cash provided by operating activities. Our current ratio, as defined herein, was 1.831.76 to 1 at May 4,August 3, 2013, compared to 1.671.52 to 1 at AprilJuly 28, 2012 and 1.65 to 1 at February 2, 2013. The increase in the current ratio from AprilJuly 28, 2012 as compared to May 4,August 3, 2013, was also primarily driven by the decrease inlower borrowings under our revolving credit agreement. The increase in the current ratio from February 2, 2013 as compared to May 4,August 3, 2013, was primarily driven byreflects an increase in inventory to support the higher level of anticipated sales and a decrease in borrowings under our revolving credit agreement, and a decrease in trade accounts payable due to timing of payments, both partially offset by a decreasean increase in cash, inventory and accounts receivable. Inventories at May 4, 2013 were $485.9 million, up from $475.6 million at the end of the first quarter of last year, driven by increases at Famous Footwear and Wholesale Operations.payable.
Outlook for the Remainder of 2013
We delivered strong financial results in the firstsecond quarter driven by record first quarter operating profit at Famous Footwear, reflecting improved consumer conversion resulting fromwith solid performance across our strategic real estate, inventory and omni-channel efforts. At wholesale, we refined our portfolio with the recent sale of Avia and Nevados.businesses. Based on our firstsecond quarter results, we now expect to earn $0.63$0.73 to $0.70$0.78 per diluted share in 2013, which includes pre-tax costs of approximately $32$31 million to $34($23.5 million on an after-tax basis, or $0.54 per diluted share) related to our portfolio realignment efforts. Due to the timing of the back-to-school selling season, our biggest quarter remains the third quarter.
Following are the consolidated results and the results by segment:
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CONSOLIDATED RESULTS | CONSOLIDATED RESULTS | ||||||||||||||||||||||||||||||||||
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| Thirteen Weeks Ended |
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| Twenty-six Weeks Ended |
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| May 4, 2013 |
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| April 28, 2012 |
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| August 3, 2013 |
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($ millions) |
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| Sales |
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| Sales |
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| Sales |
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| Sales |
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| Sales |
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| Sales |
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Net sales |
| $ | 588.7 |
| 100.0 | % |
| $ | 598.2 |
| 100.0 | % |
| $ | 621.7 |
| 100.0 | % |
| $ | 564.9 |
| 100.0 | % | $ | 1,210.4 |
| 100.0 | % |
| $ | 1,163.1 |
| 100.0 | % |
Cost of goods sold |
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| 348.7 |
| 59.2 | % |
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| 363.9 |
| 60.8 | % |
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| 367.1 |
| 59.0 | % |
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| 337.3 |
| 59.7 | % |
| 715.8 |
| 59.1 | % |
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| 701.2 |
| 60.3 | % |
Gross profit |
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| 240.0 |
| 40.8 | % |
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| 234.3 |
| 39.2 | % |
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| 254.6 |
| 41.0 | % |
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| 227.6 |
| 40.3 | % |
| 494.6 |
| 40.9 | % |
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| 461.9 |
| 39.7 | % |
Selling and administrative expenses |
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| 213.8 |
| 36.3 | % |
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| 211.5 |
| 35.4 | % |
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| 231.1 |
| 37.2 | % |
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| 211.7 |
| 37.5 | % |
| 444.9 |
| 36.8 | % |
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| 423.2 |
| 36.4 | % |
Restructuring and other special charges, net |
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| 0.5 |
| 0.1 | % |
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| 10.2 |
| 1.7 | % |
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| 0.7 |
| 0.1 | % |
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| 7.3 |
| 1.3 | % |
| 1.2 |
| 0.1 | % |
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| 17.5 |
| 1.5 | % |
Impairment of assets held for sale |
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| 4.7 |
| 0.8 | % |
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| – |
| – |
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| – |
| – |
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| – |
| – |
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| 4.7 |
| 0.4 | % |
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| – |
| – |
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Operating earnings |
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| 21.0 |
| 3.6 | % |
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| 12.6 |
| 2.1 | % |
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| 22.8 |
| 3.7 | % |
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| 8.6 |
| 1.5 | % |
| 43.8 |
| 3.6 | % |
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| 21.2 |
| 1.8 | % |
Interest expense |
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| (5.8) |
| (1.0) | % |
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| (6.1) |
| (1.0) | % |
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| (5.2) |
| (0.9) | % |
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| (5.6) |
| (1.0) | % |
| (11.0) |
| (0.9) | % |
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| (11.7) |
| (1.0) | % |
Interest income |
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| 0.1 |
| 0.0 | % |
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| 0.1 |
| 0.0 | % |
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| 0.1 |
| 0.0 | % |
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| 0.1 |
| 0.0 | % |
| 0.2 |
| 0.0 | % |
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| 0.2 |
| 0.0 | % |
Earnings before income taxes from continuing operations |
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| 15.3 |
| 2.6 | % |
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| 6.6 |
| 1.1 | % |
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| 17.7 |
| 2.8 | % |
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| 3.1 |
| 0.5 | % |
| 33.0 |
| 2.7 | % |
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| 9.7 |
| 0.8 | % |
Income tax provision |
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| (8.0) |
| (1.3) | % |
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| (2.6) |
| (0.4) | % |
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| (4.0) |
| (0.6) | % |
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| (1.2) |
| (0.2) | % |
| (12.0) |
| (0.9) | % |
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| (3.8) |
| (0.3) | % |
Net earnings from continuing operations |
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| 7.3 |
| 1.3 | % |
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| 4.0 |
| 0.7 | % |
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| 13.7 |
| 2.2 | % |
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| 1.9 |
| 0.3 | % |
| 21.0 |
| 1.8 | % |
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| 5.9 |
| 0.5 | % |
Discontinued operations: |
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Loss from discontinued operations, net of tax |
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| (5.6) |
| (1.0) | % |
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| (2.4) |
| (0.4) | % | |||||||||||||||||||||||
Impairment charge on net assets of discontinued operations, net of tax |
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| (12.6) |
| (2.1) | % |
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| – |
| 0.0 | % | |||||||||||||||||||||||
Net loss from discontinued operations |
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| (18.2) |
| (3.1) | % |
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| (2.4) |
| (0.4) | % | |||||||||||||||||||||||
Net (loss) earnings |
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| (10.9) |
| (1.8) | % |
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| 1.6 |
| 0.3 | % | |||||||||||||||||||||||
Earnings (loss) from discontinued operations, net of tax |
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| 0.6 |
| 0.1 | % |
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| (4.5) |
| (0.8) | % |
| (5.0) |
| (0.4) | % |
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| (6.9) |
| (0.6) | % | ||||||||||||
Impairment of net assets/disposition of discontinued operations |
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| 1.1 |
| 0.2 | % |
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| – |
| – |
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| (11.5) |
| (1.0) | % |
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| – |
| – |
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Net earnings (loss) from discontinued operations |
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| 1.7 |
| 0.3 | % |
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| (4.5) |
| (0.8) | % |
| (16.5) |
| (1.4) | % |
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| (6.9) |
| (0.6) | % | ||||||||||||
Net earnings (loss) |
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| 15.4 |
| 2.5 | % |
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| (2.6) |
| (0.5) | % |
| 4.5 |
| 0.4 | % |
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| (1.0) |
| (0.1) | % | ||||||||||||
Net loss attributable to noncontrolling interests |
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| (0.1) |
| 0.0 | % |
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| (0.1) |
| 0.0 | % |
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| – |
| – |
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| (0.1) |
| (0.1) | % |
| (0.1) |
| (0.0) | % |
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| (0.2) |
| (0.0) | % |
Net (loss) earnings attributable to Brown Shoe Company, Inc. |
| $ | (10.8) |
| (1.8) | % |
| $ | 1.7 |
| 0.3 | % | |||||||||||||||||||||||
Net earnings (loss) attributable to Brown Shoe Company, Inc. |
| $ | 15.4 |
| 2.5 | % |
| $ | (2.5) |
| (0.4) | % | $ | 4.6 |
| 0.4 | % |
| $ | (0.8) |
| (0.1) | % | ||||||||||||
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Net Sales
Net sales decreased $9.5increased $56.8 million, or 1.6%10.1%, to $588.7$621.7 million for the firstsecond quarter of 2013, compared to $598.2$564.9 million for the firstsecond quarter of last year. Net sales ofat our Famous Footwear segmentand Wholesale Operations segments increased with 12 fewer stores, while net sales at our Wholesale Operations and Specialty Retail segmentssegment decreased. Our Famous Footwear segment reported a $5.2$37.9 million increase in net sales, which reflects a same-store sales increase of 1.1% during the first quarter of 2013.6.8%. Famous Footwear experienced increases ina higher conversion rate, average unit retail price and pairs per transaction, and average retail price, partially offset by a decrease in customer traffic. Our Wholesale Operations segment reported a $13.3$19.9 million decreaseincrease in net sales, primarily attributable to lower salesreflecting strength in many of our children’s and women’s specialty exited businesses and decreases in our Naturalizer, Fergie, Via Spiga and Ryka divisions, partially offset by increases in ourmajor brands including Sam Edelman, Dr. Scholl’s Shoes, LifeStride, Vince, Naturalizer and LifeStrideFranco Sarto divisions, partially offset by decreases in our Via Spiga and Fergie divisions. The net sales of our Specialty Retail segment decreased $1.3$1.0 million, due to a lower store count, a decrease in sales at Shoes.com and a lower Canadian dollar exchange rate, and a decreasepartially offset by an increase in same-store sales of 0.3%4.8%. As noted earlier, we estimate that our fiscal calendar shift and other timing changes resulted in a net sales shift of approximately $22 million from third quarter to the second quarter of 2013.
Net sales increased $47.3 million, or 4.1%, to $1,210.4 million for the first half of 2013, compared to $1,163.1 million for the first half of last year. Net sales of our Famous Footwear and Wholesale Operations segments increased and our Specialty Retail segment decreased. Our Famous Footwear segment reported a $43.1 million increase in net sales, which reflects a same-store sales increase of 4.0% during the first half of 2013. Famous Footwear experienced increases in conversion rate, average unit retail price and pairs per transaction, partially offset by a decrease in customer traffic. Our Wholesale Operations segment reported $6.6 million higher net sales, reflecting strength in our Sam Edelman, Dr. Scholl’s Shoes, LifeStride, Vince and Franco Sarto divisions, partially offset by decreases in our Via Spiga, Fergie, Naturalizer and Ryka divisions. The net sales of our Specialty Retail segment decreased $2.3 million, due to a lower store count, a decrease in sales at Shoes.com and a lower Canadian dollar exchange rate, partially offset by an increase in same-store sales of 2.3%.
Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. Relocated stores are treated as new stores, and closed stores are excluded from the calculation. Sales change from new and closed stores, net, reflects the change in net sales due to stores that have been opened or closed during the period and are thereby excluded from the same-store sales calculation. E-commerce sales for those e-commerce websites that function as an extension of a retail chain are included in the same-store sales calculation. For comparability purposes, same-store sales for the firstsecond quarter of 2013 is calculated based on retail sales for weeks 114 through 1326 in 2013 as compared to weeks 215 through 1427 in 2012. This adjustment is required due to the impact of the 53rd week of sales in the fourth quarter of fiscal 2012. The calculation for the firstsecond quarter of 2013 appropriately reflects the change in same-store-sales on a truecomparable retail calendar week basis.
Gross Profit
Gross profit increased $5.7$27.0 million, or 2.5%11.8%, to $240.0$254.6 million for the firstsecond quarter of 2013, compared to $234.3$227.6 million for the firstsecond quarter of last year, driven by both our Famous Footwear and Wholesale Operations division, which each experienced botha higher net sales and an increase in gross profit rate. As a percent of net sales, our gross profit increased to 40.8%41.0% for the firstsecond quarter of 2013 from 39.2%40.3% for the firstsecond quarter of last year. The increase in gross profit rate at Famous Footwear was primarily due to higher average unit retail prices and a higherfavorable sales mix of retail saleshigher margin athletic footwear, sandals and an increase in the gross profit rate at our Famous Footwear segment.boots. The increase in our Wholesale Operations gross profit rate was driven by a more profitable brand mix,mix. In addition, the division reported higher initial marginsaverage selling prices, lower product costs and lower inventory markdown requirements.customer allowances. Retail and Wholesale Operations net sales were 69%71% and 31%29%, respectively, in the firstsecond quarter of 2013, compared to 67%72% and 33%28% in the firstsecond quarter of 2012. Gross profit rates in our retail businesses are higher, on average, than in our wholesale business.
Gross profit increased $32.7 million, or 7.1%, to $494.6 million for the first half of 2013, compared to $461.9 million for the first half of last year, driven by both our Famous Footwear and Wholesale Operations division, which experienced both higher net sales and a higher gross profit rate. As a percent of net sales, our gross profit increased to 40.9% for the first half of 2013 from 39.7% for the first half of last year. The increase in gross profit rate at Famous Footwear was primarily driven by higher average unit retail prices and a favorable sales mix of higher margin athletic footwear. The increase in our Wholesale Operations gross profit rate was driven by a more profitable brand mix, lower product costs and lower inventory markdowns and allowance requirements. Retail and Wholesale Operations net sales were 70% and 30%, respectively, in the first half of 2013, compared to 69% and 31% in the first half of 2012.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased $2.3$19.4 million, or 1.1%9.1%, to $213.8$231.1 million for the firstsecond quarter of 2013, compared to $211.5$211.7 million in the firstsecond quarter of last year. The increase was primarily driven by higher marketing and store employee costs in our retail divisions. In addition, we recorded higher expenses anof $3.7 million related to our cash and stock-based incentive plans in the second quarter of 2013, reflecting higher anticipated payouts under those plans. As a percent of net sales, selling and administrative expenses decreased to 37.2% for the second quarter of 2013 from 37.5% for the second quarter of last year.
Selling and administrative expenses increased $21.7 million, or 5.1%, to $444.9 million for the first half of 2013, compared to $423.2 million in the first half of last year. The increase was primarily driven by higher marketing expenses and variable store employee costs in employee benefit costsour retail divisions, and higher warehousing expenses partially offset by a decrease in rent expense.of $4.5 million related to our cash and stock-based incentive plans. As a percent of net sales, selling and administrative expenses increased to 36.3%36.8% for the first quarterhalf of 2013 from 35.4%36.4% for the first quarterhalf of last year.
Restructuring and Other Special Charges, Net
We recorded restructuring and other special charges, net, of $0.5$0.7 million for the firstsecond quarter of 2013, related to our portfolio realignment efforts. We recorded restructuring and other special charges, net, of $10.2$7.3 million for the second quarter of last year, related to our portfolio realignment efforts. See Note 6 to the condensed consolidated financial statements for additional information related to this initiative.
We recorded restructuring and other special charges, net, of $1.2 million for the first quarterhalf of 2013, related to our portfolio realignment efforts. We recorded restructuring and other special charges, net, of $17.5 million for the first half of last year, related to our portfolio realignment efforts.
Impairment of Assets Held For Sale
During the first quarterhalf of 2013, we recorded an impairment charge of $4.7 million to adjust certain assets held for sale to their estimated fair value. See Note 4 and Note 6 to the condensed consolidated financial statements for additional information.
Operating Earnings
Operating earnings increased $8.4$14.2 million, or 66.5%164.6%, to $21.0$22.8 million for the firstsecond quarter of 2013, compared to $12.6$8.6 million for the firstsecond quarter of last year, driven by higher net sales, an increase in our gross profit rate and a decrease in restructuring and other special charges, net, partially offset by higher selling and administrative expenses, as described above. Operating earnings were also favorably impacted by the timing shift in net sales described earlier, which we believe favorably impacted the second quarter’s operating earnings by approximately $6 million.
Operating earnings increased $22.6 million, or 106.3%, to $43.8 million for the first half of 2013, compared to $21.2 million for the first half of last year, driven by higher net sales, an increase in our gross profit rate and a decrease in restructuring and other special charges, net, sales,partially offset by an increase in selling and administrative expenses and the impairment of assets held for sale, and an increase in selling and administrative expenses, as described above.
Interest Expense
Interest expense decreased $0.3$0.4 million, or 5.2%8.0%, to $5.8$5.2 million for the firstsecond quarter of 2013, compared to $6.1$5.6 million for the second quarter of last year, primarily reflecting lower average borrowings under our revolving credit agreement.
Interest expense decreased $0.7 million, or 6.6%, to $11.0 million for the first quarterhalf of 2013, compared to $11.7 million for the first half of last year, primarily reflecting lower average borrowings under our revolving credit agreement.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate from continuing operations was 51.9%23.1% for the firstsecond quarter of 2013, as compared to our firstsecond quarter of 2012 rate of 39.4%40.6%. For the first half of 2013, our consolidated effective tax rate from continuing operations was 36.4%, as compared to 39.8% in the prior year. The increasedecrease in our effective tax rate in the first quarter offor both 2013 periods was primarily due to the non-deductible naturea higher anticipated mix of the $4.7 million impairment charge discussed above. Excluding this impairment, the effective tax rate would have been 39.8%, which is comparableinternational earnings in lower-tax jurisdictions as compared to the effective tax rate for the first quarter of 2012.
Net Earnings from Continuing Operations
We reported net earnings from continuing operations of $7.3$13.7 million in the firstsecond quarter of 2013, compared to $4.0$1.9 million in the firstsecond quarter of last year, as a result of the factors described above. Net earnings from continuing operations were also favorably impacted by the timing shift in net sales described earlier, which we believe favorably impacted the second quarter’s operating earnings by approximately $3.6 million (or approximately $0.09 per diluted share).
We reported net earnings from continuing operations of $21.0 million in the first half of 2013 compared to $5.9 million in the first half of last year, as a result of the factors described above.
Net LossEarnings (Loss) from Discontinued Operations
We reported net earnings from discontinued operations of $1.7 million during the second quarter of 2013, as compared to a net loss of $4.5 million in the second quarter of last year. The increase is primarily attributable to impairment charges recorded during the second quarter of 2012 related to the termination of the Etienne Aigner license agreement.
We reported a net loss from discontinued operations of $18.2$16.5 million during the first quarterhalf of 2013, as compared to a net loss of $2.4$6.9 million in the first quarterhalf of last year. The decreaseincrease is primarily related to a non-cash impairment charge related to the sale of our Avia and Nevados divisions of $12.6 million during the first quarter of 2013, reflecting the estimated fair value of those assets.
Beginning with the first quarter of 2013, the operations of Avia, Nevados, Vera Wang and Etienne Aigner are reflected as discontinued operations with retroactive presentation for prior periods. Our Avia and Nevados divisions were sold subsequent to the quarter end but was classified as discontinued operations as of May 4, 2013. We decided not to renew the Vera Wang license during the first quarter of 2013. The Etienne Aigner license dispute was settled during the quarter.
Net Earnings (Loss) Earnings Attributable to Brown Shoe Company, Inc.
We reported a net lossearnings attributable to Brown Shoe Company, Inc. of $10.8$15.4 million and $4.6 million during the second quarter and first quarterhalf of 2013, respectively, compared to a net earnings $1.7loss of $2.5 million and $0.8 million during the second quarter and first quarterhalf of last year, respectively, as a result of the factors described above.
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FAMOUS FOOTWEAR | FAMOUS FOOTWEAR | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Thirteen Weeks Ended |
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| Thirteen Weeks Ended |
| Twenty-six Weeks Ended |
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| May 4, 2013 |
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| April 28, 2012 |
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($ millions, except sales per square |
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| ($ millions, except sales per square |
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foot) |
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Operating Results |
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| Operating Results |
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Net sales |
| $ | 352.3 |
| 100.0 | % |
| $ | 347.1 |
| 100.0 | % | Net sales |
| $ | 388.2 |
| 100.0 | % |
| $ | 350.3 |
| 100.0 | % | $ | 740.5 |
| 100.0 | % |
| $ | 697.4 |
| 100.0 | % | ||||||||||||||||||
Cost of goods sold |
|
| 193.6 |
| 55.0 | % |
|
| 192.0 |
| 55.3 | % | Cost of goods sold |
|
| 211.2 |
| 54.4 | % |
|
| 193.4 |
| 55.2 | % |
| 404.8 |
| 54.7 | % |
|
| 385.3 |
| 55.3 | % | ||||||||||||||||||
Gross profit |
|
| 158.7 |
| 45.0 | % |
|
| 155.1 |
| 44.7 | % | Gross profit |
|
| 177.0 |
| 45.6 | % |
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| 156.9 |
| 44.8 | % |
| 335.7 |
| 45.3 | % |
|
| 312.1 |
| 44.7 | % | ||||||||||||||||||
Selling and administrative expenses |
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| 129.7 |
| 36.8 | % |
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| 129.8 |
| 37.4 | % | Selling and administrative expenses |
|
| 148.0 |
| 38.1 | % |
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| 136.1 |
| 38.8 | % |
| 277.7 |
| 37.5 | % |
|
| 266.0 |
| 38.0 | % | ||||||||||||||||||
Restructuring and other special charges, net |
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| – |
| – |
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| 7.0 |
| 2.0 | % | Restructuring and other special charges, net |
|
| – |
| – |
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| 0.3 |
| 0.1 | % |
| – |
| – |
|
|
| 7.3 |
| 1.1 | % | ||||||||||||||||||
Operating earnings |
| $ | 29.0 |
| 8.2 | % |
| $ | 18.3 |
| 5.3 | % | Operating earnings |
| $ | 29.0 |
| 7.5 | % |
| $ | 20.5 |
| 5.9 | % | $ | 58.0 |
| 7.8 | % |
| $ | 38.8 |
| 5.6 | % | ||||||||||||||||||
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Key Metrics |
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| Key Metrics |
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Same-store sales % change |
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| 1.1 | % |
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| 2.5 | % |
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| Same-store sales % change |
|
| 6.8 | % |
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| 3.9 | % |
|
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| 4.0 | % |
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| 3.2 | % |
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Same-store sales $ change |
| $ | 3.8 |
|
|
|
| $ | 8.3 |
|
|
| Same-store sales $ change |
| $ | 23.7 |
|
|
|
| $ | 12.7 |
|
|
| $ | 27.5 |
|
|
|
| $ | 20.9 |
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Sales change from new and closed stores, net |
| $ | 1.4 |
|
|
|
| $ | (3.9) |
|
|
| Sales change from new and closed stores, net |
| $ | 14.2 |
|
|
|
| $ | (7.3) |
|
|
| $ | 15.6 |
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| $ | (11.2) |
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Sales per square foot, excluding e-commerce (thirteen weeks ended) |
| $ | 48 |
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| $ | 46 |
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Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) |
| $ | 53 |
|
|
|
| $ | 47 |
|
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| $ | 101 |
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|
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| $ | 93 |
|
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| ||||||||||||||||||||||||||||||
Sales per square foot, excluding e-commerce (trailing twelve-months) |
| $ | 201 |
|
|
|
| $ | 188 |
|
|
| Sales per square foot, excluding e-commerce (trailing twelve-months) |
| $ | 207 |
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|
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| $ | 191 |
|
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| $ | 207 |
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|
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| $ | 191 |
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| ||||||||||||||||||
Square footage (thousand sq. ft.) |
|
| 7,176 |
|
|
|
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| 7,318 |
|
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| Square footage (thousand sq. ft.) |
|
| 7,183 |
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|
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| 7,234 |
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| 7,183 |
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| 7,234 |
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Stores opened |
|
| 12 |
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|
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| 11 |
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| Stores opened |
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| 19 |
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| 14 |
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| 31 |
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| 25 |
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Stores closed |
|
| 13 |
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| 34 |
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| Stores closed |
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| 14 |
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| 26 |
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| 27 |
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| 60 |
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Ending stores |
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| 1,054 |
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| 1,066 |
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| Ending stores |
|
| 1,059 |
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| 1,054 |
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| 1,059 |
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| 1,054 |
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|
|
Net Sales
Net sales increased $5.2$37.9 million, or 1.5%10.8%, to $352.3$388.2 million for the firstsecond quarter of 2013, compared to $347.1$350.3 million for the firstsecond quarter of last year. Althoughyear, as Famous Footwear reported the highest net sales during the early portion of the first quarter were impacted by cold, wet weather, the latter half of the quarter experienced much stronger sales volume as spring weather normalized.on record for any second fiscal quarter. Same-store sales, including e-commerce, increased 1.1%6.8% during the firstsecond quarter of 2013, primarily due to increases in our2013. The segment reported an improved customer conversion rate, higher average unit retail prices and an increase in pairs per transaction, and average retail price, partially offset by a decrease in customer traffic. Growth in athleticathletics, sandals, boots, boat shoes and canvas shoe styles also contributed to our increase in net sales. As mentioned earlier, as a result of the inclusion of the 53rd week in fiscal 2012, an additional week of the back-to-school selling season is recorded in the second quarter of 2013 as compared to last year, which we believe favorably impacted Famous Footwear’s net sales by approximately $15 million in the second quarter of 2013. During the firstsecond quarter of 2013, we opened 1219 new stores and closed 1314 stores, resulting in 1,059 stores and total square footage of 7.2 million at the end of the second quarter of 2013, compared to 1,054 stores and total square footage of 7.2 million at the end of the first quarter of 2013, compared to 1,066 stores and total square footage of 7.3 million at the end of the firstsecond quarter of last year. Sales per square foot, excluding e-commerce, increased 4.1%12.6% to $48$53 in the firstsecond quarter of 2013, compared to $46$47 in the firstsecond quarter of last year. Members of our customer loyalty program, Rewards, continue to account for a majority of the segment’s sales, with approximately 68%70% of our net sales made to members of our Rewards program in the firstsecond quarter of 2013 as compared to approximately 62%65% in the second quarter of 2012.
Net sales increased $43.1 million, or 6.2%, to $740.5 million for the first half of 2013, compared to $697.4 million for the first half of last year, reflecting many of the same factors as described above. Although sales during the first quarter of 2013 were impacted by cold, wet weather, the second quarter experienced much stronger sales volume as weather normalized. Same-store sales, including e-commerce, increased 4.0% during the first half of 2013, primarily due to increases in our conversion rate, average retail price and pairs per transaction, partially offset by a decrease in customer traffic. Growth in athletics, sandals and canvas shoe styles also contributed to our increase in net sales. Sales per square foot, excluding e-commerce, increased 8.4% to $101 in the first half of 2013, compared to $93 in the first half of last year. On a trailing twelve month basis, sales per square foot, excluding e-commerce, increased 8.6% to $207 for the twelve months ended August 3, 2013, as compared to $191 for the twelve months ended July 28, 2012.
Gross Profit
Gross profit increased $3.6$20.1 million, or 2.3%12.8%, to $158.7$177.0 million for the firstsecond quarter of 2013, compared to $155.1$156.9 million for the firstsecond quarter of last year, due primarily to the increase in net sales. As a percent of net sales, our gross profit was 45.0%45.6% for the firstsecond quarter of 2013, compared to 44.7%44.8% for the firstsecond quarter of last year. The increase in our gross profit rate was primarily driven by higher average unit retail prices and a favorable sales mix of higher margin athletic footwear, sandals and lower freight costs.boots.
Gross profit increased $23.6 million, or 7.6%, to $335.7 million for the first half of 2013, compared to $312.1 million for the first half of last year, due primarily to the increase in net sales. As a percent of net sales, our gross profit was 45.3% for the first half of 2013, compared to 44.7% for the first half of last year. The increase in our gross profit rate was primarily driven by higher average unit retail prices and a favorable sales mix of higher margin athletic footwear.
Selling and Administrative Expenses
Selling and administrative expenses are comparable with a decrease of $0.1increased $11.9 million, or 0.2%8.8%, to $129.7$148.0 million for the firstsecond quarter of 2013, compared to $129.8$136.1 million for the firstsecond quarter of last year. The increase was primarily attributable to increases in marketing, variable store employee and benefit costs, and store depreciation expense. Our marketing in the second quarter focused more heavily on national television, including the addition of the Good Morning America summer concert series sponsorship, which helped increase Famous Footwear’s brand presence on a national scale. As a percent of net sales, selling and administrative expenses decreased to 36.8%38.1% for the firstsecond quarter of 2013, compared to 37.4%38.8% for the second quarter of last year.
Selling and administrative expenses increased $11.7 million, or 4.5%, to $277.7 million for the first quarterhalf of 2013, compared to $266.0 million for the first half of last year. The increase was primarily attributable to increases in marketing, variable store employee costs and store depreciation expense. As a percent of net sales, selling and administrative expenses decreased to 37.5% for the first half of 2013, compared to 38.0% for the first half of last year.
Restructuring and Other Special Charges, Net
We did not incur restructuring and other special charges during the second quarter and first quarterhalf of 2013, but incurred $7.0$0.3 million and $7.3 million during the second quarter and first quarterhalf, respectively, of last year, related to our portfolio realignment efforts, which included the closure of a distribution center and the closure or relocation of underperforming stores.stores and the closure of a distribution center.
Operating Earnings
Operating earnings increased $10.7$8.5 million, or 58.7%41.0%, to $29.0 million for the firstsecond quarter of 2013, compared to $18.3$20.5 million for the firstsecond quarter of last year. The increase was due to a combination of higher net sales and gross profit rate, partially offset by an increase in selling and administrative expenses, as described above. Operating earnings were also favorably impacted by the timing shift in net sales described earlier, which we believe favorably impacted Famous Footwear’s second quarter’s operating earnings by approximately $4.4 million. As a percent of net sales, operating earnings improved to 7.5% for the second quarter of 2013, compared to 5.9% for the second quarter of last year.
Operating earnings increased $19.2 million, or 49.4%, to $58.0 million for the first half of 2013, compared to $38.8 million for the first half of last year. The increase was due to higher net sales and gross profit rate and a reduction in restructuring and other special charges, net, partially offset by higher selling and an increase in net sales and resulting gross profit,administrative expenses, as described above. As a percent of net sales, operating earnings improved to 8.2%7.8% for the first quarterhalf of 2013, compared to 5.3%5.6% for the first quarterhalf of last year.
22
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WHOLESALE OPERATIONS | WHOLESALE OPERATIONS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Thirteen Weeks Ended |
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| Thirteen Weeks Ended |
| Twenty-six Weeks Ended |
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| May 4, 2013 |
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| April 28, 2012 |
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| August 3, 2013 |
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| July 28, 2012 |
| August 3, 2013 |
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| July 28, 2012 |
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($ millions) |
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| Sales |
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| Sales |
| ($ millions) |
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| Sales |
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| Sales |
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Operating Results |
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| Operating Results |
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Net sales |
| $ | 181.6 |
| 100.0 | % |
| $ | 194.9 |
| 100.0 | % | Net sales |
| $ | 180.5 |
| 100.0 | % |
| $ | 160.6 |
| 100.0 | % | $ | 362.1 |
| 100.0 | % |
| $ | 355.5 |
| 100.0 | % | ||||||||||||||||||||
Cost of goods sold |
|
| 123.8 |
| 68.2 | % |
|
| 139.0 |
| 71.3 | % | Cost of goods sold |
|
| 124.6 |
| 69.0 | % |
|
| 111.2 |
| 69.2 | % |
| 248.4 |
| 68.6 | % |
|
| 250.2 |
| 70.4 | % | ||||||||||||||||||||
Gross profit |
|
| 57.8 |
| 31.8 | % |
|
| 55.9 |
| 28.7 | % | Gross profit |
|
| 55.9 |
| 31.0 | % |
|
| 49.4 |
| 30.8 | % |
| 113.7 |
| 31.4 | % |
|
| 105.3 |
| 29.6 | % | ||||||||||||||||||||
Selling and administrative expenses |
|
| 49.5 |
| 27.3 | % |
|
| 48.1 |
| 24.7 | % | Selling and administrative expenses |
|
| 47.0 |
| 26.1 | % |
|
| 42.6 |
| 26.6 | % |
| 96.5 |
| 26.7 | % |
|
| 90.7 |
| 25.5 | % | ||||||||||||||||||||
Restructuring and other special charges, net |
|
| 0.5 |
| 0.2 | % |
|
| 1.9 |
| 1.0 | % | Restructuring and other special charges, net |
|
| 0.7 |
| 0.4 | % |
|
| 2.0 |
| 1.2 | % |
| 1.2 |
| 0.3 | % |
|
| 3.9 |
| 1.1 | % | ||||||||||||||||||||
Impairment of assets held for sale |
|
| 4.7 |
| 2.6 | % |
|
| – |
| – |
| Impairment of assets held for sale |
|
| – |
| – |
|
|
| – |
| – |
|
| 4.7 |
| 1.3 | % |
|
| – |
| – |
| ||||||||||||||||||||
Operating earnings |
| $ | 3.1 |
| 1.7 | % |
| $ | 5.9 |
| 3.0 | % | Operating earnings |
| $ | 8.2 |
| 4.5 | % |
| $ | 4.8 |
| 3.0 | % | $ | 11.3 |
| 3.1 | % |
| $ | 10.7 |
| 3.0 | % | ||||||||||||||||||||
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Key Metrics |
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| Key Metrics |
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Unfilled order position at end of period |
| $ | 314.9 |
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| $ | 295.1 |
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| Unfilled order position at end of period |
| $ | 257.7 |
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| $ | 258.0 |
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Net Sales
Net sales decreased $13.3increased $19.9 million, or 6.8%12.4%, to $181.6$180.5 million for the firstsecond quarter of 2013, compared to $194.9$160.6 million for the firstsecond quarter of last year. The decreaseincrease reflects strength in many of our major brands including Sam Edelman, Dr. Scholl’s Shoes, LifeStride, Vince, Naturalizer and Franco Sarto divisions, partially offset by decreases in our Via Spiga and Fergie divisions. As mentioned earlier, shipments were shifted into the second quarter of 2013 that were previously planned for the third quarter due to the acceleration of wholesale orders at the request of our retail partners as well as supply chain improvements which have allowed us to deliver product to market earlier than was previously possible. We believe these timing shifts favorably impacted the Wholesale Operation’s net sales by approximately $7 million in the second quarter of 2013. Our unfilled order position was $257.7 million as of August 3, 2013, essentially flat to $258.0 million as of July 28, 2012.
Net sales increased $6.6 million, or 1.8%, to $362.1 million for the first half of 2013, compared to $355.5 million for the first half of last year. The increase was primarily attributable to lower sales of our children’s and women’s specialty exited businesses, and decreases in our Naturalizer, Fergie, Via Spiga and Ryka divisions, partially offset by increases in our Sam Edelman, Dr. Scholl’s Shoes, LifeStride, Vince and LifeStrideFranco Sarto divisions, partially offset by decreases in our Via Spiga, Fergie, Naturalizer and Ryka divisions. Our unfilled order position increased $19.8 million, or 6.7%, to $314.9 million as of May 4, 2013, as compared to $295.1 million as of April 28, 2012 primarily due to an increased order position for Sam Edelman. The May 4, 2013 and April 28, 2012 unfilled order positions exclude $25.0 million and $59.7 million, respectively, related to Avia, Nevados, Vera Wang and Etienne Aigner, as their results are reflected in discontinued operations.
Gross Profit
Gross profit increased $1.9$6.5 million, or 3.3%13.1%, to $57.8$55.9 million for the firstsecond quarter of 2013, compared to $55.9$49.4 million for the second quarter of last year. As a percent of net sales, our gross profit increased to 31.0% for the second quarter of 2013 from 30.8% for the second quarter of last year. The increase in our Wholesale Operations gross profit rate was driven by a more profitable brand mix. In addition, the division reported higher average selling prices, lower product costs and lower customer allowances.
Gross profit increased $8.4 million, or 7.9%, to $113.7 million for the first quarterhalf of 2013, compared to $105.3 million for the first half of last year. As a percent of net sales, our gross profit increased to 31.4% for the first half of 2013 from 29.6% for the first half of last year, primarily driven by a more profitable brand mix, higher initial marginslower product costs and lower inventory markdownmarkdowns and customer allowance requirements. As a percent of net sales, our gross profit increased to 31.8% for the first quarter of 2013 from 28.7% for the first quarter of last year, reflecting the above named factors.
Selling and Administrative Expenses
Selling and administrative expenses increased $1.4$4.4 million, or 2.9%9.9%, to $49.5$47.0 million for the firstsecond quarter of 2013, compared to $48.1$42.6 million for the second quarter of last year, driven by higher expenses of $2.1 million related to our cash and stock-based incentive plans and higher warehouse expenses. As a percent of net sales, selling and administrative expenses decreased to 26.1% for the second quarter of 2013, compared to 26.6% for the second quarter of last year, reflecting better leveraging of our expenses compared to higher net sales.
Selling and administrative expenses increased $5.8 million, or 6.2%, to $96.5 million for the first quarterhalf of 2013, compared to $90.7 million for the first half of last year, driven in part by an increase in employee benefits.higher expenses of $2.3 million related to our cash and stock-based incentive plans and higher warehouse expenses. As a percent of net sales, selling and administrative expenses increased to 27.3%26.7% for the first quarterhalf of 2013, compared to 24.7%25.5% for the first quarterhalf of last year, due primarily to the decrease in net sales.year.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges, net, of $0.5$0.7 million and $1.2 million during the second quarter and first quarterhalf of 2013, respectively, compared to $1.9$2.0 million and $3.9 million during the second quarter and first quarterhalf of last year, as we have entered the last phase of our portfolio realignment initiatives.respectively. Our portfolio realignment efforts include the exit of certain brands, the sale and closure of sourcing and supply chain assets the exit of certain brands and other changes to our infrastructure. See Note 4 and Note 6 to the condensed consolidated financial statements for additional information related to these costs.
Impairment of Assets Held For Sale
During the first quarterhalf of 2013, we recorded an impairment charge of $4.7 million to adjust certain sourcing and supply chain assets held for sale to their estimated fair value. See Note 4 and Note 6 to the condensed consolidated financial statements for additional information.
Operating Earnings
Operating earnings decreased $2.8increased $3.4 million, or 71.1%, to $3.1$8.2 million for the firstsecond quarter of 2013, compared to $5.9$4.8 million for the firstsecond quarter of last year. The decreaseincrease was primarily driven by the impairment chargeincreases in net sales and an increase in selling and administrative expenses, partially offset by an increase in gross profit rate and a decrease in restructuring and other special charges, net.net, all partially offset by an increase in selling and administrative expenses. Operating earnings were also favorably impacted by the timing shift in net sales described earlier, which we believe favorably impacted Wholesale Operations’ second quarter’s operating earnings by approximately $1.6 million. As a percent of net sales, operating earnings decreasedincreased to 1.7%4.5% for the firstsecond quarter of 2013, compared to 3.0% for operating earnings in the firstsecond quarter of last year.
Operating earnings increased $0.6 million, or 6.0%, to $11.3 million for the first half of 2013, compared to $10.7 million for the first half of last year. The increase was primarily driven by increases in net sales and gross profit rate and a decrease in restructuring and other special charges, net, partially offset by an increase in selling and administrative expenses and the impairment charge. As a percent of net sales, operating earnings increased to 3.1% for the first half of 2013, compared to 3.0% in the first half of last year.
2223
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SPECIALTY RETAIL | SPECIALTY RETAIL | SPECIALTY RETAIL |
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Operating Results |
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Net sales |
| $ | 54.8 |
| 100.0 | % |
| $ | 56.1 |
| 100.0 | % | Net sales |
| $ | 53.0 |
| 100.0 | % |
| $ | 54.0 |
| 100.0 | % | $ | 107.8 |
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| $ | 110.1 |
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Cost of goods sold |
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| 57.0 | % |
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| 32.9 |
| 58.7 | % | Cost of goods sold |
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| 31.3 |
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| 32.7 |
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Gross profit |
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| 43.0 | % |
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| 21.7 |
| 40.9 | % |
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Restructuring and other special charges, net |
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Operating loss |
| $ | (1.3) |
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| $ | (1.9) |
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| $ | (5.8) |
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Same-store sales % change |
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Same-store sales $ change |
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Sales change from new and closed stores, net |
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Impact of changes in Canadian exchange rate on sales |
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| $ | (0.2) |
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Sales change of e-commerce subsidiary |
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Sales per square foot, excluding e-commerce (thirteen weeks ended) |
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Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) |
| $ | 102 |
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| $ | 99 |
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| $ | 193 |
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Sales per square foot, excluding e-commerce (trailing twelve-months) |
| $ | 397 |
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| $ | 397 |
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| Sales per square foot, excluding e-commerce (trailing twelve-months) |
| $ | 400 |
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| $ | 393 |
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Square footage (thousand sq. ft.) |
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| 336 |
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| 358 |
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| Square footage (thousand sq. ft.) |
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| 335 |
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Stores opened |
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| 6 |
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| 4 |
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| 6 |
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| 6 |
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| 12 |
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Stores closed |
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| 9 |
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| 13 |
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| 4 |
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| 9 |
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| 13 |
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Ending stores |
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| 215 |
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| 227 |
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| Ending stores |
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| 215 |
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| 224 |
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| 215 |
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| 224 |
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Net Sales
Net sales decreased $1.3$1.0 million, or 2.5%1.8%, to $54.8$53.0 million for the firstsecond quarter of 2013, compared to $56.1$54.0 million for the second quarter of last year. The decrease in net sales reflects a lower store count, a decrease in net sales at Shoes.com and a lower Canadian dollar exchange rate, partially offset by an increase in same-store sales of 4.8%. Shoes.com experienced a decrease in net sales of $0.6 million. We opened four new retail stores and closed four stores during the second quarter of 2013, resulting in a total of 215 stores (including 26 Naturalizer stores in China) and total square footage of 0.3 million at the end of the second quarter of 2013, compared to 224 stores (including 20 Naturalizer stores in China) and total square footage of 0.4 million at the end of the second quarter of last year. As a result of these factors, sales per square foot, excluding e-commerce, increased 2.5% to $102 for the second quarter of 2013, compared to $99 for the second quarter of last year.
Net sales decreased $2.3 million, or 2.1%, to $107.8 million for the first quarterhalf of 2013, compared to $110.1 million for the first half of last year. The decrease in net sales reflects a lower store count, a decrease in sales at Shoes.com and a lower Canadian dollar exchange rate, and a decreasepartially offset by an increase in same-store sales of 0.3%2.3%. Shoes.com experienced a decrease in net sales of $0.4$1.0 million. We opened two new retail stores and closed nine during the first quarter of 2013, resulting in a total of 215 stores (including 25 Naturalizer stores in China) and total square footage of 0.3 million at the end of the first quarter of 2013, compared to 227 stores (including 22 Naturalizer stores in China) and total square footage of 0.4 million at the end of the first quarter of last year. As a result of these factors, sales per square foot, excluding e-commerce, increased 2.2%2.3% to $91$193 for the first quarterhalf of 2012,2013, compared to $89$188 for the first quarterhalf of last year. On a trailing twelve month basis, sales per square foot, excluding e-commerce, increased 1.6% to $400 for the twelve months ended August 3, 2013, as compared to $393 for the twelve months ended July 28, 2012.
Gross Profit
Gross profit increased $0.3$0.4 million, or 1.6%, to $23.5$21.7 million for the firstsecond quarter of 2013, compared to $23.2$21.3 million for the firstsecond quarter of last year. As a percent of net sales, our gross profit increased to 43.0%40.9% for the firstsecond quarter of 2013 from 41.3%39.5% for the firstsecond quarter of last year. The increasesincrease in our gross profit rate was primarily driven by a favorable sales mix of higher margin product and lower freight costs.
Gross profit increased $0.7 million, or 1.6%, to $45.2 million for the first half of 2013, compared to $44.5 million for the first half of last year. As a percent of net sales, our gross profit increased to 42.0% for the first half of 2013 from 40.4% for the first half of last year. The increase in our gross profit rate werewas primarily driven by lower freight costs. costs and a favorable sales mix of higher margin product.
Selling and Administrative Expenses
Selling and administrative expenses decreased $1.1$0.9 million, or 4.1%4.3%, to $24.8$23.6 million for the firstsecond quarter of 2013, compared to $25.9$24.5 million for the firstsecond quarter of last year, reflecting lower facility and employee expenses, due to a lower store count. As a percent of net sales, selling and administrative expenses decreased to 45.4%44.3% for the firstsecond quarter of 2013, compared to 46.2%45.4% for the second quarter of last year, reflecting the above named factors.
Selling and administrative expenses decreased $2.1 million, or 4.2%, to $48.4 million for the first quarterhalf of 2013, compared to $50.5 million for the first half of last year, reflecting lower facility and employee expenses, due to a lower store count. As a percent of net sales, selling and administrative expenses decreased to 44.9% for the first half of 2013, compared to 45.9% for the first half of last year, reflecting the above named factors.
Restructuring and Other Special Charges, Net
We did not incur restructuring and other special charges, net, during the second quarter and first quarterhalf of 2013, compared to $0.8$2.6 million and $3.3 million during the second quarter and first quarterhalf of last year, respectively, for our portfolio realignment efforts, which included costs to close underperforming stores.
Operating Loss
Specialty Retail reported an operating loss of $1.3$1.9 million for the firstsecond quarter of 2013, compared to $3.5a $5.8 million loss for the firstsecond quarter of last year, primarily due to the decrease in restructuring and other special charges, net, a decrease in selling and administrative expenses and an increase in the gross profit rate, as discussed above.
Specialty Retail reported an operating loss of $3.2 million for the first half of 2013, compared to a $9.3 million loss for the first half of last year, primarily due to the decrease in restructuring and other special charges, net, a decrease in selling and administrative expenses and an increase in the gross profit rate, as discussed above.
OTHER SEGMENT |
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The Other segment includes unallocated corporate administrative expenses and other costs and recoveries.
The segment reported costs of $9.9$12.5 million for the firstsecond quarter of 2013, compared to costs of $8.1$10.9 million for the firstsecond quarter of last year. The primary driverdrivers of the $1.8$1.6 million increase include higher expenses related to employee benefits costsour cash and stock-based incentive plans and higher director compensation.compensation, partially offset by lower employee benefit costs.
The segment reported costs of $22.4 million for the first half of 2013, compared to costs of $19.0 million for the first half of last year. The primary drivers of the $3.4 million increase include higher expenses related to our cash and stock-based incentive plans and higher director compensation, partially offset by lower employee benefit costs.
24
LIQUIDITY AND CAPITAL RESOURCES |
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Borrowings
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($ millions) |
| 2013 |
| 2012 |
| 2013 |
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| 2013 |
| 2012 |
| 2013 |
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Borrowings under revolving credit agreement |
| $ | 66.0 |
| $ | 124.0 |
| $ | 105.0 |
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| $ | 23.0 |
| $ | 116.0 |
| $ | 105.0 |
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Senior notes |
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| 198.9 |
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| 198.7 |
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| 198.8 |
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| 198.9 |
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| 198.7 |
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| 198.8 |
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Total debt |
| $ | 264.9 |
| $ | 322.7 |
| $ | 303.8 |
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| $ | 221.9 |
| $ | 314.7 |
| $ | 303.8 |
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Total debt obligations decreased $57.8$92.8 million to $264.9$221.9 million at May 4,August 3, 2013, compared to $322.7$314.7 million at AprilJuly 28, 2012, and decreased $38.9$81.9 million from $303.8 million at February 2, 2013 due to lower borrowings under our revolving credit agreement, resulting from the cash proceeds from the sale of our Avia and Nevados divisions and strong cash provided by operating activities. As a result of the lower average borrowings under our revolving credit agreement, interest expense for the firstsecond quarter of 2013 decreased $0.3$0.4 million to $5.8$5.2 million, compared to $6.1$5.6 million for the firstsecond quarter of last year.
Credit Agreement
On January 7, 2011, Brown Shoe Company, Inc. and certain of our subsidiaries (the “Loan Parties”) entered into a Third Amended and Restated Credit Agreement, which was further amended on February 17, 2011 (as so amended, the “Credit Agreement”). The Credit Agreement matures on January 7, 2016 and provides for a revolving credit facility in an aggregate amount of up to $530.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at our option of up to $150.0 million from time to time during the term of the Credit Agreement (the “general purpose accordion feature”) subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on the London Inter-Bank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits our ability to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of (i) 15.0% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million for three consecutive business days, or an event of default occurs, the lenders may assume dominion and control over our cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security document supporting the agreement to be in full force and effect and a change of control event. In addition, if the excess availability falls below the greater of (i) 12.5% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million, and the fixed charge coverage ratio is less than 1.0 to 1.0, we would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. We were in compliance with all covenants and restrictions under the Credit Agreement as of May 4,August 3, 2013.
At May 4,August 3, 2013, we had $66.0$23.0 million in borrowings outstanding and $8.9 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $413.8$498.1 million at May 4,August 3, 2013.
On May 14, 2013, subsequent to the end of our first quarter of 2013, American Sporting Goods Corporation was sold and ceased to be a borrower under the Credit Agreement. The proceeds from the sale will bewere utilized to pay down the revolving credit facility. See Note 3 to the condensed consolidated financial statements for further information on the sale of American Sporting Goods Corporation.
$200 Million Senior Notes Due 2019
On May 11, 2011, we issued $200.0 million aggregate principal amount of 7.125% Senior Notes due 2019 (the “2019 Senior Notes”). We used a portion of the net proceeds to call and redeem the outstanding 8.75% senior notes due in 2012. We used the remaining net proceeds for general corporate purposes, including repaying amounts outstanding under the Credit Agreement.
The 2019 Senior Notes are guaranteed on a senior unsecured basis by each of our subsidiaries that is an obligor under the Credit Agreement. Interest on the 2019 Senior Notes is payable on May 15 and November 15 of each year. The 2019 Senior Notes mature on May 15, 2019. Prior to May 15, 2014, we may redeem some or all of the 2019 Senior Notes at a redemption price equal to the sum of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest, plus a “make whole” premium. After May 15, 2014, we may redeem all or a part of the 2019 Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, if redeemed during the 12-month period beginning on May 15 of the years indicated below:
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Year | Percentage |
2014 | 105.344% |
2015 | 103.563% |
2016 | 101.781% |
2017 and thereafter | 100.000% |
In addition, prior to May 15, 2014, we may redeem up to 35% of the 2019 Senior Notes with the proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest thereon, if any, to the redemption date.
The 2019 Senior Notes also contain certain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of May 4,August 3, 2013, we were in compliance with all covenants and restrictions relating to the 2019 Senior Notes.
On May 14, 2013, subsequent to the end of our first quarter of 2013, American Sporting Goods Corporation was sold and ceased to be a borrower under the Credit Agreement. See Note 3 to the condensed consolidated financial statements for further information on the sale of American Sporting Goods Corporation.
23
Working Capital and Cash Flow
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| May 4, |
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| Increase/ |
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| August 3, |
| July 28, |
| Increase/ |
| ||||||
($ millions) |
| 2013 |
| 2012 |
| (Decrease) |
|
| 2013 |
| 2012 |
| (Decrease) |
| ||||||
Net cash provided by operating activities |
| $ | 25.9 |
| $ | 79.9 |
| $ | (54.0) |
|
| $ | 35.5 |
| $ | 119.3 |
| $ | (83.8) |
|
Net cash used for investing activities |
|
| (6.9) |
|
| (7.0) |
|
| 0.1 |
| ||||||||||
Net cash provided by (used for) investing activities |
|
| 38.9 |
|
| (27.1) |
|
| 66.0 |
| ||||||||||
Net cash used for financing activities |
|
| (42.1) |
|
| (81.4) |
|
| 39.3 |
|
|
| (88.0) |
|
| (92.3) |
|
| 4.3 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (0.5) |
|
| 0.6 |
|
| (1.1) |
|
|
| (1.5) |
|
| (0.2) |
|
| (1.3) |
|
Decrease in cash and cash equivalents |
| $ | (23.6) |
| $ | (7.9) |
| $ | (15.7) |
|
| $ | (15.1) |
| $ | (0.3) |
| $ | (14.8) |
|
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $54.0$83.8 million lower in the firstsecond quarter of 2013 as compared to the firstsecond quarter of 2012, reflecting the following factors:
· | A |
· | An increase in accounts receivable in the first |
· | An increase in prepaid expenses and other current and noncurrent assets in the first six months of 2013 as compared to a decrease last year; |
· | A |
· | A smaller |
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Cash used forprovided by investing activities was lowerhigher by $0.1$66.0 million in the first quarterhalf of 2013, as compared to the same period in 2012, primarily due to the $1.5$69.3 million of net proceeds from sale of assets,subsidiaries, partially offset by $1.4$3.3 million of increased purchases of property and equipment and capitalized software. We expect purchases of property and equipment and capitalized software of approximately $50$55 million to $55$57 million in 2013, primarily related to remodeled and new stores and general infrastructure.
Cash used for financing activities was $39.3$4.3 million lower thanin the first half of 2013 as compared to the same period in 2012 primarily due to lower borrowings,repayments, net of repayments,borrowings, under our Credit Agreement.Agreement and a higher tax benefit associated with our share-based plans.
A summary of key financial data and ratios at the dates indicated is as follows:
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| May 4, 2013 | April 28, 2012 | February 2, 2013 | August 3, 2013 | July 28, 2012 | February 2, 2013 | ||||||
Working capital ($ millions) (1) | $ | 327.1 | $ | 296.3 | $ | 303.3 | $ | 362.5 | $ | 292.9 | $ | 303.3 |
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| ||||||||
Current ratio (2) | 1.83:1 | 1.67:1 | 1.65:1 | 1.76:1 | 1.52:1 | 1.65:1 | ||||||
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| ||||||||
Debt-to-capital ratio (3) | 39.1% | 43.9% | 41.6% | 34.2% | 43.6% | 41.6% |
(1) | Working capital has been computed as total current assets less total current liabilities. |
(2) | The current ratio has been computed by dividing total current assets by total current |
(3) | The debt-to-capital ratio has been computed by dividing total debt by total capitalization. Total debt is defined as long-term debt and borrowings under the revolving credit agreement. Total capitalization is defined as total debt and total shareholders’ equity. |
Working capital at May 4,August 3, 2013, was $327.1$362.5 million, which was $23.8$59.2 million higher than at February 2, 2013 and $30.8$69.6 million higher than at AprilJuly 28, 2012. Our current ratio increased to 1.831.76 to 1 as of May 4,August 3, 2013 compared to 1.65 to 1 at February 2, 2013 and compared to 1.671.52 to 1 at AprilJuly 28, 2012. The increase in the current ratio from AprilJuly 28, 2012 as compared to May 4,August 3, 2013, was primarily driven by a decrease in borrowings under our revolving credit agreement due to the cash proceeds from the sale of our strong financial performanceAvia and resultingNevados divisions and cash provided by operating activities. The increase in the current ratio from February 2, 2013 as compared to May 4,August 3, 2013, was primarily driven by an increase in inventory and a decrease in borrowings under our revolving credit agreement, and a decrease in trade accounts payable due to timing of payments, both partially offset by a decreasean increase in cash, inventory and accounts receivable.payable. Our debt-to-capital ratio was 39.1%34.2% as of May 4,August 3, 2013, compared to 41.6% as of February 2, 2013 and 43.9%43.6% as of AprilJuly 28, 2012. The decrease in our debt-to-capital ratio from February 2, 2013 and AprilJuly 28, 2012, is primarily due to lower borrowings under our revolving credit agreement.
At May 4,August 3, 2013, we had $44.7$53.1 million of cash and cash equivalents, substantially all of which represents cash and cash equivalents of our foreign subsidiaries. In accordance with Internal Revenue Service guidelines limiting the length of time that our parent company can borrow funds from foreign subsidiaries, Brown Shoe Company, Inc. utilizes the cash and cash equivalents of its foreign subsidiaries to manage the liquidity needs of the consolidated company and minimize interest expense on a consolidated basis.
On May 14, 2013, we sold American Sporting Goods Corporation. The proceeds from the sale were utilized to pay down the revolving credit facility.
We declared and paid dividends of $0.07 per share in both the firstsecond quarter of 2013 and the firstsecond quarter of last year. The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors; however, we presently expect that dividends will continue to be paid.
25
|
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CONTRACTUAL OBLIGATIONS |
|
Our contractual obligations primarily consist of operating lease commitments, purchase obligations, borrowings under our revolving credit agreement, long-term debt, minimum license commitments, interest on long-term debt, obligations for our supplemental executive retirement plan and other postretirement benefits and obligations related to our restructuring and expense and capital containment initiatives.
During the first quarter of 2013, in connection with our agreement to sell certain supply chain and sourcing assets we entered into a minimum purchase commitment contract with the purchaser of these assets to source the manufacturing of 8eight million pairs of shoes over the next 2two years, 4four million each year at market pricing. This represents less than 10% of the Company’s sourcing requirements related to its Wholesale Operations division. The total purchase obligation is estimated at approximately $100 million. This commitment can be fulfilled from anya defined group of the facilities owned by the purchaser, many of which we have historically used for sourcing.purchaser.
As discussed earlier, we sold our American Sporting Goods Corporation subsidiary on May 14, 2013. In connection with the sale of American Sporting Goods Corporation, we entered into a six month transition services agreement. Certain lease and purchase obligations associated with that subsidiary will no longer be obligations of the Company after May 14, 2013, or in some cases, beyond the six month transition services period.
Except for the changes discussed above and within the normal course of business (primarily changes in purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations, borrowings under and repayments of our revolving credit agreement and changes in operating lease commitments as a result of new stores, store closures and lease renewals), there have been no other significant changes to our contractual obligations identified in our Annual Report on Form 10-K for the year ended February 2, 2013.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
|
No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. The adoption of new accounting pronouncements is described in Note 2 to the condensed consolidated financial statements. For further information, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended February 2, 2013.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
|
Recently issued accounting pronouncements and their impact on the Company are described in Note 2 to the condensed consolidated financial statements.
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FORWARD-LOOKING STATEMENTS |
|
This Form 10-Q contains certain forward-looking statements and expectations regarding the Company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii) intense competition within the footwear industry; (iii) rapidly changing fashion trends and purchasing patterns; (iv) customer concentration and increased consolidation in the retail industry; (v) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China, where Brown Shoe Company relies heavily on manufacturing facilities for a significant amount of their inventory; (vi) the ability to recruit and retain senior management and other key associates; (vii) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; (viii) the ability to secure/exit leases on favorable terms; (ix) the ability to maintain relationships with current suppliers; (x) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; (xi) the ability to source product at a pace consistent with increased demand for footwear; and (xii) the impact of rising prices in a potentially inflationary global environment. The Company's reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption Risk Factors in Item 1A of the company’s Annual Report on Form 10-K for the year ended February 2, 2013, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q. The company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.
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ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Part II, Item 7A of the Company's Annual Report on Form 10-K for the year ended February 2, 2013.
ITEM 4 | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
It is the Chief Executive Officer's and Chief Financial Officer's ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly, quarterly and annual results, an established system of internal controls and internal control reviews by our internal auditors.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and 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. Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved. As of May 4,August 3, 2013, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.
There were no significant changes to internal control over financial reporting during the quarter ended May 4,August 3, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II | OTHER INFORMATION |
ITEM 1 | LEGAL PROCEEDINGS |
We are involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position. All legal costs associated with litigation are expensed as incurred.
Information regarding Legal Proceedings is set forth within Note 16 to the condensed consolidated financial statements and incorporated by reference herein.
ITEM 1A | RISK FACTORS |
No material changes have occurred related to our risk factors since the end of the most recent fiscal year. For further information, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended February 2, 2013.
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ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table provides information relating to our repurchases of common stock during the firstsecond quarter of 2013:
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| Maximum Number |
| |
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|
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| Total Number |
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| of Shares that |
| |
|
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|
|
|
|
| Purchased |
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| May Yet Be |
| |
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| Total Number | Average | as Part of Publicly |
|
| Purchased Under |
| ||||
|
| of Shares | Price Paid | Announced |
|
| the Program |
| ||||
Fiscal Period |
| Purchased | per Share | Program (1) |
|
| (1) |
| ||||
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| |||
February 3, 2013 – March 2, 2013 |
| 24,834 | (2) | $ | 17.03 | (2) | – |
|
| 2,500,000 |
| |
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|
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|
|
|
|
|
| |
March 3, 2013 – April 6, 2013 |
| 143,613 | (2) |
| 16.85 | (2) | – |
|
| 2,500,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
April 7, 2013 – May 4, 2013 |
| – |
|
| – |
| – |
|
| 2,500,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Total |
| 168,447 | (2) | $ | 16.88 | (2) | – |
|
| 2,500,000 |
|
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| |
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| |
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| Maximum Number |
| ||
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|
|
|
|
| Total Number |
|
| of Shares that |
| ||
|
|
|
|
|
|
| Purchased |
|
| May Yet Be |
| ||
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| Total Number | Average | as Part of Publicly |
|
| Purchased Under |
| |||||
|
| of Shares | Price Paid | Announced |
|
| the Program |
| |||||
Fiscal Period |
| Purchased | per Share | Program (1) |
|
| (1) |
| |||||
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| ||||
May 5, 2013 – June 1, 2013 |
| 85,367 | (2) | $ | 17.85 | (2) | – |
|
| 2,500,000 |
| ||
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|
|
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|
| ||
June 2, 2013 – July 6, 2013 |
| 33,705 | (2) |
| 21.10 | (2) | – |
|
| 2,500,000 |
| ||
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|
|
|
|
|
|
|
|
|
| ||
July 7, 2013 – August 3, 2013 |
| – |
|
| – |
| – |
|
| 2,500,000 |
| ||
|
|
|
|
|
|
|
|
|
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| ||
Total |
| 119,072 | (2) | $ | 18.77 | (2) | – |
|
| 2,500,000 |
|
(1) | On August 25, 2011, the Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.5 million shares of our outstanding common stock. We 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, no shares were repurchased through the end of the first quarter of 2013; therefore, there were 2.5 million shares authorized to be purchased under the program as of |
(2) | Reflects 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. |
24
ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
None.
|
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ITEM 4 | MINE SAFETY DISCLOSURES |
Not applicable.
|
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ITEM 5 | OTHER INFORMATION |
None.
2526
ITEM 6 | EXHIBITS | |||
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Exhibit No. |
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|
3.1 |
| Restated Certificate of Incorporation of Brown Shoe Company, Inc. (the “Company”) incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2007, and filed June 5, 2007. |
3.2 |
| Bylaws of the Company as amended through October 6, 2011, incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K dated and filed October 11, 2011. |
10.1 |
| Stock Purchase Agreement, dated May 14, 2013, by and among Brown Shoe Company, Inc., Brown Shoe International Corp. and Galaxy Brand Holdings, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed May 20, 2013. |
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. |
101.INS | † | XBRL Instance Document |
101.SCH 101.CAL 101.LAB 101.PRE 101.DEF | † † † † † | XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Presentation Linkbase Document XBRL Taxonomy Definition Linkbase Document |
† Denotes exhibit is filed with this Form 10-Q.
^ Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.
2627
|
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BROWN SHOE COMPANY, INC. | ||
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Date: |
| /s/ Russell C. Hammer |
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| Russell C. Hammer Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the |
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