UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended ~~May 3,~~August 2, 2014

[ ]	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


BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization)	43-0197190 (IRS Employer Identification Number)

8300 Maryland Avenue St. Louis, Missouri (Address of principal executive offices)	63105 (Zip Code)

(314) 854-4000 (Registrant's telephone number, including area code)

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 ☑ 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 ☑ 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:


Large accelerated filer ☑	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of ~~May 30,~~August 29, 2014, ~~43,678,~~43,705,~~129~~607 common shares were outstanding.


PART I	FINANCIAL INFORMATION


ITEM 1	FINANCIAL STATEMENTS


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)						(Unaudited)
($ thousands)		May 3, 2014		May 4, 2013		February 1, 2014	August 2, 2014		August 3, 2013		February 1, 2014
Assets
Current assets
Cash and cash equivalents	$	36,668	$	44,669	$	82,546	$	46,876	$	53,137	$	82,546
Receivables, net		105,746		96,734		129,217		125,484		120,054		129,217
Inventories, net		512,811		485,923		547,531		657,656		615,916		547,531
Prepaid expenses and other current assets		37,913		43,167		33,136		39,167		51,845		33,136
Current assets – held for sale		–		12,496		–
Current assets – discontinued operations		–		39,159		119		–		1,661		119
Total current assets		693,138		722,148		792,549		869,183		842,613		792,549

Other assets		136,256		115,591		139,621		134,779		113,764		139,621
Goodwill		13,954		16,755		13,954		13,954		13,954		13,954
Intangible assets, net		123,796		64,241		59,719		122,808		62,734		59,719
Noncurrent assets – discontinued operations		–		38,673		–
Property and equipment		428,454		415,576		428,540		437,364		428,764		428,540
Allowance for depreciation		(286,636)		(278,277)		(284,980)		(289,006)		(280,809)		(284,980)
Net property and equipment		141,818		137,299		143,560		148,358		147,955		143,560
Total assets	$	1,108,962	$	1,094,707	$	1,149,403	$	1,289,082	$	1,181,020	$	1,149,403

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	–	$	66,000	$	7,000	$	–	$	23,000	$	7,000
Trade accounts payable		195,703		188,948		226,602		341,694		309,806		226,602
Other accrued expenses		141,718		118,632		152,545		159,152		143,735		152,545
Current liabilities – held for sale		–		5,306		–
Current liabilities – discontinued operations		–		16,183		708		–		3,536		708
Total current liabilities		337,421		395,069		386,855		500,846		480,077		386,855

Other liabilities
Long-term debt		199,057		198,870		199,010		199,104		198,917		199,010
Deferred rent		37,368		35,631		38,593		36,560		36,196		38,593
Other liabilities		42,345		45,435		47,583		43,320		39,429		47,583
Noncurrent liabilities – discontinued operations		–		6,768		–
Total other liabilities		278,770		286,704		285,186		278,984		274,542		285,186

Equity
Common stock		437		432		434		437		432		434
Additional paid-in capital		133,916		123,099		131,398		135,930		124,543		131,398
Accumulated other comprehensive income		17,153		225		16,676
Accumulated other comprehensive income (loss)								16,641		(27)		16,676
Retained earnings		340,567		288,434		328,191		355,574		300,770		328,191
Total Brown Shoe Company, Inc. shareholders’ equity		492,073		412,190		476,699		508,582		425,718		476,699
Noncontrolling interests		698		744		663		670		683		663
Total equity		492,771		412,934		477,362		509,252		426,401		477,362
Total liabilities and equity	$	1,108,962	$	1,094,707	$	1,149,403	$	1,289,082	$	1,181,020	$	1,149,403

See notes to condensed consolidated financial statements.


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS	CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS				CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

	(Unaudited)				(Unaudited)
	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
	May 3,		May 4,		August 2,		August 3,		August 2,		August 3,
($ thousands, except per share amounts)	2014		2013		2014		2013		2014		2013
Net sales	$	591,162	$	588,656	$	635,877	$	621,706	$	1,227,039	$	1,210,362
Cost of goods sold		348,821		348,640		376,235		367,080		725,056		715,720
Gross profit		242,341		240,016		259,642		254,626		501,983		494,642
Selling and administrative expenses		213,615		213,879		228,340		231,071		441,955		444,950
Restructuring and other special charges, net		–		519		–		743		–		1,262
Impairment of assets held for sale		–		4,660		–		–		–		4,660
Operating earnings		28,726		20,958		31,302		22,812		60,028		43,770
Interest expense		(5,306)		(5,721)		(5,125)		(5,192)		(10,431)		(10,913)
Interest income		76		68		109		82		185		150
Earnings before income taxes from continuing operations		23,496		15,305		26,286		17,702		49,782		33,007
Income tax provision		(8,020)		(7,946)		(8,247)		(4,081)		(16,267)		(12,027)
Net earnings from continuing operations		15,476		7,359		18,039		13,621		33,515		20,980
Discontinued operations:
Loss from discontinued operations, net of tax benefit of $0 and $3,583		–		(5,637)
Earnings (loss) from discontinued operations, net of tax benefit of $0, $2,588, $0 and $6,171, respectively						–		620		–		(5,017)
Disposition/impairment of discontinued operations, net of $0 tax		–		(12,554)		–		1,042		–		(11,512)
Net loss from discontinued operations		–		(18,191)
Net earnings (loss)		15,476		(10,832)
Net earnings (loss) attributable to noncontrolling interests		47		(70)
Net earnings (loss) attributable to Brown Shoe Company, Inc.	$	15,429	$	(10,762)
Net earnings (loss) from discontinued operations						–		1,662		–		(16,529)
Net earnings						18,039		15,283		33,515		4,451
Net (loss) earnings attributable to noncontrolling interests						(25)		(74)		22		(144)
Net earnings attributable to Brown Shoe Company, Inc.					$	18,064	$	15,357	$	33,493	$	4,595

Basic earnings (loss) per common share:
From continuing operations	$	0.35	$	0.18	$	0.41	$	0.32	$	0.77	$	0.51
From discontinued operations		–		(0.44)		–		0.04		–		(0.40)
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.35	$	(0.26)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders					$	0.41	$	0.36	$	0.77	$	0.11

Diluted earnings (loss) per common share:
From continuing operations	$	0.35	$	0.18	$	0.41	$	0.31	$	0.76	$	0.50
From discontinued operations		–		(0.44)		–		0.04		–		(0.40)
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.35	$	(0.26)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders					$	0.41	$	0.35	$	0.76	$	0.10

Dividends per common share	$	0.07	$	0.07	$	0.07	$	0.07	$	0.14	$	0.14

See notes to condensed consolidated financial statements.


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)				CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	(Unaudited)				(Unaudited)				(Unaudited)
	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
	May 3,		May 4,		August 2,		August 3,		August 2,		August 3,
($ thousands)		2014		2013		2014		2013		2014		2013
Net earnings (loss)	$	15,476	$	(10,832)
Net earnings					$	18,039	$	15,283	$	33,515	$	4,451
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		887		(690)		244		(900)		1,131		(1,590)
Pension and other post retirement benefits adjustments		(23)		145		(33)		136		(56)		281
Derivative financial instruments		(387)		(114)		(723)		512		(1,110)		398
Other comprehensive income (loss), net of tax		477		(659)
Comprehensive income (loss)		15,953		(11,491)
Comprehensive income (loss) attributable to noncontrolling interests		35		(28)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	15,918	$	(11,463)
Other comprehensive loss, net of tax						(512)		(252)		(35)		(911)
Comprehensive income						17,527		15,031		33,480		3,540
Comprehensive (loss) income attributable to noncontrolling interests						(28)		(61)		7		(89)
Comprehensive income attributable to Brown Shoe Company, Inc.					$	17,555	$	15,092	$	33,473	$	3,629

See notes to condensed consolidated financial statements.


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)				(Unaudited)
	Thirteen Weeks Ended				Twenty-six Weeks Ended
		May 3,		May 4,	August 2,		August 3,
($ thousands)		2014		2013		2014		2013
Operating Activities
Net earnings (loss)	$	15,476	$	(10,832)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Net earnings					$	33,515	$	4,451
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		8,484		8,803		17,162		17,636
Amortization of capitalized software		3,235		3,276		6,392		6,467
Amortization of intangible assets		988		1,726		1,976		3,233
Amortization of debt issuance costs and debt discount		628		629		1,257		1,256
Share-based compensation expense		1,555		1,617		2,961		2,935
Tax benefit related to share-based plans		(1,769)		(1,962)		(2,097)		(2,798)
Loss on disposal of facilities and equipment		319		68		772		191
Impairment charges for facilities and equipment		291		366		725		959
Impairment of assets held for sale		–		4,660		–		4,660
Disposition/impairment of discontinued operations		–		12,554		–		11,512
Net loss on sale of subsidiaries						–		576
Deferred rent		(1,225)		1,920		(2,033)		2,485
Provision for doubtful accounts		56		307		48		331
Changes in operating assets and liabilities, net of dispositions:
Receivables		23,385		16,363		3,655		(8,605)
Inventories		35,144		17,223		(109,619)		(112,625)
Prepaid expenses and other current and noncurrent assets		(1,917)		653		(2,845)		(6,372)
Trade accounts payable		(31,081)		(26,561)		114,874		96,932
Accrued expenses and other liabilities		(16,694)		(1,565)		1,696		11,729
Other, net		(492)		(3,284)		(1,948)		536
Net cash provided by operating activities		36,383		25,961		66,491		35,489

Investing Activities
Purchases of property and equipment		(7,381)		(7,367)		(23,511)		(27,797)
Capitalized software		(1,245)		(1,040)		(2,714)		(2,638)
Acquisition of trademarks		(65,065)		–		(65,065)		–
Net proceeds from sale of subsidiaries		–		1,500		–		69,347
Net cash used for investing activities		(73,691)		(6,907)
Net cash (used for) provided by investing activities						(91,290)		38,912

Financing Activities
Borrowings under revolving credit agreement		251,000		383,000		456,000		685,000
Repayments under revolving credit agreement		(258,000)		(422,000)		(463,000)		(767,000)
Dividends paid		(3,053)		(3,027)		(6,110)		(6,048)
Issuance of common stock under share-based plans, net		(803)		(2,070)		(523)		(2,780)
Tax benefit related to share-based plans		1,769		1,962		2,097		2,798
Net cash used for financing activities		(9,087)		(42,135)		(11,536)		(88,030)
Effect of exchange rate changes on cash and cash equivalents		517		(473)		665		(1,457)
Decrease in cash and cash equivalents		(45,878)		(23,554)		(35,670)		(15,086)
Cash and cash equivalents at beginning of period		82,546		68,223		82,546		68,223
Cash and cash equivalents at end of period	$	36,668	$	44,669	$	46,876	$	53,137

See notes to condensed consolidated financial statements.

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)~~ 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 1, 2014.

Note 2

Impact of New Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance requires entities to present an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss (“NOL”) carryforward, similar tax loss, or tax credit carryforward, rather than as a liability, when the uncertain tax position would reduce the NOL or other carryforward under the tax law. The amendments in this ASU do not require new recurring financial disclosures. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The Company adopted this guidance on February 2, 2014 and it did not have an impact on the Company’s condensed consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU amends the definition of a discontinued operation by raising the threshold for disposals to qualify as discontinued operations and requires new disclosures for disposals of individually significant components that do not meet the new definition of a discontinued operation. Under the new guidance, discontinued operations treatment is required for disposals of a component or group of components that represent a strategic shift that has or will have a major impact on an entity’s operations or financial results. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU supersedes the revenue recognition requirements in ~~ASC~~Accounting Standards Codification (“ASC”) 605, Revenue Recognition. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core ~~principal~~principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, to clarify existing guidance in ASC 718, Compensation – Stock Compensation. The guidance requires that performance targets achieved after the requisite service period be treated as performance conditions. As such, the performance target is not reflected in the estimation of the award’s grant date fair value. The guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The guidance may be adopted either prospectively for share-based payment awards granted or modified on or after the effective date, or retrospectively using a modified retrospective approach. The adoption of this guidance in the first quarter of 2016 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

Note 3

Discontinued Operations

The Company’s discontinued operations include the Avia and Nevados brands of American Sporting Goods Corporation, as well as the Etienne Aigner and Vera Wang brands. There were no net sales or loss from discontinued operations for the thirteen and twenty-six weeks ended ~~May 3,~~August 2, 2014. In aggregate, discontinued operations included net sales of ~~$20.5~~$3.8 million and $24.3 million and loss before income taxes of ~~$9.2~~$2.0 million and $11.2 million for the thirteen and twenty-six weeks ended ~~May 4, 2013.~~August 3, 2013, respectively. For the thirteen and twenty-six weeks ended ~~May 4,~~August 3, 2013, discontinued operations also included a $1.0 million gain and $11.5 million of costs, respectively, associated with the Company’s disposition/impairment of discontinued ~~operations of $12.6 million.~~

operations.

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. (“the Buyer”), pursuant to which the 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 the Buyer and distributed certain assets to BSIC. The aggregate purchase price for the stock 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~~transition services, less working capital adjustments. The promissory note matured on November 14, 2013. In accordance with the terms of the promissory note, the Company received a payment of $12.2 million on November 14, 2013, representing the note principal and accrued interest.

In anticipation of the sale of ASG, 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. During 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). The ~~$12.6 million~~ impairment charge isand gain upon disposition are reflected as disposition/impairment of discontinued operations, net of tax in the condensed consolidated statements of earnings. ASG was previously included in the Wholesale Operations segment. Discontinued operations include net sales of $2.0 million and ~~earnings~~$20.3 million for the thirteen and twenty-six weeks ended August 3, 2013, respectively. Discontinued operations include a loss before income taxes of ~~$18.3~~$2.6 million and ~~$1.2~~$1.4 million ~~respectively,~~ for the thirteen and twenty-six weeks ended ~~May 4, 2013.~~August 3, 2013, respectively.

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 are reflected as a component of discontinued operations. The results of Etienne Aigner were previously included in the Wholesale Operations segment. Discontinued operations include net sales of $0.2 million and $0.4 million for the thirteen and twenty-six weeks ended August 3, 2013, respectively. Discontinued operations include earnings before income taxes of $0.1 million and loss before income taxes of ~~$0.2~~$6.9 million ~~and $7.0 million, respectively,~~ for the thirteen and twenty-six weeks ended ~~May 4, 2013.~~August 3, 2013, respectively.

Vera Wang

During the first quarter of 2013, the Company communicated its intention not to renew the Vera Wang license agreement. The financial results of Vera Wang are reflected as a component of discontinued operations. The results of Vera Wang were previously included in the Wholesale Operations segment. Discontinued operations include net sales of $1.6 million and $3.6 million for the thirteen and twenty-six weeks ended August 3, 2013, respectively. Discontinued operations include earnings before income taxes of $0.6 million and a loss before income taxes of ~~$2.0~~$2.8 million ~~and $3.4 million, respectively,~~ for the thirteen and twenty-six weeks ended ~~May 4, 2013.~~August 3, 2013, respectively.

The detail of ASG, Etienne Aigner, and Vera Wang assets and liabilities reported as discontinued operations in the condensed consolidated balance sheets is as follows:



	May 3,		May 4,		February 1,		August 2,		August 3,		February 1,
($ thousands)		2014		2013		2014		2014		2013		2014

Assets of Discontinued Operations
Current assets
Receivables, net	$	–	$	12,166	$	–	$	–	$	387	$	–
Inventories, net		–		23,250		111		–		700		111
Prepaid expenses and other current assets		–		3,743		8		–		574		8
Current assets - discontinued operations		–		39,159		119		–		1,661		119
Other assets		–		287		–
Goodwill		–		10,295		–
Intangible assets, net		–		27,057		–
Property and equipment, net		–		1,034		–
Noncurrent assets - discontinued operations		–		38,673		–
Total assets - discontinued operations	$	–	$	77,832	$	119	$	–	$	1,661	$	119

Liabilities of Discontinued Operations
Current liabilities
Trade accounts payable	$	–	$	4,642	$	139	$	–	$	942	$	139
Other accrued expenses		–		11,541		569		–		2,594		569
Current liabilities - discontinued operations		–		16,183		708		–		3,536		708
Other liabilities		–		6,768		–
Noncurrent liabilities - discontinued operations		–		6,768		–
Total liabilities - discontinued operations	$	–	$	22,951	$	708	$	–	$	3,536	$	708

Earnings (loss) from discontinued operations, net of tax for the thirteen and twenty-six weeks ended August 2, 2014 and August 3, 2013 is as follows:



	Thirteen Weeks Ended				Twenty-six Weeks Ended
($ thousands)	August 2, 2014		August 3, 2013		August 2, 2014		August 3, 2013
Net sales	$	–	$	3,775	$	–	$	24,312
Cost of goods sold		–		2,221		–		18,852
Gross profit		–		1,554		–		5,460
Selling and administrative expenses		–		1,020		–		5,881
Restructuring and other special charges, net		–		2,484		–		10,769
Operating loss		–		(1,950)		–		(11,190)
Interest expense		–		(18)		–		(87)
Interest income		–		–		–		89
Loss before income taxes from discontinued operations		–		(1,968)		–		(11,188)
Income tax benefit		–		2,588		–		6,171
Earnings (loss) from discontinued operations, net of tax	$	–	$	620	$	–	$	(5,017)

~~Loss from discontinued operations, net of tax for the thirteen weeks ended May 3, 2014 and May 4, 2013 is as follows:~~

Thirteen Weeks Ended
($ thousands)
May 3, 2014

May 4, 2013
Net sales
$
–

$
20,537
Cost of goods sold

–

16,630
Gross profit

–

3,907
Selling and administrative expenses

–

4,861
Restructuring and other special charges, net

–

8,286
Operating loss

–

(9,240)
Interest expense

–

(69)
Interest income

–

89
Loss before income taxes from discontinued operations

–

(9,220)
Income tax benefit

–

3,583
Loss from discontinued operations, net of tax
$
–

$
(5,637)

Note 4

Earnings (Loss) Per Share

The Company uses the two-class method to compute basic and diluted earnings (loss) 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) per common share attributable to Brown Shoe Company, Inc. shareholders for the periods ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013:



	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
	May 3,		May 4,		August 2,		August 3,		August 2,		August 3,
($ thousands, except per share amounts)		2014		2013
(thousands, except per share amounts)						2014		2013		2014		2013
NUMERATOR
Net earnings from continuing operations	$	15,476	$	7,359	$	18,039	$	13,621	$	33,515	$	20,980
Net (earnings) loss attributable to noncontrolling interests		(47)		70
Net loss (earnings) attributable to noncontrolling interests						25		74		(22)		144
Net earnings allocated to participating securities		(592)		–		(669)		(580)		(1,262)		(266)
Net earnings from continuing operations		14,837		7,429		17,395		13,115		32,231		20,858
Net loss from discontinued operations		–		(18,191)
Net earnings (loss) from discontinued operations						–		1,662		–		(16,529)
Net earnings allocated to participating securities		–		–		–		(71)		–		–
Net loss from discontinued operations		–		(18,191)
Net earnings (loss) attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities	$	14,837	$	(10,762)
Net earnings (loss) from discontinued operations						–		1,591		–		(16,529)
Net earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities					$	17,395	$	14,706	$	32,231	$	4,329

DENOMINATOR
Denominator for basic continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders		41,887		41,070		42,074		41,348		41,980		41,209
Dilutive effect of share-based awards for continuing operations and discontinued operations		229		198		202		316		218		267
Denominator for diluted continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders		42,116		41,268		42,276		41,664		42,198		41,476

Basic earnings (loss) per common share:
From continuing operations	$	0.35	$	0.18	$	0.41	$	0.32	$	0.77	$	0.51
From discontinued operations		–		(0.44)		–		0.04		–		(0.40)
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.35	$	(0.26)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders					$	0.41	$	0.36	$	0.77	$	0.11

Diluted earnings (loss) per common share:
From continuing operations	$	0.35	$	0.18	$	0.41	$	0.31	$	0.76	$	0.50
From discontinued operations		–		(0.44)		–		0.04		–		(0.40)
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.35	$	(0.26)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders					$	0.41	$	0.35	$	0.76	$	0.10

Options to purchase ~~74,997~~64,497 and ~~432,466~~134,247 shares of common stock for the thirteen weeks ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013, respectively, and 64,497 and 224,153 shares of common stock for the twenty-six weeks ended August 2, 2014 and August 3, 2013, 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 anti-dilutive.

Note 5

Restructuring and Other Initiatives

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,~~terms; and other infrastructure changes. These portfolio realignment efforts began in 2011 and are complete.

During the ~~first quarter of~~thirteen and twenty-six weeks ended August 2, 2014, the Company incurred no expenses for portfolio realignment initiatives. The following is a summary of the Company’s portfolio realignment expense for our continuing and discontinued operations for the thirteen and twenty-six weeks ended ~~May 4,~~August 3, 2013:



		Thirteen Weeks Ended						Thirteen Weeks Ended						Twenty-six Weeks Ended
($ millions, except per share data)		Pre-tax Expense		After-tax Expense		Loss Per Diluted Share		Pre-tax Expense (Income)		After-tax Expense (Income)		Loss (Earnings) Per Diluted Share		Pre-tax Expense		After-tax Expense		Loss Per Diluted Share
May 4, 2013
August 3, 2013
Continuing Operations
Business exits and cost reductions	$	0.5	$	0.3	$	0.01	$	0.7	$	0.5	$	0.01	$	1.2	$	0.8	$	0.02
Non-cash impairments/dispositions		4.7		4.7		0.11		–		–		–		4.7		4.7		0.11
Total Continuing Operations		5.2		5.0		0.12		0.7		0.5		0.01		5.9		5.5		0.13
Discontinued Operations
Business exits and cost reductions		11.1		7.1		0.16		2.1		(0.7)		(0.01)		13.3		6.4		0.13
Non-cash impairments/dispositions		12.5		12.5		0.30		(1.0)		(1.0)		(0.02)		11.5		11.5		0.28
Total Discontinued Operations		23.6		19.6		0.46		1.1		(1.7)		(0.03)		24.8		17.9		0.41
Total	$	28.8	$	24.6	$	0.58	$	1.8	$	(1.2)	$	(0.02)	$	30.7	$	23.4	$	0.54

OfAll of the ~~$28.8 million ($24.6 million after-tax, or $0.58 per diluted share) of~~continuing operations portfolio realignment costs incurred during the ~~first quarter of~~thirteen and twenty-six weeks ended August 3, 2013 ~~$27.7 million is~~are included in the Wholesale Operations ~~segment and $1.1 million is included in the Other~~ segment. The business exits and cost reductions of the Company’s continuing operations were recorded within restructuring and other special charges, net in the condensed consolidated statements of earnings. The business exits and cost reductions of the Company’s discontinued operations were recorded within ~~loss~~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 statements of earnings. The non-cash impairments/dispositions of the Company’s discontinued operations were recorded within disposition/impairment of discontinued operations, net of tax in the condensed consolidated statements of earnings. The non-cash impairments/dispositions are included in Other in the following table.

The following is a summary of the charges and settlements by category of ~~costs:~~costs. The Company expects all portfolio realignment costs to be settled by the end of fiscal 2016.



													Total by Classification															Total by Classification
($ millions)		Employee	Markdowns and Royalty Shortfalls				Facility			Other		Total			Continuing Operations		Discontinued Operations		Employee	Markdowns and Royalty Shortfalls			Facility		Other		Total			Continuing Operations		Discontinued Operations
Reserve balance at February 2, 2013	$	1.7	$	0.2		$	3.3		$	0.3	$	5.5		$	5.3	$	0.2	$	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			5.2		23.6
Amounts settled in first quarter 2013		(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			3.5		8.0
Additional charges (recoveries) in 2013		2.2		(0.3)			–			–		1.9			0.7		1.2
Additional charges in 2013																			2.6		2.7		0.1		25.3		30.7			5.9		24.8
Amounts settled in 2013		(2.3)		(0.1)			(1.2)			(7.4)		(11.0)			(2.7)		(8.3)		(3.3)		(2.9)		(2.0)		(25.6)		(33.8)			(9.7)		(24.1)
Reserve balance at February 1, 2014	$	1.0	$	–	–	$	1.4	–	$	–	$	2.4		$	1.5	$	0.9	$	1.0	$	–	$	1.4	$	–	$	2.4		$	1.5	$	0.9
Additional charges in first quarter 2014		–		–			–			–		–			–		–		–		–		–		–		–			–		–
Amounts settled in first quarter 2014		(0.4)		–			(0.1)			–		(0.5)			(0.1)		(0.4)		(0.4)		–		(0.1)		–		(0.5)			(0.1)		(0.4)
Reserve balance at May 3, 2014	$	0.6	$	–		$	1.3		$	–	$	1.9		$	1.4	$	0.5	$	0.6	$	–	$	1.3	$	–	$	1.9		$	1.4	$	0.5
Additional charges in second quarter 2014																			–		–		–		–		–			–		–
Amounts settled in second quarter 2014																			(0.4)		–		(0.1)		–		(0.5)			–		(0.5)
Reserve balance at August 2, 2014																		$	0.2	$	–	$	1.2	$	–	$	1.4		$	1.4	$	–

Sale of Sourcing and Supply Chain Assets

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, including $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. In anticipation of this transaction, 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 charge in the first quarter of 2013 of $4.7 million ($4.7 million after tax, or $0.11 per diluted share) to adjust the assets to their estimated fair value. The promissory note requires installments over two years with the first payment of $3.0 million due no later than 45 days from the closing date and the remaining balance payable in eight quarterly payments of $0.6 million, subject to working capital adjustments, plus accrued interest of 5%, compounded monthly, starting no later than three months after the closing date. In accordance with the terms of the promissory note, as of ~~May 3,~~August 2, 2014, the Company has received a total of ~~$4.8~~$5.2 million of installment payments. As part of the Sale Agreement, the Company agreed to

purchase a minimum of four million pairs of shoes each year for two years following the closing date at market pricing, which can be fulfilled from a group of facilities owned by the purchaser.

Note 6

Business Segment Information

Following is a summary of certain key financial measures for the Company’s business segments for the periods ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013. All financial measures below exclude discontinued operations.



		Famous		Wholesale		Specialty						Famous		Wholesale		Specialty
($ thousands)		Footwear		Operations		Retail		Other		Total		Footwear		Operations		Retail		Other		Total

Thirteen Weeks Ended May 3, 2014
Thirteen Weeks Ended August 2, 2014											Thirteen Weeks Ended August 2, 2014
External sales	$	354,623	$	191,785	$	44,754	$	–	$	591,162	$	393,631	$	194,269	$	47,977	$	–	$	635,877
Intersegment sales		505		31,980		–		–		32,485		554		53,277		–		–		53,831
Operating earnings (loss)		27,871		13,754		(3,692)		(9,207)		28,726		26,558		19,249		(2,786)		(11,719)		31,302
Segment assets - continuing operations		503,239		414,778		57,139		133,806		1,108,962		585,580		513,327		53,397		136,778		1,289,082

Thirteen Weeks Ended May 4, 2013
Thirteen Weeks Ended August 3, 2013
External sales	$	352,279	$	181,625	$	54,752	$	–	$	588,656	$	388,259	$	180,440	$	53,007	$	–	$	621,706
Intersegment sales		606		36,729		–		–		37,335		604		64,203		–		–		64,807
Operating earnings (loss)		29,042		3,107		(1,329)		(9,862)		20,958		28,969		8,196		(1,826)		(12,527)		22,812
Segment assets - continuing operations		450,900		356,903		60,685		135,891		1,004,379		529,944		428,664		83,852		136,899		1,179,359
Segment assets - held for sale		–		12,496		–		–		12,496

Twenty-six Weeks Ended August 2, 2014											Twenty-six Weeks Ended August 2, 2014
External sales											$	748,254	$	386,054	$	92,731	$	–	$	1,227,039
Intersegment sales												1,059		85,258		–		–		86,317
Operating earnings (loss)												54,429		33,003		(6,478)		(20,926)		60,028

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

The Other ~~segment~~category includes corporate assets, administrative expenses, and other costs and recoveries, which are not allocated to the operating segments.

Following is a reconciliation of operating earnings to earnings before income taxes from continuing operations:



	Thirteen Weeks Ended				Thirteen Weeks Ended				Twenty-six Weeks Ended
	May 3,		May 4,		August 2,		August 3,		August 2,		August 3,
($ thousands)		2014		2013		2014		2013		2014		2013
Operating earnings	$	28,726	$	20,958	$	31,302	$	22,812	$	60,028	$	43,770
Interest expense		(5,306)		(5,721)		(5,125)		(5,192)		(10,431)		(10,913)
Interest income		76		68		109		82		185		150
Earnings before income taxes from continuing operations	$	23,496	$	15,305	$	26,286	$	17,702	$	49,782	$	33,007

Note 7

Goodwill and Intangible Assets

Goodwill and intangible assets were attributable to the Company's operating segments as follows:



	May 3,		May 4,		February 1,		August 2,		August 3,		February 1,
($ thousands)		2014		2013		2014		2014		2013		2014

Intangible Assets
Famous Footwear	$	2,800	$	2,800	$	2,800	$	2,800	$	2,800	$	2,800
Wholesale Operations		183,068		118,003		118,003		183,068		118,003		118,003
Specialty Retail		200		200		200		200		200		200
Total intangible assets		186,068		121,003		121,003		186,068		121,003		121,003
Accumulated amortization		(62,272)		(56,762)		(61,284)		(63,260)		(58,269)		(61,284)
Total intangible assets, net		123,796		64,241		59,719		122,808		62,734		59,719
Goodwill
Wholesale Operations		13,954		16,755		13,954		13,954		13,954		13,954
Total goodwill		13,954		16,755		13,954		13,954		13,954		13,954
Goodwill and intangible assets, net	$	137,750	$	80,996	$	73,673	$	136,762	$	76,688	$	73,673

Intangible assets consist primarily of owned and licensed trademarks, $21.0 million of which are not subject to amortization, with the remainder being amortized over useful lives ranging from four to 40 years as of ~~May 3,~~August 2, 2014. Amortization expense related to intangible assets was $1.0 million and ~~$1.7~~$1.5 million for the thirteen weeks and $2.0 million and $3.2 million for the twenty-six weeks ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013, respectively.

On February 3, 2014, the Company entered into and simultaneously closed an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which the Company acquired the Franco Sarto trademarks. As consideration, the Company ~~agreed to pay~~paid a cash purchase price of $65.0 million ~~which was paid~~ at the time of closing. As a result of entering into and closing the Asset Purchase Agreement, the Company’s license agreement, granting the Company the right to sell footwear and other products using the Franco Sarto trademarks through 2019, was terminated. The purchase price of $65.0 million, as well as transaction costs of $0.1 million, will be amortized over its useful life of 40 years.

Note 8

Shareholders’ Equity

The following tables set forth the changes in Brown Shoe Company, Inc. shareholders’ equity and noncontrolling interests for the ~~thirteen~~twenty-six weeks ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013, respectively:



($ thousands)	Brown Shoe Company, Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity		Brown Shoe Company, Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
Equity at February 1, 2014	$	476,699	$	663	$	477,362	$	476,699	$	663	$	477,362
Net earnings		15,429		47		15,476		33,493		22		33,515
Other comprehensive income (loss)		477		(12)		465
Other comprehensive loss								(35)		(15)		(50)
Dividends paid		(3,053)		–		(3,053)		(6,110)		–		(6,110)
Issuance of common stock under share-based plans, net		(803)		–		(803)		(523)		–		(523)
Tax benefit related to share-based plans		1,769		–		1,769		2,097		–		2,097
Share-based compensation expense		1,555		–		1,555		2,961		–		2,961
Equity at May 3, 2014	$	492,073	$	698	$	492,771
Equity at August 2, 2014							$	508,582	$	670	$	509,252



($ 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 paid		(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

Accumulated Other Comprehensive Income (Loss)

The following table sets forth the changes in accumulated other comprehensive income (loss) by component for the thirteen and twenty-six weeks ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013:



							Accumulated								Accumulated
	Foreign				Pension and Other		Other		Foreign		Pension and Other				Other
	Currency		Derivative		Postretirement		Comprehensive		Currency		Postretirement		Derivative		Comprehensive
($ thousands)	Translation		Transactions		Transactions		Income (Loss)		Translation		Transactions		Transactions		Income (Loss)
Balance February 1, 2014	$	2,356	$	738	$	13,582	$	16,676	$	2,356	$	13,582	$	738	$	16,676
Other comprehensive income (loss) before reclassifications		887		(333)		–		554		887		–		(333)		554
Amounts reclassified from accumulated other comprehensive income		–		(54)		(23)		(77)
Amounts reclassified from accumulated other comprehensive income (loss)										–		(23)		(54)		(77)
Other comprehensive income (loss)		887		(387)		(23)		477		887		(23)		(387)		477
Balance May 3, 2014	$	3,243	$	351	$	13,559	$	17,153	$	3,243	$	13,559	$	351	$	17,153
Other comprehensive income (loss) before reclassifications										244		–		(761)		(517)
Amounts reclassified from accumulated other comprehensive income (loss)										–		(33)		38		5
Other comprehensive income (loss)										244		(33)		(723)		(512)
Balance August 2, 2014									$	3,487	$	13,526	$	(372)	$	16,641

Balance February 2, 2013	$	6,912	$	(81)	$	(5,947)	$	884	$	6,912	$	(5,947)	$	(81)	$	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 income (loss)										–		145		(87)		58
Other comprehensive (loss) income		(690)		(114)		145		(659)		(690)		145		(114)		(659)
Balance May 4, 2013	$	6,222	$	(195)	$	(5,802)	$	225	$	6,222	$	(5,802)	$	(195)	$	225
Other comprehensive (loss) income before reclassifications										(900)		–		662		(238)
Amounts reclassified from accumulated other comprehensive income (loss)										–		136		(150)		(14)
Other comprehensive (loss) income										(900)		136		512		(252)
Balance August 3, 2013									$	5,322	$	(5,666)	$	317	$	(27)

1415

The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) and the related tax effect by component for the thirteen and twenty-six weeks ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013:


		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)							Affected Line Item in the
		Thirteen Weeks Ended				Twenty-six Weeks Ended			Condensed Consolidated
($ thousands)		August 2, 2014		August 3, 2013		August 2, 2014		August 3, 2013	Statements of Earnings
Net losses (gains) from derivative financial instruments (1)	$	55	$	(230)	$	(23)	$	(362)	Costs of goods sold and selling and administrative expenses
Tax (benefit) provision		(17)		80		7		125	Income tax provision
Net losses (gains) from derivative financial instruments, net of tax		38		(150)		(16)		(237)

Pension and other postretirement benefits actuarial (gain) loss (2)		(65)		217		(115)		445	Selling and administrative expenses
Pension benefits prior service expense (2)		6		4		14		6	Selling and administrative expenses
Pension and other postretirement benefits adjustments		(59)		221		(101)		451
Tax provision (benefit)		26		(85)		45		(170)	Income tax provision
Pension and other postretirement benefits adjustments, net of tax		(33)		136		(56)		281
Amounts reclassified from accumulated other comprehensive income (loss)	$	5	$	(14)	$	(72)	$	44

Amounts Reclassified from Accumulated Other Comprehensive Income
Affected Line Item in the

Thirteen Weeks Ended
Condensed Consolidated
($ thousands)

May 3, 2014

May 4, 2013
Statements of Earnings
Net gains from derivative financial instruments (1)
$
(78)

$
(132)
Costs of goods sold and selling and administrative expenses
Tax provision

24

45
Income tax provision
Net gains from derivative financial instruments, net of tax

(54)

(87)

Pension and other postretirement benefits actuarial (gain) loss (2)

(50)

228
Selling and administrative expenses
Pension benefits prior service expense (2)

8

2
Selling and administrative expenses
Pension and other postretirement benefits adjustments

(42)

230

Tax provision (benefit)

19

(85)
Income tax provision
Pension and other postretirement benefits adjustments, net of tax

(23)

145

Amounts reclassified from accumulated other comprehensive income
$
(77)

$
58

(1)

See Note 11 and 12 to the condensed consolidated financial statements for additional information related to derivative financial instruments.

(2)

See Note 10 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits.

1516


Note 9	Share-Based Compensation

The Company recognized share-based compensation expense of ~~$1.6~~$1.4 million ~~for both~~and $1.3 million during the thirteen weeks and $3.0 million and $2.9 million during the twenty-six weeks ended ~~May 3,~~August 2, 2014 and ~~May 4, 2013.~~August 3, 2013, respectively.

The Company issued ~~452,125~~62,117 shares of common stock during the thirteen weeks and 514,242 shares of common stock during the twenty-six weeks ended ~~May 3,~~August 2, 2014, respectively, for restricted stock grants, stock options exercised, and directors’ fees.

During the thirteen weeks ended ~~May 3,~~August 2, 2014, the Company granted ~~270,910~~8,800 restricted shares to certain employees with a weighted-average grant date fair value of ~~$28.18.~~$28.02. During the twenty-six weeks ended August 2, 2014, the Company granted 279,710 restricted shares to certain employees with a weighted-average grant date fair value of $28.17. Of the ~~270,910~~279,710 restricted shares ~~269,110 restricted~~granted, 277,910 of the shares will vest in four years and share-based compensation expense will be recognized on a straight-line basis over the four-year period. The remaining 1,800 restricted shares will vest in one year. During both the thirteen and twenty-six weeks ended ~~May 3,~~August 2, 2014, the Company ~~did not cancel any~~cancelled 27,600 shares of restricted stock awards as a result of forfeitures.

~~The~~During the thirteen and twenty-six weeks ended August 2, 2014, the Company granted zero and 88,185 performance share units, ~~during the thirteen weeks ended May 3, 2014~~respectively, with a weighted-average grant date fair value of $28.18. Vesting of performance-based units is dependent upon the financial performance of the Company and the attainment of certain financial goals during the next three years. Performance share units are settled 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. Compensation expense is being recognized based on the fair value of the award 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 their fair value is ~~dependent upon the Company’s stock price. As a result, these performance share units are adjusted each period~~ based on the unadjusted quoted market price for the Company’s common ~~stock.~~ stock on each measurement date.

The Company also granted ~~910 restricted stock units for dividend equivalents on previously granted~~39,476 and 40,387 restricted stock units to non-employee directors with a weighted-average grant date fair ~~value~~values of ~~$26.63~~$28.73 and $28.68, respectively, during the thirteen and twenty-six weeks ended ~~May 3,~~August 2, 2014. ~~All~~Of the 39,476 restricted stock units granted during the thirteen weeks ended ~~May 3,~~August 2, 2014, 776 restricted stock units for dividend equivalents vested immediately asand compensation expense was fully recognized during the period. The remaining 38,700 restricted stock units vest in one year, and compensation expense will be recognized ratably over the one-year period based upon the fair value of the ~~payment date for~~restricted stock units, as remeasured at the ~~dividend.~~end of each period.

Note 10

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:



	Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits
	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirteen Weeks Ended				Thirteen Weeks Ended
	May 3,		May 4,		May 3,		May 4,		August 2,		August 3,		August 2,		August 3,
($ thousands)		2014		2013		2014		2013		2014		2013		2014		2013
Service cost	$	2,587	$	2,891	$	–	$	–	$	2,239	$	2,583	$	–	$	–
Interest cost		3,556		3,331		13		35		3,560		3,304		12		35
Expected return on assets		(6,184)		(6,179)		–		–		(6,197)		(6,197)		–		–
Amortization of:
Actuarial loss (gain)		35		248		(85)		(20)		67		237		(132)		(20)
Prior service expense		8		2		–		–		6		4		–		–
Total net periodic benefit cost (income)	$	2	$	293	$	(72)	$	15
Total net periodic benefit (income) cost									$	(325)	$	(69)	$	(120)	$	15


									Pension Benefits				Other Postretirement Benefits
									Twenty-six Weeks Ended				Twenty-six Weeks Ended
									August 2,		August 3,		August 2,		August 3,
($ thousands)										2014		2013		2014		2013
Service cost									$	4,826	$	5,474	$	–	$	–
Interest cost										7,116		6,635		24		70
Expected return on assets										(12,381)		(12,376)		–		–
Amortization of:
Actuarial loss (gain)										102		485		(217)		(40)
Prior service expense										14		6		–		–
Total net periodic benefit (income) cost									$	(323)	$	224	$	(193)	$	30

Note 11

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 ~~May~~July 2015. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The ~~Company~~Company’s hedging strategy principally uses foreign currency forward contracts as cash flow hedges, which are recorded in the condensed consolidated balance sheet at fair value, 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 effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive income (loss) and reclassified to earnings in the period that the hedged transaction is recognized in earnings. 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.~~method. The amount of hedge ineffectiveness for the thirteen and twenty-six weeks ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013 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 income and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

As of ~~May~~August 2, 2014, August 3, ~~2014, May 4,~~ 2013, and February 1, 2014, the Company had forward contracts maturing at various dates through ~~May~~July 2015, ~~May~~August 2014, and January 2015, respectively. The contract notional amount represents the net amount of all purchase and sale contracts of a foreign currency.



	Contract Amount						Contract Notional Amount
(U.S. $ equivalent in thousands)	May 3, 2014		May 4, 2013		February 1, 2014		August 2, 2014		August 3, 2013		February 1, 2014
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	22,369	$	17,869	$	20,197	$	20,973	$	20,397	$	20,197
Chinese yuan		14,386		15,460		15,278		14,524		15,128		15,278
Euro		14,284		6,080		11,270		12,331		7,064		11,270
Japanese yen		1,625		1,500		1,586		1,613		1,370		1,586
Other currencies		1,318		1,407		1,345		1,413		1,412		1,345
Total financial instruments	$	53,982	$	42,316	$	49,676	$	50,854	$	45,371	$	49,676

The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of ~~May~~August 2, 2014, August 3, ~~2014, May 4,~~ 2013, and February 1, 2014 are as follows:

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

Foreign exchange forward contracts:

May 3, 2014