[X]
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 30, 2011
|
[ ]
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____________ to _____________
|
BROWN SHOE COMPANY, INC.
(Exact name of registrant as specified in its charter)
|
|
New York
(State or other jurisdiction
of incorporation or organization)
|
43-0197190
(IRS Employer Identification Number)
|
8300 Maryland Avenue
St. Louis, Missouri
(Address of principal executive offices)
|
63105
(Zip Code)
|
(314) 854-4000
(Registrant's telephone number, including area code)
|
|
Large accelerated filer £
|
Accelerated filer R
|
Non-accelerated filer £
|
Smaller reporting company £
|
(Do not check if a smaller reporting company)
|
PART I
|
FINANCIAL INFORMATION
|
ITEM 1
|
FINANCIAL STATEMENTS
|
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|||||||||
($ thousands)
|
July 30, 2011
|
July 31, 2010
|
January 29, 2011
|
||||||
Assets
|
|||||||||
Current assets
|
|||||||||
Cash and cash equivalents
|
$
|
62,553
|
$
|
30,724
|
$
|
126,548
|
|||
Receivables
|
158,595
|
106,149
|
113,937
|
||||||
Inventories
|
627,929
|
578,085
|
524,250
|
||||||
Prepaid expenses and other current assets
|
49,360
|
33,206
|
43,546
|
||||||
Total current assets
|
898,437
|
748,164
|
808,281
|
||||||
Other assets
|
139,109
|
118,884
|
133,538
|
||||||
Goodwill and intangible assets, net
|
174,299
|
73,876
|
70,592
|
||||||
Property and equipment
|
435,624
|
418,190
|
423,103
|
||||||
Allowance for depreciation
|
(296,546
|
)
|
(281,983
|
)
|
(287,471
|
)
|
|||
Net property and equipment
|
139,078
|
136,207
|
135,632
|
||||||
Total assets
|
$
|
1,350,923
|
$
|
1,077,131
|
$
|
1,148,043
|
|||
Liabilities and Equity
|
|||||||||
Current liabilities
|
|||||||||
Borrowings under revolving credit agreement
|
$
|
250,000
|
$
|
35,500
|
$
|
198,000
|
|||
Trade accounts payable
|
295,826
|
294,845
|
167,190
|
||||||
Other accrued expenses
|
139,698
|
139,675
|
146,715
|
||||||
Total current liabilities
|
685,524
|
470,020
|
511,905
|
||||||
Other liabilities
|
|||||||||
Long-term debt
|
198,540
|
150,000
|
150,000
|
||||||
Deferred rent
|
33,445
|
38,011
|
34,678
|
||||||
Other liabilities
|
42,692
|
27,555
|
35,551
|
||||||
Total other liabilities
|
274,677
|
215,566
|
220,229
|
||||||
Equity
|
|||||||||
Common stock
|
423
|
439
|
439
|
||||||
Additional paid-in capital
|
114,712
|
130,621
|
134,270
|
||||||
Accumulated other comprehensive income
|
7,830
|
1,567
|
6,141
|
||||||
Retained earnings
|
267,112
|
258,444
|
274,230
|
||||||
Total Brown Shoe Company, Inc. shareholders’ equity
|
390,077
|
391,071
|
415,080
|
||||||
Noncontrolling interests
|
645
|
474
|
829
|
||||||
Total equity
|
390,722
|
391,545
|
415,909
|
||||||
Total liabilities and equity
|
$
|
1,350,923
|
$
|
1,077,131
|
$
|
1,148,043
|
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
(Unaudited)
|
(Unaudited)
|
||||||||||||
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
||||||||||||
($ thousands, except per share amounts)
|
July 30,
2011
|
July 31,
2010
|
July 30,
2011
|
July 31,
2010
|
|||||||||
Net sales
|
$
|
628,128
|
$
|
585,756
|
$
|
1,252,748
|
$
|
1,183,474
|
|||||
Cost of goods sold
|
391,583
|
347,286
|
766,403
|
697,444
|
|||||||||
Gross profit
|
236,545
|
238,470
|
486,345
|
486,030
|
|||||||||
Selling and administrative expenses
|
235,696
|
224,448
|
471,164
|
448,963
|
|||||||||
Restructuring and other special charges, net
|
689
|
1,891
|
2,433
|
3,608
|
|||||||||
Operating earnings
|
160
|
12,131
|
12,748
|
33,459
|
|||||||||
Interest expense
|
(6,520
|
)
|
(4,810
|
)
|
(13,218
|
)
|
(9,322
|
)
|
|||||
Loss on early extinguishment of debt
|
(1,003
|
)
|
–
|
(1,003
|
)
|
–
|
|||||||
Interest income
|
65
|
49
|
150
|
67
|
|||||||||
(Loss) earnings before income taxes
|
(7,298
|
)
|
7,370
|
(1,323
|
)
|
24,204
|
|||||||
Income tax benefit (provision)
|
2,530
|
(2,582
|
)
|
196
|
(8,881
|
)
|
|||||||
Net (loss) earnings
|
$
|
(4,768
|
)
|
$
|
4,788
|
$
|
(1,127
|
)
|
$
|
15,323
|
|||
Less: Net (loss) earnings attributable to
noncontrolling interests
|
(159
|
)
|
(473
|
)
|
(206
|
)
|
16
|
||||||
Net (loss) earnings attributable to Brown Shoe
Company, Inc.
|
$
|
(4,609
|
)
|
$
|
5,261
|
$
|
(921
|
)
|
$
|
15,307
|
|||
Basic (loss) earnings per common share attributable
to Brown Shoe Company, Inc. shareholders
|
$
|
(0.11
|
)
|
$
|
0.12
|
$
|
(0.02
|
)
|
$
|
0.35
|
|||
Diluted (loss) earnings per common share attributable
to Brown Shoe Company, Inc. shareholders
|
$
|
(0.11
|
)
|
$
|
0.12
|
$
|
(0.02
|
)
|
$
|
0.35
|
|||
Dividends per common share
|
$
|
0.07
|
$
|
0.07
|
$
|
0.14
|
$
|
0.14
|
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
||||||
Twenty-six Weeks Ended
|
||||||
($ thousands)
|
July 30,
2011
|
July 31,
2010
|
||||
Operating Activities
|
||||||
Net (loss) earnings
|
$
|
(1,127
|
)
|
$
|
15,323
|
|
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
|
||||||
Depreciation
|
18,565
|
16,028
|
||||
Amortization of capitalized software
|
6,657
|
5,010
|
||||
Amortization of intangibles
|
4,206
|
3,350
|
||||
Amortization of debt issuance costs
|
1,163
|
1,098
|
||||
Loss on early extinguishment of debt
|
1,003
|
–
|
||||
Share-based compensation expense
|
3,007
|
2,781
|
||||
Tax deficiency related to share-based plans
|
453
|
142
|
||||
Loss on disposal of facilities and equipment
|
454
|
617
|
||||
Impairment charges for facilities and equipment
|
746
|
1,684
|
||||
Deferred rent
|
(1,233
|
)
|
(858
|
)
|
||
Provision for doubtful accounts
|
422
|
80
|
||||
Changes in operating assets and liabilities, net of acquired businesses:
|
||||||
Receivables
|
(23,921
|
)
|
(21,923
|
)
|
||
Inventories
|
(56,405
|
)
|
(121,298
|
)
|
||
Prepaid expenses and other current and noncurrent assets
|
9,247
|
8,923
|
||||
Trade accounts payable
|
115,236
|
117,041
|
||||
Accrued expenses and other liabilities
|
(33,999
|
)
|
(714
|
)
|
||
Other, net
|
(1,011
|
)
|
(295
|
)
|
||
Net cash provided by operating activities
|
43,463
|
26,989
|
||||
Investing Activities
|
||||||
Purchases of property and equipment
|
(14,683
|
)
|
(12,844
|
)
|
||
Capitalized software
|
(7,098
|
)
|
(11,871
|
)
|
||
Acquisition cost (American Sporting Goods Corporation)
|
(156,636
|
)
|
–
|
|||
Cash recognized on initial consolidation
|
3,121
|
–
|
||||
Net cash used for investing activities
|
(175,296
|
)
|
(24,715
|
)
|
||
Financing Activities
|
||||||
Borrowings under revolving credit agreement
|
965,500
|
435,500
|
||||
Repayments under revolving credit agreement
|
(913,500
|
)
|
(494,500
|
)
|
||
Proceeds from issuance of 2019 Senior Notes
|
198,540
|
–
|
||||
Redemption of 2012 Senior Notes
|
(150,000
|
)
|
–
|
|||
Dividends paid
|
(6,197
|
)
|
(6,114
|
)
|
||
Debt issuance costs
|
(5,828
|
)
|
–
|
|||
Acquisition of treasury stock
|
(22,408
|
)
|
–
|
|||
Proceeds from stock options exercised
|
693
|
561
|
||||
Tax deficiency related to share-based plans
|
(453
|
)
|
(142
|
)
|
||
Acquisition of noncontrolling interests (Edelman Shoe, Inc.)
|
–
|
(32,692
|
)
|
|||
Net cash provided by (used for) financing activities
|
66,347
|
(97,387
|
)
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
1,491
|
4
|
||||
Decrease in cash and cash equivalents
|
(63,995
|
)
|
(95,109
|
)
|
||
Cash and cash equivalents at beginning of period
|
126,548
|
125,833
|
||||
Cash and cash equivalents at end of period
|
$
|
62,553
|
$
|
30,724
|
BROWN SHOE COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
Note 1
|
Basis of Presentation
|
Note 2
|
Impact of New and Prospective Accounting Pronouncements
|
Note 3
|
Acquisitions and Divestitures
|
($ millions)
|
As of
February 17, 2011
|
|
Cash and cash equivalents
|
$
|
3.1
|
Receivables
|
21.1
|
|
Inventories
|
46.5
|
|
Deferred income taxes
|
3.4
|
|
Prepaid expense and other current assets
|
12.2
|
|
Total current assets
|
86.3
|
|
Other assets
|
1.2
|
|
Goodwill
|
61.2
|
|
Intangible assets
|
46.7
|
|
Property and equipment
|
8.4
|
|
Total assets
|
$
|
203.8
|
Trade accounts payable
|
$
|
13.2
|
Other accrued expenses
|
18.0
|
|
Total current liabilities
|
31.2
|
|
Deferred income taxes
|
16.0
|
|
Total liabilities
|
$
|
47.2
|
Net assets
|
$
|
156.6
|
Thirteen Weeks Ended | Twenty-six Weeks Ended | ||||||||||||
(in thousands, except per share amounts)
|
July 30,
2011
|
July 31,
2010
|
July 30,
2011
|
July 31,
2010
|
|||||||||
Net sales
|
$
|
628,128
|
$
|
653,836
|
$
|
1,260,695
|
$
|
1,296,688
|
|||||
Net (loss) earnings attributable to Brown Shoe Company, Inc.
|
$
|
(3,823
|
)
|
$
|
11,030
|
$
|
2,786
|
$
|
20,303
|
||||
Basic (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders
|
$
|
(0.09
|
)
|
$
|
0.25
|
$
|
0.06
|
$
|
0.47
|
||||
Diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders
|
$
|
(0.09
|
)
|
$
|
0.25
|
$
|
0.06
|
$
|
0.46
|
Note 4
|
(Loss) Earnings Per Share
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
|||||||||||||
(in thousands, except per share amounts)
|
July 30,
2011
|
July 31,
2010
|
July 30,
2011
|
July 31,
2010
|
||||||||||
NUMERATOR
|
||||||||||||||
Net (loss) earnings attributable to Brown Shoe Company, Inc. before allocation of earnings to participating securities
|
$
|
(4,609
|
)
|
$
|
5,261
|
$
|
(921
|
)
|
$
|
15,307
|
||||
Less: Earnings allocated to participating securities
|
–
|
188
|
–
|
535
|
||||||||||
Net (loss) earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities
|
$
|
(4,609
|
)
|
$
|
5,073
|
$
|
(921
|
)
|
$
|
14,772
|
||||
DENOMINATOR
|
||||||||||||||
Denominator for basic (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders
|
41,852
|
42,147
|
42,164
|
41,951
|
||||||||||
Dilutive effect of share-based awards
|
–
|
316
|
–
|
316
|
||||||||||
Denominator for diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders
|
41,852
|
42,463
|
42,164
|
42,267
|
||||||||||
Basic (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders
|
$
|
(0.11
|
)
|
$
|
0.12
|
$
|
(0.02
|
)
|
$
|
0.35
|
||||
Diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders
|
$
|
(0.11
|
)
|
$
|
0.12
|
$
|
(0.02
|
)
|
$
|
0.35
|
Note 5
|
Comprehensive (Loss) Income and Changes in Equity
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
|||||||||||||
($ thousands)
|
July 30,
2011
|
July 31, 2010
|
July 30,
2011
|
July 31, 2010
|
||||||||||
Net (loss) earnings
|
$
|
(4,768
|
)
|
$
|
4,788
|
$
|
(1,127
|
)
|
$
|
15,323
|
||||
Other comprehensive (loss) income (“OCI”), net of tax:
|
||||||||||||||
Foreign currency translation adjustment
|
(353
|
)
|
(80
|
)
|
1,898
|
1,040
|
||||||||
Unrealized (losses) gains on derivative instruments, net of tax of $50 and $185 in the thirteen weeks and $101 and $44 in the twenty-six weeks ended July 30, 2011 and July 31, 2010, respectively
|
(27
|
)
|
482
|
(236
|
)
|
187
|
||||||||
Net loss from derivatives reclassified into earnings, net of tax of $3 and $35 in the thirteen weeks and $9 and $89 in the twenty-six weeks ended July 30, 2011 and July 31, 2010, respectively
|
14
|
64
|
27
|
169
|
||||||||||
(366
|
)
|
466
|
1,689
|
1,396
|
||||||||||
Comprehensive (loss) income
|
$
|
(5,134
|
)
|
$
|
5,254
|
$
|
562
|
$
|
16,719
|
|||||
Less: Comprehensive (loss) income attributable to noncontrolling interests
|
(145
|
)
|
(467
|
)
|
(184
|
)
|
22
|
|||||||
Comprehensive (loss) income attributable to Brown Shoe Company, Inc.
|
$
|
(4,989
|
)
|
$
|
5,721
|
$
|
746
|
$
|
16,697
|
($ thousands)
|
July 30,
2011
|
July 31,
2010
|
January 29,
2011
|
||||||
Foreign currency translation gains
|
$
|
8,179
|
$
|
5,188
|
$
|
6,281
|
|||
Unrealized losses on derivative instruments, net of tax
|
(522
|
)
|
(361
|
)
|
(313
|
)
|
|||
Pension and other postretirement benefits, net of tax
|
173
|
(3,260
|
)
|
173
|
|||||
Accumulated other comprehensive income
|
$
|
7,830
|
$
|
1,567
|
$
|
6,141
|
($ thousands)
|
Brown Shoe
Company, Inc.
Shareholders’ Equity
|
Noncontrolling
Interests
|
Total Equity
|
||||||
Equity at January 29, 2011
|
$
|
415,080
|
$
|
829
|
$
|
415,909
|
|||
Comprehensive income (loss)
|
746
|
(184
|
)
|
562
|
|||||
Dividends paid
|
(6,197
|
)
|
–
|
(6,197
|
)
|
||||
Acquisition of treasury stock
|
(22,408
|
)
|
–
|
(22,408
|
)
|
||||
Stock issued under share-based plans
|
302
|
–
|
302
|
||||||
Tax deficiency related to share-based plans
|
(453
|
)
|
–
|
(453
|
)
|
||||
Share-based compensation expense
|
3,007
|
–
|
3,007
|
||||||
Equity at July 30, 2011
|
$
|
390,077
|
$ |
645
|
$ |
390,722
|
($ thousands)
|
Brown Shoe
Company, Inc.
Shareholders’ Equity
|
Noncontrolling
Interests
|
Total Equity
|
||||||
Equity at January 30, 2010
|
$
|
402,171
|
$
|
9,056
|
$
|
411,227
|
|||
Comprehensive income
|
16,697
|
22
|
16,719
|
||||||
Dividends paid
|
(6,114
|
)
|
–
|
(6,114
|
)
|
||||
Acquisition of noncontrolling interest (Edelman Shoe, Inc.)
|
|||||||||
Stock issued in connection with the acquisition of the noncontrolling interest
|
7,309
|
–
|
7,309
|
||||||
Distribution to noncontrolling interest
|
(31,397
|
)
|
(8,604
|
)
|
(40,001
|
)
|
|||
Stock issued under share-based plans
|
(234
|
)
|
–
|
(234
|
)
|
||||
Tax deficiency related to share-based plans
|
(142
|
)
|
–
|
(142
|
)
|
||||
Share-based compensation expense
|
2,781
|
–
|
2,781
|
||||||
Equity at July 31, 2010
|
$
|
391,071
|
$
|
474
|
$
|
391,545
|
Note 6
|
Restructuring and Other Special Charges, Net
|
Note 7
|
Business Segment Information
|
($ thousands)
|
Famous
Footwear
|
Wholesale
Operations
|
Specialty
Retail
|
Other
|
Total
|
|||||||||||
Thirteen Weeks Ended July 30, 2011
|
||||||||||||||||
External sales
|
$
|
344,930
|
$
|
222,655
|
$
|
60,543
|
$
|
–
|
$
|
628,128
|
||||||
Intersegment sales
|
400
|
56,012
|
–
|
–
|
56,412
|
|||||||||||
Operating earnings (loss)
|
7,495
|
4,083
|
(3,012
|
)
|
(8,406
|
)
|
160
|
|||||||||
Operating segment assets
|
527,195
|
629,116
|
54,262
|
140,350
|
1,350,923
|
|||||||||||
Thirteen Weeks Ended July 31, 2010
|
||||||||||||||||
External sales
|
$
|
347,316
|
$
|
178,643
|
$
|
59,797
|
$
|
–
|
$
|
585,756
|
||||||
Intersegment sales
|
438
|
47,215
|
–
|
–
|
47,653
|
|||||||||||
Operating earnings (loss)
|
15,751
|
9,027
|
(2,746
|
)
|
(9,901
|
)
|
12,131
|
|||||||||
Operating segment assets
|
548,683
|
348,148
|
54,629
|
125,671
|
1,077,131
|
|||||||||||
Twenty-six Weeks Ended July 30, 2011
|
||||||||||||||||
External sales
|
$
|
687,657
|
$
|
444,784
|
$
|
120,307
|
$
|
–
|
$
|
1,252,748
|
||||||
Intersegment sales
|
801
|
97,269
|
–
|
–
|
98,070
|
|||||||||||
Operating earnings (loss)
|
26,277
|
10,610
|
(6,756
|
)
|
(17,383
|
)
|
12,748
|
|||||||||
Twenty-six Weeks Ended July 31, 2010
|
||||||||||||||||
External sales
|
$
|
709,486
|
$
|
353,372
|
$
|
120,616
|
$
|
–
|
$
|
1,183,474
|
||||||
Intersegment sales
|
971
|
88,328
|
–
|
–
|
89,299
|
|||||||||||
Operating earnings (loss)
|
43,934
|
17,706
|
(5,655
|
)
|
(22,526
|
)
|
33,459
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
||||||||||||
($ thousands)
|
July 30,
2011
|
July 31,
2010
|
July 30,
2011
|
July 31,
2010
|
|||||||||
Operating earnings
|
$
|
160
|
$
|
12,131
|
$
|
12,748
|
$
|
33,459
|
|||||
Interest expense
|
(6,520
|
)
|
(4,810
|
)
|
(13,218
|
) |
(9,322
|
)
|
|||||
Loss on early extinguishment of debt
|
(1,003
|
)
|
–
|
(1,003
|
)
|
–
|
|||||||
Interest income
|
65
|
49
|
150
|
67
|
|||||||||
(Loss) earnings before income taxes
|
$
|
(7,298
|
)
|
$
|
7,370
|
$
|
(1,323
|
)
|
$
|
24,204
|
Note 8
|
Goodwill and Intangible Assets
|
($ thousands)
|
July 30, 2011
|
July 31, 2010
|
January 29, 2011
|
||||||
Famous Footwear
|
$
|
2,800
|
$
|
2,800
|
$
|
2,800
|
|||
Wholesale Operations
|
171,299
|
70,876
|
67,592
|
||||||
Specialty Retail
|
200
|
200
|
200
|
||||||
$
|
174,299
|
$
|
73,876
|
$
|
70,592
|
Intangible Assets
|
Estimated Useful
Life (in years)
|
Initial Fair Value
Assigned ($ in millions)
|
||
Subject to amortization:
|
||||
Trademarks
|
20
|
$ 7.4
|
||
Customer relationships
|
20
|
5.3
|
||
Licensing agreements
|
4
|
5.2
|
||
Total(1)
|
15.4
|
$ 17.9
|
||
(1)
|
Estimated useful life is calculated as the weighted-average total
|
|||
Not subject to amortization:
|
||||
Trademarks
|
Indefinite
|
$ 28.8
|
Note 9
|
Share-Based Compensation
|
Note 10
|
Retirement and Other Benefit Plans
|
Pension Benefits
|
Other Postretirement Benefits
|
|||||||||||
Thirteen Weeks Ended
|
Thirteen Weeks Ended
|
|||||||||||
($ thousands)
|
July 30,
2011
|
July 31,
2010
|
July 30,
2011
|
July 31,
2010
|
||||||||
Service cost
|
$
|
2,398
|
$
|
2,000
|
$
|
–
|
$
|
–
|
||||
Interest cost
|
3,150
|
3,042
|
44
|
44
|
||||||||
Expected return on assets
|
(5,191
|
)
|
(5,039
|
)
|
–
|
–
|
||||||
Amortization of:
|
|
|||||||||||
Actuarial loss (gain)
|
108
|
59
|
(25
|
)
|
(33
|
)
|
||||||
Prior service income
|
(3
|
)
|
(3
|
)
|
–
|
–
|
||||||
Net transition asset
|
(12
|
)
|
(11
|
)
|
–
|
–
|
||||||
Total net periodic benefit cost
|
$
|
450
|
$
|
48
|
$
|
19
|
$
|
11
|
Pension Benefits | Other Postretirement Benefits | ||||||||||||
Twenty-six Weeks Ended | Twenty-six Weeks Ended | ||||||||||||
($ thousands)
|
July 30,
2011
|
July 31,
2010
|
July 30,
2011
|
July 31,
2010
|
|||||||||
Service cost
|
$
|
4,458
|
$
|
3,826
|
$
|
–
|
$
|
–
|
|||||
Interest cost
|
6,242
|
6,029
|
88
|
97
|
|||||||||
Expected return on assets
|
(10,364
|
)
|
(10,103
|
)
|
–
|
–
|
|||||||
Amortization of:
|
|||||||||||||
Actuarial loss (gain)
|
207
|
85
|
(50
|
)
|
(48
|
)
|
|||||||
Prior service income
|
(3
|
)
|
(3
|
)
|
–
|
–
|
|||||||
Net transition asset
|
(23
|
)
|
(22
|
)
|
–
|
–
|
|||||||
Total net periodic benefit cost (income)
|
$
|
517
|
$
|
(188
|
)
|
$
|
38
|
$
|
49
|
Note 11
|
Long-Term and Short-Term Financing Arrangements
|
Year
|
Percentage
|
2014
|
105.344%
|
2015
|
103.563%
|
2016
|
101.781%
|
2017 and thereafter
|
100.000%
|
Note 12
|
Risk Management and Derivatives
|
Contract Amount
|
|||||||||||
(U.S. $ equivalent in thousands)
|
July 30, 2011
|
July 31, 2010
|
January 29, 2011
|
||||||||
Deliverable Financial Instruments
|
|||||||||||
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
|
$
|
19,002
|
$
|
19,040
|
$
|
19,200
|
|||||
Euro
|
6,027
|
7,244
|
5,977
|
||||||||
Other currencies
|
234
|
191
|
229
|
||||||||
Non-deliverable Financial Instruments
|
|||||||||||
Chinese yuan
|
15,711
|
12,531
|
13,199
|
||||||||
Japanese yen
|
1,219
|
1,552
|
1,344
|
||||||||
New Taiwanese dollars
|
1,163
|
1,155
|
1,263
|
||||||||
Other currencies
|
946
|
716
|
795
|
||||||||
$
|
44,302
|
$
|
42,429
|
$
|
42,007
|
Asset Derivatives
|
Liability Derivatives
|
|||||||||
($ in thousands)
|
Balance Sheet Location
|
Fair Value
|
Balance Sheet Location
|
Fair Value
|
||||||
Foreign exchange forward contracts:
|
||||||||||
July 30, 2011
|
Prepaid expenses and other current assets
|
$
|
120
|
Other accrued expenses
|
$
|
773
|
||||
July 31, 2010
|
Prepaid expenses and other current assets
|
$
|
165
|
Other accrued expenses
|
$
|
715
|
||||
January 29, 2011
|
Prepaid expenses and other current assets
|
$
|
223
|
Other accrued expenses
|
$
|
567
|
||||
($ in thousands)
|
Thirteen Weeks Ended
July 30, 2011
|
Thirteen Weeks Ended
July 31, 2010
|
||||||||||
Foreign exchange forward contracts:
Income Statement Classification
(Losses) Gains - Realized
|
(Loss) Gain
Recognized in
OCI on
Derivatives
|
Loss (Gain)
Reclassified from
Accumulated OCI
into Earnings
|
(Loss) Gain
Recognized in
OCI on
Derivatives
|
Loss
Reclassified from
Accumulated OCI
into Earnings
|
||||||||
Net sales
|
$
|
(52
|
)
|
$
|
47
|
$
|
(104
|
)
|
$
|
30
|
||
Cost of goods sold
|
158
|
35
|
859
|
20
|
||||||||
Selling and administrative expenses
|
(194
|
)
|
(65
|
)
|
(94
|
)
|
49
|
|||||
Interest expense
|
11
|
–
|
6
|
–
|
($ in thousands)
|
Twenty-six Weeks Ended
July 30, 2011
|
Twenty-six Weeks Ended
July 31, 2010
|
||||||||||
Foreign exchange forward contracts:
Income Statement Classification
(Losses) Gains - Realized
|
(Loss) Gain
Recognized in
OCI on
Derivatives
|
Loss (Gain)
Reclassified from
Accumulated OCI
into Earnings
|
(Loss) Gain
Recognized in
OCI on
Derivatives
|
Loss
Reclassified from
Accumulated OCI
into Earnings
|
||||||||
Net sales
|
$
|
(107
|
)
|
$
|
89
|
$
|
(118
|
)
|
$
|
108
|
||
Cost of goods sold
|
(243
|
)
|
61
|
580
|
48
|
|||||||
Selling and administrative expenses
|
12
|
(114
|
)
|
(230
|
)
|
102
|
||||||
Interest expense
|
1
|
–
|
(1
|
)
|
–
|
($ in thousands)
|
Year Ended January 29, 2011
|
|||||
Foreign exchange forward contracts:
Income Statement Classification
(Losses) Gains - Realized
|
(Loss) Gain
Recognized in OCI on Derivatives
|
Loss Reclassified from Accumulated OCI into Earnings
|
||||
Net sales
|
$
|
(242
|
)
|
$
|
232
|
|
Cost of goods sold
|
442
|
34
|
||||
Selling and administrative expenses
|
41
|
91
|
||||
Interest expense
|
(7
|
)
|
–
|
Note 13
|
Fair Value Measurements
|
·
|
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.
|
Fair Value Measurements
|
||||||||||||
($ thousands)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||
Asset (Liability)
|
||||||||||||
As of July 30, 2011:
|
||||||||||||
Cash equivalents – money market funds
|
$
|
19,810
|
$
|
19,810
|
$
|
–
|
$
|
–
|
||||
Non-qualified deferred compensation plan assets
|
1,846
|
1,846
|
–
|
–
|
||||||||
Non-qualified deferred compensation plan
liabilities
|
(1,846
|
)
|
(1,846
|
)
|
–
|
–
|
||||||
Deferred compensation plan liabilities for non-
employee directors
|
(636
|
)
|
(636
|
)
|
–
|
–
|
||||||
Derivative financial instruments, net
|
(653
|
)
|
–
|
(653
|
)
|
–
|
||||||
As of July 31, 2010:
|
||||||||||||
Non-qualified deferred compensation plan assets
|
$
|
1,226
|
$
|
1,226
|
$
|
–
|
$
|
–
|
||||
Non-qualified deferred compensation plan
liabilities
|
(1,226
|
)
|
(1,226
|
)
|
–
|
–
|
||||||
Deferred compensation plan liabilities for non-
employee directors
|
(899
|
)
|
(899
|
)
|
–
|
–
|
||||||
Derivative financial instruments, net
|
(550
|
)
|
–
|
(550
|
)
|
–
|
||||||
As of January 29, 2011:
Cash equivalents – money market funds
|
$
|
50,000
|
$
|
50,000
|
$
|
–
|
$
|
–
|
||||
Non-qualified deferred compensation plan assets
|
1,447
|
1,447
|
–
|
–
|
||||||||
Non-qualified deferred compensation plan
liabilities
|
(1,447
|
)
|
(1,447
|
)
|
–
|
–
|
||||||
Deferred compensation plan liabilities for non-
employee directors
|
(792
|
)
|
(792
|
)
|
–
|
–
|
||||||
Derivative financial instruments, net
|
(344
|
)
|
–
|
(344
|
)
|
–
|
||||||
July 30, 2011
|
July 31, 2010
|
January 29, 2011
|
||||||||||||||
($ thousands)
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||
Borrowings under revolving credit agreement
|
$
|
250,000
|
$
|
250,000
|
$
|
35,500
|
$
|
35,500
|
$
|
198,000
|
$
|
198,000
|
||||
2012 Senior Notes
|
–
|
–
|
150,000
|
151,688
|
150,000
|
152,157
|
||||||||||
2019 Senior Notes
|
198,540
|
195,000
|
–
|
–
|
–
|
–
|
Note 14
|
Income Taxes
|
Note 15
|
Related Party Transactions
|
Note 16
|
Commitments and Contingencies
|
Note 17
|
Financial Information for the Company and its Subsidiaries
|
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 30, 2011
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Assets
|
|||||||||||||||
Current assets
|
|||||||||||||||
Cash and cash equivalents
|
$
|
–
|
$
|
30,978
|
$
|
31,575
|
$
|
–
|
$
|
62,553
|
|||||
Receivables
|
82,617
|
33,965
|
42,013
|
–
|
158,595
|
||||||||||
Inventories
|
118,498
|
497,631
|
11,800
|
–
|
627,929
|
||||||||||
Prepaid expenses and other current assets
|
26,267
|
18,671
|
4,422
|
–
|
49,360
|
||||||||||
Total current assets
|
227,382
|
581,245
|
89,810
|
–
|
898,437
|
||||||||||
Other assets
|
113,277
|
25,160
|
672
|
–
|
139,109
|
||||||||||
Goodwill and intangible assets, net
|
50,522
|
16,720
|
107,057
|
–
|
174,299
|
||||||||||
Property and equipment, net
|
24,428
|
105,738
|
8,912
|
–
|
139,078
|
||||||||||
Investment in subsidiaries
|
615,152
|
88,654
|
–
|
(703,806
|
)
|
–
|
|||||||||
Total assets
|
$
|
1,030,761
|
$
|
817,517
|
$
|
206,451
|
$
|
(703,806
|
)
|
$
|
1,350,923
|
||||
Liabilities and Equity
|
|||||||||||||||
Current liabilities
|
|||||||||||||||
Borrowings under revolving credit agreement
|
$
|
250,000
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
250,000
|
|||||
Trade accounts payable
|
67,893
|
177,936
|
49,997
|
–
|
295,826
|
||||||||||
Other accrued expenses
|
64,506
|
64,953
|
10,239
|
–
|
139,698
|
||||||||||
Total current liabilities
|
382,399
|
242,889
|
60,236
|
–
|
685,524
|
||||||||||
Other liabilities
|
|||||||||||||||
Long-term debt
|
198,540
|
–
|
–
|
–
|
198,540
|
||||||||||
Other liabilities
|
16,614
|
41,863
|
17,660
|
–
|
76,137
|
||||||||||
Intercompany payable (receivable)
|
43,131
|
(82,387
|
)
|
39,256
|
–
|
–
|
|||||||||
Total other liabilities
|
258,285
|
(40,524
|
)
|
56,916
|
–
|
274,677
|
|||||||||
Equity
|
|||||||||||||||
Brown Shoe Company, Inc. shareholders’ equity
|
390,077
|
615,152
|
88,654
|
(703,806
|
)
|
390,077
|
|||||||||
Noncontrolling interests
|
–
|
–
|
645
|
–
|
645
|
||||||||||
Total equity
|
390,077
|
615,152
|
89,299
|
(703,806
|
)
|
390,722
|
|||||||||
Total liabilities and equity
|
$
|
1,030,761
|
$
|
817,517
|
$
|
206,451
|
$
|
(703,806
|
)
|
$
|
1,350,923
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE THIRTEEN WEEKS ENDED JULY 30, 2011
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Net sales
|
$
|
162,265
|
$
|
456,305
|
$
|
62,178
|
$
|
(52,620
|
)
|
$
|
628,128
|
||||
Cost of goods sold
|
128,278
|
263,017
|
52,908
|
(52,620
|
)
|
391,583
|
|||||||||
Gross profit
|
33,987
|
193,288
|
9,270
|
–
|
236,545
|
||||||||||
Selling and administrative expenses
|
44,196
|
186,592
|
4,908
|
–
|
235,696
|
||||||||||
Restructuring and other special charges, net
|
689
|
–
|
–
|
–
|
689
|
||||||||||
Equity in (earnings) loss of subsidiaries
|
(5,873
|
)
|
(4,779
|
)
|
–
|
10,652
|
–
|
||||||||
Operating (loss) earnings
|
(5,025
|
)
|
11,475
|
4,362
|
(10,652
|
)
|
160
|
||||||||
Interest expense
|
(6,517
|
)
|
(10
|
)
|
7
|
–
|
(6,520
|
)
|
|||||||
Loss on early extinguishment of debt
|
(1,003
|
)
|
–
|
–
|
–
|
(1,003
|
)
|
||||||||
Interest income
|
–
|
44
|
21
|
–
|
65
|
||||||||||
Intercompany interest income (expense)
|
4,034
|
(4,137
|
)
|
103
|
–
|
–
|
|||||||||
(Loss) earnings before income taxes
|
(8,511
|
)
|
7,372
|
4,493
|
(10,652
|
)
|
(7,298
|
)
|
|||||||
Income tax benefit (provision)
|
3,902
|
(1,499
|
)
|
127
|
–
|
2,530
|
|||||||||
Net (loss) earnings
|
$
|
(4,609
|
)
|
$
|
5,873
|
$
|
4,620
|
$
|
(10,652
|
)
|
$
|
(4,768
|
)
|
||
Less: Net loss attributable to noncontrolling interests
|
–
|
–
|
(159
|
)
|
–
|
(159
|
)
|
||||||||
Net (loss) earnings attributable to Brown Shoe Company, Inc.
|
$
|
(4,609
|
)
|
$
|
5,873
|
$
|
4,779
|
$
|
(10,652
|
)
|
$
|
(4,609
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE TWENTY-SIX WEEKS ENDED JULY 30, 2011
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Net sales
|
$
|
331,465
|
$
|
895,982
|
$
|
111,247
|
$
|
(85,946
|
)
|
$
|
1,252,748
|
||||
Cost of goods sold
|
253,321
|
504,870
|
94,158
|
(85,946
|
)
|
766,403
|
|||||||||
Gross profit
|
78,144
|
391,112
|
17,089
|
–
|
486,345
|
||||||||||
Selling and administrative expenses
|
87,877
|
368,092
|
15,195
|
–
|
471,164
|
||||||||||
Restructuring and other special charges, net
|
2,433
|
–
|
–
|
–
|
2,433
|
||||||||||
Equity in (earnings) loss of subsidiaries
|
(11,603
|
)
|
(2,990
|
)
|
–
|
14,593
|
–
|
||||||||
Operating (loss) earnings
|
(563
|
)
|
26,010
|
1,894
|
(14,593
|
)
|
12,748
|
||||||||
Interest expense
|
(13,206
|
)
|
(11
|
)
|
(1
|
)
|
–
|
(13,218
|
)
|
||||||
Loss on early extinguishment of debt
|
(1,003
|
)
|
–
|
–
|
–
|
(1,003
|
)
|
||||||||
Interest income
|
–
|
99
|
51
|
–
|
150
|
||||||||||
Intercompany interest income (expense)
|
8,254
|
(8,521
|
)
|
267
|
–
|
–
|
|||||||||
(Loss) earnings before income taxes
|
(6,518
|
)
|
17,577
|
2,211
|
(14,593
|
)
|
(1,323
|
)
|
|||||||
Income tax benefit (provision)
|
5,597
|
(5,974
|
)
|
573
|
–
|
196
|
|||||||||
Net (loss) earnings
|
$
|
(921
|
)
|
$
|
11,603
|
$
|
2,784
|
$
|
(14,593
|
)
|
$
|
(1,127
|
)
|
||
Less: Net loss attributable to noncontrolling interests
|
–
|
–
|
(206
|
)
|
–
|
(206
|
)
|
||||||||
Net (loss) earnings attributable to Brown Shoe Company, Inc.
|
$
|
(921
|
)
|
$
|
11,603
|
$
|
2,990
|
$
|
(14,593
|
)
|
$
|
(921
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JULY 30, 2011
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Net cash (used for) provided by operating activities
|
$
|
(15,888
|
)
|
$
|
42,063
|
$
|
17,233
|
$
|
55
|
$
|
43,463
|
||||
Investing activities
|
|||||||||||||||
Purchases of property and equipment
|
(1,204
|
)
|
(12,717
|
)
|
(762
|
)
|
–
|
(14,683
|
)
|
||||||
Capitalized software
|
(6,898
|
)
|
(200
|
)
|
–
|
–
|
(7,098
|
)
|
|||||||
Acquisition cost
|
–
|
–
|
(156,636
|
)
|
–
|
(156,636
|
)
|
||||||||
Cash recognized on initial consolidation
|
–
|
3,121
|
–
|
–
|
3,121
|
||||||||||
Net cash used for investing activities
|
(8,102
|
)
|
(9,796
|
)
|
(157,398
|
)
|
–
|
(175,296
|
)
|
||||||
Financing activities
|
|||||||||||||||
Borrowings under revolving credit agreement
|
965,500
|
–
|
–
|
–
|
965,500
|
||||||||||
Repayments under revolving credit agreement
|
(913,500
|
)
|
–
|
–
|
–
|
(913,500
|
)
|
||||||||
Proceeds from issuance of 2019 Senior Notes
|
198,540
|
–
|
–
|
–
|
198,540
|
||||||||||
Redemption of 2012 Senior Notes
|
(150,000
|
)
|
–
|
–
|
–
|
(150,000
|
)
|
||||||||
Dividends paid
|
(6,197
|
)
|
–
|
–
|
–
|
(6,197
|
)
|
||||||||
Debt issuance costs
|
(5,828
|
)
|
–
|
–
|
–
|
(5,828
|
)
|
||||||||
Acquisition of treasury stock
|
(22,408
|
)
|
–
|
–
|
–
|
(22,408
|
)
|
||||||||
Proceeds from stock options exercised
|
693
|
–
|
–
|
–
|
693
|
||||||||||
Tax deficiency related to share-based plans
|
(453
|
)
|
–
|
–
|
–
|
(453
|
)
|
||||||||
Intercompany financing
|
(42,357
|
)
|
(29,875
|
)
|
72,287
|
(55
|
)
|
–
|
|||||||
Net cash provided by (used for) financing activities
|
23,990
|
(29,875
|
)
|
72,287
|
(55
|
)
|
66,347
|
||||||||
Effect of exchange rate changes on cash and cash equivalents
|
–
|
1,491
|
–
|
–
|
1,491
|
||||||||||
Increase (decrease) in cash and cash equivalents
|
–
|
3,882
|
(67,878
|
)
|
–
|
(63,995
|
)
|
||||||||
Cash and cash equivalents at beginning of period
|
–
|
27,095
|
99,453
|
–
|
126,548
|
||||||||||
Cash and cash equivalents at end of period
|
$
|
–
|
$
|
30,978
|
$
|
31,575
|
$
|
–
|
$
|
62,553
|
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 29, 2011
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Assets
|
|||||||||||||||
Current assets:
|
|||||||||||||||
Cash and cash equivalents
|
$
|
–
|
$
|
27,095
|
$
|
99,453
|
$
|
–
|
$
|
126,548
|
|||||
Receivables
|
64,742
|
5,201
|
43,994
|
–
|
113,937
|
||||||||||
Inventories
|
119,855
|
400,578
|
3,817
|
–
|
524,250
|
||||||||||
Prepaid expenses and other current assets
|
26,979
|
15,868
|
699
|
–
|
43,546
|
||||||||||
Total current assets
|
211,576
|
448,742
|
147,963
|
–
|
808,281
|
||||||||||
Other assets
|
113,193
|
19,667
|
678
|
–
|
133,538
|
||||||||||
Intangible assets, net
|
53,279
|
17,280
|
33
|
–
|
70,592
|
||||||||||
Property and equipment, net
|
25,850
|
106,475
|
3,307
|
–
|
135,632
|
||||||||||
Investment in subsidiaries
|
598,106
|
139,601
|
–
|
(737,707
|
)
|
–
|
|||||||||
Total assets
|
$
|
1,002,004
|
$
|
731,765
|
$
|
151,981
|
$
|
(737,707
|
)
|
$
|
1,148,043
|
||||
Liabilities and Equity
|
|||||||||||||||
Current liabilities:
|
|||||||||||||||
Borrowings under revolving credit agreement
|
$
|
198,000
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
198,000
|
|||||
Trade accounts payable
|
52,616
|
75,764
|
38,810
|
–
|
167,190
|
||||||||||
Other accrued expenses
|
82,201
|
58,702
|
5,812
|
–
|
146,715
|
||||||||||
Total current liabilities
|
332,817
|
134,466
|
44,622
|
–
|
511,905
|
||||||||||
Other liabilities:
|
|||||||||||||||
Long-term debt
|
150,000
|
–
|
–
|
–
|
150,000
|
||||||||||
Other liabilities
|
23,228
|
46,661
|
340
|
–
|
70,229
|
||||||||||
Intercompany payable (receivable)
|
80,879
|
(47,468
|
)
|
(33,411
|
)
|
–
|
–
|
||||||||
Total other liabilities
|
254,107
|
(807
|
)
|
(33,071
|
)
|
–
|
220,229
|
||||||||
Equity:
|
|||||||||||||||
Brown Shoe Company, Inc. shareholders’ equity
|
415,080
|
598,106
|
139,601
|
(737,707
|
)
|
415,080
|
|||||||||
Noncontrolling interests
|
–
|
–
|
829
|
–
|
829
|
||||||||||
Total equity
|
415,080
|
598,106
|
140,430
|
(737,707
|
)
|
415,909
|
|||||||||
Total liabilities and equity
|
$
|
1,002,004
|
$
|
731,765
|
$
|
151,981
|
$
|
(737,707
|
)
|
$
|
1,148,043
|
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 31, 2010
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Assets
|
|||||||||||||||
Current assets
|
|||||||||||||||
Cash and cash equivalents
|
$
|
(2,745
|
)
|
$
|
14,714
|
$
|
18,755
|
$
|
–
|
$
|
30,724
|
||||
Receivables
|
78,242
|
3,183
|
24,724
|
–
|
106,149
|
||||||||||
Inventories
|
105,623
|
470,020
|
2,442
|
–
|
578,085
|
||||||||||
Prepaid expenses and other current assets
|
26,221
|
6,891
|
94
|
–
|
33,206
|
||||||||||
Total current assets
|
207,341
|
494,808
|
46,015
|
–
|
748,164
|
||||||||||
Other assets
|
96,235
|
21,973
|
676
|
–
|
118,884
|
||||||||||
Intangible assets, net
|
56,036
|
17,840
|
–
|
–
|
73,876
|
||||||||||
Property and equipment, net
|
25,242
|
107,683
|
3,282
|
–
|
136,207
|
||||||||||
Investment in subsidiaries
|
675,269
|
81,980
|
–
|
(757,249
|
)
|
–
|
|||||||||
Total assets
|
$
|
1,060,123
|
$
|
724,284
|
$
|
49,973
|
$
|
(757,249
|
)
|
$
|
1,077,131
|
||||
Liabilities and Equity
|
|||||||||||||||
Current liabilities
|
|||||||||||||||
Borrowings under revolving credit agreement
|
$
|
35,500
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
35,500
|
|||||
Trade accounts payable
|
73,720
|
192,380
|
28,745
|
–
|
294,845
|
||||||||||
Other accrued expenses
|
74,225
|
59,768
|
5,682
|
–
|
139,675
|
||||||||||
Total current liabilities
|
183,445
|
252,148
|
34,427
|
–
|
470,020
|
||||||||||
Other liabilities
|
|||||||||||||||
Long-term debt
|
150,000
|
–
|
–
|
–
|
150,000
|
||||||||||
Other liabilities
|
26,660
|
38,632
|
274
|
–
|
65,566
|
||||||||||
Intercompany payable (receivable)
|
308,947
|
(241,765
|
)
|
(67,182
|
)
|
–
|
–
|
||||||||
Total other liabilities
|
485,607
|
(203,133
|
)
|
(66,908
|
)
|
–
|
215,566
|
||||||||
Equity
|
|||||||||||||||
Brown Shoe Company, Inc. shareholders’ equity
|
391,071
|
675,269
|
81,980
|
(757,249
|
)
|
391,071
|
|||||||||
Noncontrolling interests
|
–
|
–
|
474
|
–
|
474
|
||||||||||
Total equity
|
391,071
|
675,269
|
82,454
|
(757,249
|
)
|
391,545
|
|||||||||
Total liabilities and equity
|
$
|
1,060,123
|
$
|
724,284
|
$
|
49,973
|
$
|
(757,249
|
)
|
$
|
1,077,131
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE THIRTEEN WEEKS ENDED JULY 31, 2010
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Net sales
|
$
|
169,710
|
$
|
411,080
|
$
|
55,733
|
$
|
(50,767
|
)
|
$
|
585,756
|
||||
Cost of goods sold
|
129,810
|
221,340
|
46,903
|
(50,767
|
)
|
347,286
|
|||||||||
Gross profit
|
39,900
|
189,740
|
8,830
|
–
|
238,470
|
||||||||||
Selling and administrative expenses
|
45,227
|
177,946
|
1,275
|
–
|
224,448
|
||||||||||
Restructuring and other special charges, net
|
1,730
|
–
|
161
|
–
|
1,891
|
||||||||||
Equity in (earnings) loss of subsidiaries
|
(12,251
|
)
|
(2,480
|
)
|
–
|
14,731
|
–
|
||||||||
Operating earnings (loss)
|
5,194
|
14,274
|
7,394
|
(14,731
|
)
|
12,131
|
|||||||||
Interest expense
|
(4,809
|
)
|
(1
|
)
|
–
|
–
|
(4,810
|
)
|
|||||||
Interest income
|
–
|
28
|
21
|
–
|
49
|
||||||||||
Intercompany interest income (expense)
|
3,459
|
581
|
(4,040
|
)
|
–
|
–
|
|||||||||
Earnings (loss) before income taxes
|
3,844
|
14,882
|
3,375
|
(14,731
|
)
|
7,370
|
|||||||||
Income tax benefit (provision)
|
1,417
|
(3,028
|
)
|
(971
|
)
|
–
|
(2,582
|
)
|
|||||||
Net earnings (loss)
|
$
|
5,261
|
$
|
11,854
|
$
|
2,404
|
$
|
(14,731
|
)
|
$
|
4,788
|
||||
Less: Net loss attributable to noncontrolling interests
|
–
|
(397
|
)
|
(76
|
)
|
–
|
(473
|
)
|
|||||||
Net earnings (loss) attributable to Brown Shoe Company, Inc.
|
$
|
5,261
|
$
|
12,251
|
$
|
2,480
|
$
|
(14,731
|
)
|
$
|
5,261
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE TWENTY-SIX WEEKS ENDED JULY 31, 2010
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Net sales
|
$
|
333,064
|
$
|
837,956
|
$
|
100,774
|
$
|
(88,320
|
)
|
$
|
1,183,474
|
||||
Cost of goods sold
|
247,492
|
453,473
|
84,799
|
(88,320
|
)
|
697,444
|
|||||||||
Gross profit
|
85,572
|
384,483
|
15,975
|
–
|
486,030
|
||||||||||
Selling and administrative expenses
|
96,031
|
346,409
|
6,523
|
–
|
448,963
|
||||||||||
Restructuring and other special charges, net
|
3,273
|
–
|
335
|
–
|
3,608
|
||||||||||
Equity in (earnings) loss of subsidiaries
|
(26,253
|
)
|
(4,196
|
)
|
–
|
30,449
|
–
|
||||||||
Operating earnings (loss)
|
12,521
|
42,270
|
9,117
|
(30,449
|
)
|
33,459
|
|||||||||
Interest expense
|
(9,318
|
)
|
(4
|
)
|
–
|
–
|
(9,322
|
)
|
|||||||
Interest income
|
1
|
29
|
37
|
–
|
67
|
||||||||||
Intercompany interest income (expense)
|
7,076
|
(3,416
|
)
|
(3,660
|
)
|
–
|
–
|
||||||||
Earnings (loss) before income taxes
|
10,280
|
38,879
|
5,494
|
(30,449
|
)
|
24,204
|
|||||||||
Income tax benefit (provision)
|
5,027
|
(12,316
|
)
|
(1,592
|
)
|
–
|
(8,881
|
)
|
|||||||
Net earnings (loss)
|
$
|
15,307
|
$
|
26,563
|
$
|
3,902
|
$
|
(30,449
|
)
|
$
|
15,323
|
||||
Less: Net earnings (loss) attributable to noncontrolling interests
|
–
|
310
|
(294
|
)
|
–
|
16
|
|||||||||
Net earnings (loss) attributable to Brown Shoe Company, Inc.
|
$
|
15,307
|
$
|
26,253
|
$
|
4,196
|
$
|
(30,449
|
)
|
$
|
15,307
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JULY 31, 2010
|
($ thousands)
|
Parent
|
Guarantors
|
Non-Guarantors
|
Eliminations
|
Total
|
||||||||||
Net cash (used for) provided by operating activities
|
$
|
(26,863
|
)
|
$
|
44,036
|
$
|
9,816
|
$
|
–
|
$
|
26,989
|
||||
Investing activities
|
|||||||||||||||
Purchases of property and equipment
|
(1,978
|
)
|
(10,664
|
)
|
(202
|
)
|
–
|
(12,844
|
)
|
||||||
Capitalized software
|
(11,734
|
)
|
(137
|
)
|
–
|
–
|
(11,871
|
)
|
|||||||
Net cash used for investing activities
|
(13,712
|
)
|
(10,801
|
)
|
(202
|
)
|
–
|
(24,715
|
)
|
||||||
Financing activities
|
|||||||||||||||
Borrowings under revolving credit agreement
|
435,500
|
–
|
–
|
–
|
435,500
|
||||||||||
Repayments under revolving credit agreement
|
(494,500
|
)
|
–
|
–
|
–
|
(494,500
|
)
|
||||||||
Acquisition of noncontrolling interests (Edelman
Shoe, Inc.)
|
7,309
|
(40,001
|
)
|
–
|
–
|
(32,692
|
)
|
||||||||
Dividends paid
|
(6,114
|
)
|
–
|
–
|
–
|
(6,114
|
)
|
||||||||
Proceeds from stock options exercised
|
561
|
–
|
–
|
–
|
561
|
||||||||||
Tax deficiency related to share-based plans
|
(142
|
)
|
–
|
–
|
–
|
(142
|
)
|
||||||||
Intercompany financing
|
95,216
|
12,205
|
(107,421
|
)
|
–
|
–
|
|||||||||
Net cash provided by (used for) financing activities
|
37,830
|
(27,796
|
)
|
(107,421
|
)
|
–
|
(97,387
|
)
|
|||||||
Effect of exchange rate changes on cash
|
–
|
4
|
–
|
–
|
4
|
||||||||||
(Decrease) increase in cash and cash equivalents
|
(2,745
|
)
|
5,443
|
(97,807
|
)
|
–
|
(95,109
|
)
|
|||||||
Cash and cash equivalents at beginning of period
|
–
|
9,271
|
116,562
|
–
|
125,833
|
||||||||||
Cash and cash equivalents at end of period
|
$
|
(2,745
|
)
|
$
|
14,714
|
$
|
18,755
|
$
|
–
|
$
|
30,724
|
ITEM 2
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
OVERVIEW
|
·
|
Consolidated net sales increased $42.3 million, or 7.2%, to $628.1 million for the second quarter of 2011, compared to $585.8 million for the second quarter of last year. Net sales of our Wholesale Operations and Specialty Retail segments increased by $44.1 million and $0.7 million, respectively, while our Famous Footwear segment decreased by $2.4 million. The net sales improvement was driven by the inclusion of ASG in 2011, which contributed $46.2 million in the quarter.
|
·
|
Consolidated operating earnings were $0.2 million in the second quarter of 2011, compared to $12.1 million for the second quarter of last year.
|
·
|
Consolidated net loss attributable to Brown Shoe Company, Inc. was $4.6 million, or $0.11 per diluted share, in the second quarter of 2011, compared to net earnings attributable to Brown Shoe Company, Inc. of $5.3 million, or $0.12 per diluted share, in the second quarter of last year.
|
·
|
ERP Stabilization – During the second quarter of 2011, we continued to make progress in the stabilization of our new ERP system. However, our second quarter results were negatively impacted by increases in allowances and customer charge backs, margin related to lost sales and incremental stabilization costs related to our ERP platform. We estimate that the impact of these items reduced earnings before income taxes by $4.6 million ($2.8 million on an after-tax basis, or $0.07 per diluted share) in the second quarter. On a year-to-date basis, we have estimated that these items negatively impacted our earnings before income taxes by $10.1 million ($6.1 million on an after-tax basis, or $0.14 per diluted share). We anticipate that our stabilization efforts will be completed by the end of 2011.
|
·
|
Decline in toning footwear business – During 2010, sales of toning footwear were strong across our businesses, resulting in strength in both net sales and margins. Demand for toning footwear slowed in 2011, negatively impacting the financial performance of each of our major divisions. We recorded a $4.6 million ($2.7 million on an after-tax basis, or $0.06 per diluted share) write-down on our toning inventory during the second quarter of 2011.
|
·
|
Acquisition related cost of goods sold adjustment – We incurred costs of $1.5 million ($0.9 million on an after-tax basis, or $0.02 per diluted share) during the second quarter of 2011, associated with the impact to cost of goods sold of the inventory fair value adjustment in connection with the acquisition of ASG during the second quarter of 2011, with no corresponding costs during the second quarter of last year. See Note 3 to the condensed consolidated financial statements for additional information related to these costs.
|
·
|
Loss on early extinguishment of debt – During the second quarter of 2011, we incurred expenses of $1.0 million ($0.6 million on an after-tax basis, or $0.02 per diluted share) to extinguish our 2012 Senior Notes prior to maturity. Approximately $0.6 million was non-cash charges related to unamortized debt issuance costs and approximately $0.4 million represents cash paid for tender premiums.
|
·
|
Integration costs – We incurred costs of $0.7 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) during the second quarter of 2011, related to the integration of ASG, which we acquired on February 17, 2011, with no corresponding costs during the second quarter of last year. See Note 3 and Note 6 to the condensed consolidated financial statements for additional information related to these costs.
|
·
|
Incentive plans – Our selling and administrative expenses were lower by $4.3 million during the second quarter of 2011, compared to the second quarter of last year, due to lower anticipated payments under our incentive plans.
|
·
|
Information technology initiatives – We incurred expenses of $1.9 million ($1.3 million on an after-tax basis, or $0.03 per diluted share) during the second quarter of last year, related to our integrated ERP information technology system that replaced select internally developed and certain other third-party applications. See Note 6 to the condensed consolidated financial statements for additional information related to these expenses. The decline in expenses was offset by higher amortization expense related to the integrated ERP information technology system during the second quarter of 2011 as compared to the second quarter of last year.
|
CONSOLIDATED RESULTS
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
||||||||||||||||||
July 30, 2011
|
July 31, 2010
|
July 30, 2011
|
July 31, 2010
|
||||||||||||||||
($ millions)
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
|||||||||||||||
Net sales
|
$
|
628.1
|
100.0%
|
$
|
585.8
|
100.0%
|
$
|
1,252.7
|
100.0%
|
$
|
1,183.5
|
100.0%
|
|||||||
Cost of goods sold
|
391.6
|
62.3%
|
347.3
|
59.3%
|
766.4
|
61.2%
|
697.5
|
58.9%
|
|||||||||||
Gross profit
|
236.5
|
37.7%
|
238.5
|
40.7%
|
486.3
|
38.8%
|
486.0
|
41.1%
|
|||||||||||
Selling and administrative expenses
|
235.6
|
37.6%
|
224.5
|
38.3%
|
471.2
|
37.6%
|
448.9
|
38.0%
|
|||||||||||
Restructuring and other special charges, net
|
0.7
|
0.1%
|
1.9
|
0.3%
|
2.4
|
0.2%
|
3.6
|
0.3%
|
|||||||||||
Operating earnings
|
0.2
|
0.0%
|
12.1
|
2.1%
|
12.7
|
1.0%
|
33.5
|
2.8%
|
|||||||||||
Interest expense
|
(6.6
|
)
|
(1.0)%
|
(4.7
|
)
|
(0.8)%
|
(13.2
|
)
|
(1.0)%
|
(9.4
|
))
|
(0.8)%
|
|||||||
Loss on early extinguishment of debt
|
(1.0
|
)
|
(0.2)%
|
–
|
–
|
(1.0
|
)
|
(0.1)%
|
–
|
–
|
|||||||||
Interest income
|
0.1
|
0.0%
|
–
|
–
|
0.2
|
0.0%
|
0.1
|
0.0%
|
|||||||||||
(Loss) earnings before income taxes
|
(7.3
|
)
|
(1.2)%
|
7.4
|
1.3%
|
(1.3
|
)
|
(0.1)%
|
24.2
|
2.0%
|
|||||||||
Income tax benefit (provision)
|
2.5
|
0.4%
|
(2.6
|
)
|
(0.5)%
|
0.2
|
0.0%
|
(8.9
|
)
|
(0.7)%
|
|||||||||
Net (loss) earnings
|
$
|
(4.8
|
)
|
(0.8)%
|
$
|
4.8
|
0.8%
|
$
|
(1.1
|
)
|
(0.1)%
|
$
|
15.3
|
1.3%
|
|||||
Less: Net (loss) earnings attributable to noncontrolling interests
|
(0.2
|
)
|
(0.1)%
|
(0.5
|
)
|
(0.1)%
|
(0.2
|
)
|
0.0%
|
–
|
–
|
||||||||
Net (loss) earnings attributable to Brown Shoe Company, Inc.
|
$
|
(4.6
|
)
|
(0.7)%
|
$
|
5.3
|
0.9%
|
$
|
(0.9
|
)
|
(0.1)%
|
$
|
15.3
|
1.3%
|
FAMOUS FOOTWEAR
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
||||||||||||||||||
July 30, 2011
|
July 31, 2010
|
July 30, 2011
|
July 31, 2010
|
||||||||||||||||
($ millions, except sales per square foot)
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
|||||||||||||||
Operating Results
|
|||||||||||||||||||
Net sales
|
$
|
344.9
|
100.0%
|
$
|
347.3
|
100.0%
|
$
|
687.7
|
100.0%
|
$
|
709.5
|
100.0%
|
|||||||
Cost of goods sold
|
195.9
|
56.8%
|
187.7
|
54.0%
|
382.1
|
55.6%
|
385.7
|
54.4%
|
|||||||||||
Gross profit
|
149.0
|
43.2%
|
159.6
|
46.0%
|
305.6
|
44.4%
|
323.8
|
45.6%
|
|||||||||||
Selling and administrative expenses
|
141.5
|
41.0%
|
143.8
|
41.5%
|
279.3
|
40.6%
|
279.9
|
39.4%
|
|||||||||||
Operating earnings
|
$
|
7.5
|
2.2%
|
$
|
15.8
|
4.5%
|
$
|
26.3
|
3.8%
|
$
|
43.9
|
6.2%
|
|||||||
Key Metrics
|
|||||||||||||||||||
Same-store sales % change
|
0.2%
|
11.8%
|
(1.9)%
|
13.6%
|
|||||||||||||||
Same-store sales $ change
|
$
|
0.6
|
$
|
35.8
|
$
|
(13.0
|
)
|
$
|
82.4
|
||||||||||
Sales change from new and
closed stores, net
|
$
|
(3.0
|
)
|
$
|
(2.6
|
)
|
$
|
(8.8
|
)
|
$
|
(4.6
|
)
|
|||||||
Sales per square foot, excluding
e-commerce (thirteen and twenty-six
weeks ended)
|
$
|
44
|
$
|
44
|
$
|
88
|
$
|
89
|
|||||||||||
Sales per square foot, excluding
e-commerce (trailing twelve-months)
|
$
|
186
|
$
|
179
|
$
|
186
|
$
|
179
|
|||||||||||
Square footage (thousand sq. ft.)
|
7,667
|
7,845
|
7,667
|
7,845
|
|||||||||||||||
Stores opened
|
12
|
7
|
26
|
18
|
|||||||||||||||
Stores closed
|
8
|
13
|
20
|
19
|
|||||||||||||||
Ending stores
|
1,116
|
1,128
|
1,116
|
1,128
|
WHOLESALE OPERATIONS
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
||||||||||||||||||
July 30, 2011
|
July 31, 2010
|
July 30, 2011
|
July 31, 2010
|
||||||||||||||||
($ millions)
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
|||||||||||||||
Operating Results
|
|||||||||||||||||||
Net sales
|
$
|
222.7
|
100.0%
|
$
|
178.6
|
100.0%
|
$
|
444.8
|
100.0%
|
$
|
353.4
|
100.0%
|
|||||||
Cost of goods sold
|
159.3
|
71.5%
|
124.5
|
69.7%
|
313.7
|
70.5%
|
242.7
|
68.7%
|
|||||||||||
Gross profit
|
63.4
|
28.5%
|
54.1
|
30.3%
|
131.1
|
29.5%
|
110.7
|
31.3%
|
|||||||||||
Selling and administrative expenses
|
59.3
|
26.7%
|
44.9
|
25.1%
|
120.5
|
27.1%
|
92.7
|
26.2%
|
|||||||||||
Restructuring and other special charges, net
|
–
|
–
|
0.2
|
0.1%
|
–
|
–
|
0.3
|
0.1%
|
|||||||||||
Operating earnings
|
$
|
4.1
|
1.8%
|
$
|
9.0
|
5.1%
|
$
|
10.6
|
2.4%
|
$
|
17.7
|
5.0%
|
|||||||
Key Metrics
|
|||||||||||||||||||
Unfilled order position at end of period
|
$
|
355.8
|
$
|
317.2
|
SPECIALTY RETAIL
|
Thirteen Weeks Ended
|
Twenty-six Weeks Ended
|
||||||||||||||||||
July 30, 2011
|
July 31, 2010
|
July 30, 2011
|
July 31, 2010
|
||||||||||||||||
($ millions, except sales per square foot)
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
% of
Net
Sales
|
|||||||||||||||
Operating Results
|
|||||||||||||||||||
Net sales
|
$
|
60.5
|
100.0%
|
$
|
59.8
|
100.0%
|
$
|
120.3
|
100.0%
|
$
|
120.6
|
100.0%
|
|||||||
Cost of goods sold
|
36.3
|
60.0%
|
35.0
|
58.6%
|
70.7
|
58.8%
|
69.1
|
57.3%
|
|||||||||||
Gross profit
|
24.2
|
40.0%
|
24.8
|
41.4%
|
49.6
|
41.2%
|
51.5
|
42.7%
|
|||||||||||
Selling and administrative expenses
|
27.2
|
45.0%
|
27.5
|
46.0%
|
56.4
|
46.8%
|
57.2
|
47.4%
|
|||||||||||
Operating loss
|
$
|
(3.0
|
)
|
(5.0)%
|
$
|
(2.7
|
)
|
(4.6)%
|
$
|
(6.8
|
)
|
(5.6)%
|
$
|
(5.7
|
)
|
(4.7)%
|
|||
Key Metrics
|
|||||||||||||||||||
Same-store sales % change
|
5.2%
|
6.8%
|
2.1%
|
11.3%
|
|||||||||||||||
Same-store sales $ change
|
$
|
2.1
|
$
|
2.7
|
$
|
1.7
|
$
|
8.5
|
|||||||||||
Sales change from new and closed
stores, net
|
$
|
(2.4
|
)
|
$
|
(1.7
|
)
|
$
|
(4.4
|
)
|
$
|
(3.9
|
))
|
|||||||
Impact of changes in Canadian
exchange rate on sales
|
$
|
1.5
|
$
|
1.4
|
$
|
2.4
|
$
|
4.3
|
|||||||||||
Sales change of e-commerce
subsidiary
|
$
|
(0.5
|
)
|
$
|
1.9
|
$
|
–
|
$
|
3.9
|
||||||||||
Sales per square foot, excluding
e-commerce (thirteen and twenty-
six weeks ended)
|
$
|
103
|
$
|
94
|
$
|
194
|
$
|
180
|
|||||||||||
Sales per square foot, excluding
e-commerce (trailing twelve-
months)
|
$
|
393
|
$
|
371
|
$
|
393
|
$
|
371
|
|||||||||||
Square footage (thousand sq. ft.)
|
397
|
435
|
397
|
435
|
|||||||||||||||
Stores opened
|
4
|
–
|
7
|
2
|
|||||||||||||||
Stores closed
|
11
|
5
|
21
|
20
|
|||||||||||||||
Ending stores
|
245
|
264
|
245
|
264
|
OTHER SEGMENT
|
·
|
Incentive plans – Our selling and administrative expenses were lower by $1.7 million during the second quarter of 2011, compared to the second quarter of last year, due to lower anticipated payments under our incentive plans.
|
·
|
ERP Stabilization – We incurred costs of $1.2 million during the second quarter of 2011, due to continued progress on the stabilization of our ERP platform.
|
·
|
Integration costs – We incurred costs of $0.7 million during the second quarter of 2011, related to the integration of ASG, which closed on February 17, 2011, with no corresponding costs during the second quarter of last year.
|
·
|
Lower expenses related to director compensation, as certain director compensation arrangements are variable based on the Company’s stock price, which decreased during the second quarter of 2011.
|
·
|
Information technology initiatives – We incurred expenses of $1.7 million during the second quarter of last year, related to our integrated ERP information technology system. See Note 6 to the condensed consolidated financial statements for additional information related to these expenses. The decline in expenses was offset by higher amortization expense related to the integrated ERP information technology system during the second quarter of 2011 as compared to the second quarter of last year.
|
·
|
Incentive plans – Our selling and administrative expenses were lower by $3.2 million during the first half of 2011, as compared to the first half of last year, reflecting lower expected payments under our incentive plans.
|
·
|
ERP Stabilization – We incurred costs of $2.5 million during the first half of 2011, due to continued progress on the stabilization of our ERP platform.
|
·
|
Acquisition and Integration costs – We incurred costs of $2.4 million during the first half of 2011, related to the acquisition and integration of ASG, which closed on February 17, 2011, with no corresponding costs during last year.
|
·
|
Information technology initiatives – We incurred expenses of $3.3 million during the first half of 2010, related to our integrated ERP information technology system.
|
LIQUIDITY AND CAPITAL RESOURCES
|
($ millions)
|
July 30,
2011
|
July 31,
2010
|
January 29,
2011
|
||||||
Borrowings under revolving credit agreement
|
$
|
250.0
|
$
|
35.5
|
$
|
198.0
|
|||
2019 Senior notes
|
198.5
|
–
|
–
|
||||||
2012 Senior notes
|
–
|
150.0
|
150.0
|
||||||
Total debt
|
$
|
448.5
|
$
|
185.5
|
$
|
348.0
|
Twenty-six Weeks Ended
|
|||||||||
($ millions)
|
July 30, 2011
|
July 31, 2010
|
Increase/
(Decrease)
|
||||||
Net cash provided by operating activities
|
$
|
43.5
|
$
|
27.0
|
$
|
16.5
|
|||
Net cash used for investing activities
|
(175.3
|
)
|
(24.7
|
)
|
(150.6
|
)
|
|||
Net cash provided by (used for) financing activities
|
66.3
|
(97.4
|
)
|
163.7
|
|||||
Effect of exchange rate changes on cash and cash equivalents
|
1.5
|
–
|
1.5
|
||||||
Decrease in cash and cash equivalents
|
$
|
(64.0)
|
$
|
(95.1
|
)
|
$
|
31.1
|
·
|
A smaller increase in inventories in the first half of 2011 as compared to the first half of last year,
|
·
|
A larger decrease in other accrued expenses and other liabilities in the first half of 2011 as compared to the first half of last year, due in part to higher payouts in 2011 related to our 2010 incentive plans, and
|
·
|
Lower net earnings.
|
July 30, 2011
|
July 31, 2010
|
January 29, 2011
|
||||
Working capital ($ millions) (1)
|
$ 212.9
|
$ 278.1
|
$ 296.4
|
|||
Current ratio (2)
|
1.31:1
|
1.59:1
|
1.58:1
|
|||
Debt-to-capital ratio (3)
|
53.4%
|
32.1%
|
45.6%
|
|||
(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 liabilities.
|
|||||
(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 equity.
|
OFF BALANCE SHEET ARRANGEMENTS
|
CONTRACTUAL OBLIGATIONS
|
Payments Due by Period
|
|||||||||||
($ millions)
|
Total
|
Less Than
1 Year
|
1-3
Years
|
3-5
Years
|
More Than
5 Years
|
||||||
Operating lease commitments
|
$
|
15.4
|
$
|
1.8
|
$
|
5.3
|
$
|
5.2
|
$
|
3.1
|
|
Minimum license commitments
|
0.4
|
–
|
0.4
|
–
|
–
|
||||||
Purchase obligations(1)
|
24.4
|
24.4
|
–
|
–
|
–
|
||||||
Other
|
2.1
|
1.3
|
0.8
|
–
|
–
|
||||||
Total
|
$
|
42.3
|
$
|
27.5
|
$
|
6.5
|
$
|
5.2
|
$
|
3.1
|
|
(1)
|
Purchase obligations include agreements to purchase goods or services that specify all significant terms, including quantity and price provisions.
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
|
FORWARD-LOOKING STATEMENTS
|
ITEM 3
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4
|
CONTROLS AND PROCEDURES
|
PART II
|
OTHER INFORMATION
|
ITEM 1
|
LEGAL PROCEEDINGS
|
ITEM 1A
|
RISK FACTORS
|
ITEM 2
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Fiscal Period
|
Total Number
of Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number
of Shares Purchased
as Part of Publicly
Announced Program (1)
|
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Program
(1) (2)
|
|||||||||
May 1, 2011 – May 28, 2011
|
–
|
$
|
–
|
–
|
2,500,000
|
||||||||
May 29, 2011 – July 2, 2011
|
1,353,323
|
(1)(3)
|
9.98
|
(1)(3)
|
1,350,823
|
1,149,177
|
|||||||
July 3, 2011 – July 30, 2011
|
845,300
|
(1)
|
10.55
|
(1)
|
845,300
|
303,877
|
|||||||
Total
|
2,198,623
|
(1)
|
$
|
10.20
|
(1)
|
2,196,123
|
303,877
|
(1)
|
In January 2008, 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, 2,196,123 shares were repurchased through the end of the second quarter of 2011; therefore, there were 303,877 shares authorized to be purchased under the program as of July 30, 2011. Our repurchases of common stock are limited under our debt agreements.
|
(2)
|
Subsequent to the end of the second quarter, we repurchased the remaining shares authorized to be purchased under the program approved in January 2008. On August 25, 2011, we announced that the Board of Directors approved another stock repurchase program authorizing the repurchase of up to 2.5 million additional shares of our outstanding common stock.
|
(3)
|
Includes 2,500 shares purchased by affiliated purchasers in open market transactions.
|
ITEM 3
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4
|
(REMOVED AND RESERVED)
|
ITEM 5
|
OTHER INFORMATION
|
ITEM 6
|
EXHIBITS
|
Exhibit
No.
|
|||||
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 May 26, 2011, incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K dated May 26, 2011 and filed May 26, 2011.
|
||||
4.1
|
Indenture for the 7⅛% Senior Notes due 2019, dated May 11, 2011 among the Company, the subsidiary guarantors set forth therein, and Wells Fargo Bank, National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K dated May 11, 2011 and filed May 13, 2011.
|
||||
4.2
|
Form of 7⅛% Senior Notes due 2019 (included in Exhibit 4.1), incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K dated May 11, 2011 and filed May 13, 2011.
|
||||
4.3
|
Fourth Supplemental Indenture for 8¾% Senior Notes due 2012, dated as of May 11, 2011 among the Company, the subsidiary guarantors set forth therein, and U.S. Bank National Association, as successor to SunTrust Bank, as trustee, incorporated herein by reference to Exhibit 4.3 to the Company’s Form 8-K dated May 11, 2011 and filed May 13, 2011.
|
||||
10.1
|
Registration Rights Agreement for the 7⅛% Senior Notes due 2019 dated as of May 11, 2011, among the Company, the Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as initial purchasers, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated May 11, 2011 and filed May 13, 2011.
|
||||
10.2
|
*
|
Brown Shoe Company, Inc. Incentive and Stock Compensation Plan of 2011, incorporated herein by reference to Exhibit A to the Company’s definitive proxy materials filed with the Securities and Exchange Commission on Schedule 14A on April 15, 2011.
|
|||
10.3
|
*
|
Form of Performance Award Agreement (for 2011-2013 performance period) under the Brown Shoe Company, Inc. Incentive and Stock Compensation Plan of 2002, incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2011 and filed June 9, 2011.
|
|||
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
|
†^
†^
†^
†^
|
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
|
SIGNATURES
|
BROWN SHOE COMPANY, INC.
|
||
Date: September 7, 2011
|
/s/ Mark E. Hood
|
|
Mark E. Hood
Senior Vice President and Chief Financial Officer
on behalf of the Registrant and as the
Principal Financial Officer and Principal Accounting Officer
|
CERTIFICATIONS
|
|
1.
|
I have reviewed this report on Form 10-Q of Brown Shoe Company, Inc. (the “registrant”);
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: September 7, 2011
|
/s/ Diane M. Sullivan
|
|
Diane M. Sullivan,
|
||
President and Chief Executive Officer
|
CERTIFICATIONS
|
|
1.
|
I have reviewed this report on Form 10-Q of Brown Shoe Company, Inc. (the “registrant”);
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: September 7, 2011
|
/s/ Mark E. Hood
|
|
Mark E. Hood
|
||
Senior Vice President and Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
/s/ Diane M. Sullivan
|
|
Diane M. Sullivan
|
|
President and Chief Executive Officer
|
|
Brown Shoe Company, Inc.
|
|
September 7, 2011
|
|
/s/ Mark E. Hood
|
|
Mark E. Hood
|
|
Senior Vice President and Chief Financial Officer
|
|
Brown Shoe Company, Inc.
|
|
September 7, 2011
|
Condensed Consolidated Statements Of Earnings (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 30, 2011
|
Jul. 31, 2010
|
Jul. 30, 2011
|
Jul. 31, 2010
|
|
Condensed Consolidated Statements Of Earnings | Â | Â | Â | Â |
Net sales | $ 628,128 | $ 585,756 | $ 1,252,748 | $ 1,183,474 |
Cost of goods sold | 391,583 | 347,286 | 766,403 | 697,444 |
Gross profit | 236,545 | 238,470 | 486,345 | 486,030 |
Selling and administrative expenses | 235,696 | 224,448 | 471,164 | 448,963 |
Restructuring and other special charges, net | 689 | 1,891 | 2,433 | 3,608 |
Operating earnings | 160 | 12,131 | 12,748 | 33,459 |
Interest expense | (6,520) | (4,810) | (13,218) | (9,322) |
Loss on early extinguishment of debt | (1,003) | Â | (1,003) | Â |
Interest income | 65 | 49 | 150 | 67 |
(Loss) earnings before income taxes | (7,298) | 7,370 | (1,323) | 24,204 |
Income tax benefit (provision) | 2,530 | (2,582) | 196 | (8,881) |
Net (loss) earnings | (4,768) | 4,788 | (1,127) | 15,323 |
Less: Net (loss) earnings attributable to noncontrolling interests | (159) | (473) | (206) | 16 |
Net (loss) earnings attributable to Brown Shoe Company, Inc. | $ (4,609) | $ 5,261 | $ (921) | $ 15,307 |
Basic (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders | $ (0.11) | $ 0.12 | $ (0.02) | $ 0.35 |
Diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders | $ (0.11) | $ 0.12 | $ (0.02) | $ 0.35 |
Dividends per common share | $ 0.07 | $ 0.07 | $ 0.14 | $ 0.14 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jul. 30, 2011
|
Aug. 27, 2011
|
|
Document And Entity Information | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jul. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Entity Registrant Name | BROWN SHOE CO INC | Â |
Entity Central Index Key | 0000014707 | Â |
Current Fiscal Year End Date | --01-28 | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 41,971,417 |
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Goodwill And Intangible Assets
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill And Intangible Assets | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill And Intangible Assets |
Goodwill and intangible assets were attributable to the Company's operating segments as follows:
As of July 30, 2011, January 29, 2011 and July 31, 2010, the Company had goodwill and intangible assets of $174.3 million (net of $52.9 million accumulated amortization), $70.6 million (net of $48.7 million accumulated amortization) and $73.9 million (net of $45.4 million accumulated amortization), respectively, primarily related to trademarks. As of July 30, 2011, the Company had goodwill of $61.2 million, with no goodwill as of January 29, 2011 or July 31, 2010. Intangible assets of $42.5 million as of July 30, 2011 and $13.7 million as of January 29, 2011 and July 31, 2010 are not subject to amortization. All remaining intangible assets are subject to amortization and have useful lives ranging from four to 20 years as of July 30, 2011. Amortization expense related to intangible assets was $2.1 million and $1.7 million for the thirteen weeks and $4.2 million and $3.4 million for the twenty-six weeks ended July 30, 2011 and July 31, 2010, respectively.
The increase in the goodwill and intangible assets of the Wholesale Operations segment from January 29, 2011 to July 30, 2011 reflects the Company's purchase price allocation for the acquisition of ASG on February 17, 2011. The Company's purchase price allocation resulted in acquired goodwill of $61.2 million and identifiable intangible assets of $46.7 million. The decline in the intangible assets of the Company's Wholesale Operations segment from July 31, 2010 to January 29, 2011 reflects amortization of licensed and owned trademarks.
The intangible assets associated with our acquisition of ASG will be amortized on a straight-line basis over their estimated useful lives, ranging from four to 20 years, except for the Avia and rykä trademarks, for which an indefinite life has been assigned. A summary of the estimated useful life by intangible asset class as well as the total weighted-average estimated useful life is as follows:
|
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end
Fair Value Measurements
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Jul. 30, 2011
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Fair Value Measurements | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
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 its capital for the purpose of funding operations and it 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, whereby deferred compensation amounts are 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 that the participant could purchase or receive with the amount of the deferred compensation, based upon the fair value (as determined based on 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. The PSUs are payable in cash based on the number of PSUs credited to the participating director's account, valued on the basis of the fair value at fiscal quarter-end on or following termination of the director's service. 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 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. The Company did not have any transfers between Level 1 and Level 2 during 2010 or the first half of 2011.
Store 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 store assets held and used with a carrying amount of $50.5 million were assessed for impairment and written down to their fair value, resulting in an impairment charge of $0.2 million, which was recorded within selling and administrative expenses for the thirteen weeks ended July 30, 2011. Of the $0.2 million impairment charge, $0.1 million related to the Famous Footwear segment and $0.1 million related to the Specialty Retail segment. Impairment charges of $0.7 million were recorded within selling and administrative expenses for the twenty-six weeks ended July 30, 2011, of which $0.4 million related to the Famous Footwear segment and $0.3 million related to the Specialty Retail segment.
Acquisition Purchase Accounting Estimates
See Note 3 for information related to the fair value estimates associated with the ASG acquisition and the related purchase price allocation.
Fair Value of the Company's Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company's other financial instruments subject to fair value disclosures are as follows:
The fair value of borrowings under the revolving credit agreement approximated their carrying value due to the short-term nature. The fair value of the Company's 2019 Senior Notes was based upon quoted prices from private institutional trading as of the end of the second quarter of 2011. The fair value of the Company's 2012 Senior Notes was based upon quoted prices as of the end of the respective periods. |
(Loss) Earnings Per Share
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Jul. 30, 2011
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(Loss) Earnings Per Share | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Loss) Earnings Per Share |
The Company uses the two-class method to compute basic and diluted (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 (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders:
Due to the net loss attributable to Brown Shoe Company, Inc. for the thirteen weeks and twenty-six weeks ended July 30, 2011, the denominator for diluted loss per common share attributable to Brown Shoe Company, Inc. shareholders is the same as the denominator for basic loss per common share attributable to Brown Shoe Company, Inc. shareholders.
Options to purchase 795,654 and 797,154 shares of common stock for the thirteen weeks and twenty-six weeks ended July 31, 2010, 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. |
Retirement And Other Benefit Plans
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Jul. 30, 2011
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Retirement And Other Benefit Plans | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement And Other Benefit Plans |
The following tables set forth the components of net periodic benefit cost (income) for the Company, including all domestic and Canadian plans:
Effective February 17, 2011, the Company's pension plan included ASG's domestic associates. |
Related Party Transactions
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6 Months Ended | ||
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Jul. 30, 2011
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Related Party Transactions | Â | ||
Related Party Transactions |
Hongguo International Holdings
The Company entered into a joint venture agreement with a subsidiary of Hongguo International Holdings Limited ("Hongguo") to market Naturalizer footwear in China in 2007. The Company is a 51% owner of the joint venture ("B&H Footwear"), with Hongguo 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 Hongguo on a wholesale basis. Hongguo then sells Naturalizer products through retail stores in China. During the thirteen weeks and twenty-six weeks ended July 30, 2011, the Company, through its consolidated subsidiary, B&H Footwear, sold $0.6 million and $1.9 million of Naturalizer footwear on a wholesale basis to Hongguo, with $0.5 million and $1.1 million in corresponding sales during the thirteen weeks and twenty-six weeks ended July 31, 2010, respectively. |
Long-Term And Short-Term Financing Arrangements
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Jul. 30, 2011
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Long-Term And Short-Term Financing Arrangements | Â | ||||||||||||
Long-Term And Short-Term Financing Arrangements |
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. The Credit Agreement provides for a revolving credit facility in an aggregate amount of up to $380.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at the Company's option (a) by up to $150.0 million from time to time during the term of the Credit Agreement (the "general purpose accordion feature") and (b) by an additional $150.0 million on or before February 28, 2011 (the "designated event accordion feature"), in both instances subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase. Effective February 17, 2011, the Loan Parties exercised the $150.0 million designated event accordion feature to fund the acquisition of ASG, increasing the aggregate amount available under the Credit Agreement from $380.0 million to $530.0 million. On February 17, 2011, ASG and TBMC, the sole domestic subsidiary of ASG, became borrowers under the Credit Agreement. See Note 3 to the condensed consolidated financial statements for further information on the acquisition of ASG. 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 Offer Rate ("LIBOR") or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit varies 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 July 30, 2011.
At July 30, 2011, the Company had $250.0 million in borrowings outstanding and $9.3 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $270.7 million at July 30, 2011.
$200 Million Senior Notes Due 2019
On April 27, 2011, the Company announced that it had priced an offering of $200.0 million aggregate principal amount of 7.125% Senior Notes due 2019 (the "2019 Senior Notes") in a private placement (the "Offering"). The Offering closed on May 11, 2011. 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 beginning on November 15, 2011. 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:
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 net proceeds from the Offering were approximately $193.7 million after deducting the initial purchasers' discounts and other Offering expenses. The Company used a portion of the net proceeds to purchase $99.2 million of the Company's outstanding $150.0 million 8.75% senior notes due in 2012 (the "2012 Senior Notes") that were tendered pursuant to a cash tender offer (the "Tender Offer") and pay other fees and expenses in connection with the Tender Offer. The Company called and redeemed the remaining $50.8 million aggregate principal amount of the outstanding 2012 Senior Notes. The Company used the remaining net proceeds for general corporate purposes, including repaying amounts outstanding under the Credit Agreement.
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 July 30, 2011, the Company was in compliance with all covenants and restrictions relating to the 2019 Senior Notes.
On August 3, 2011, the Company launched an exchange offer, allowing the holders of the 2019 Senior Notes to exchange their notes for a like amount of registered 2019 Senior Notes.
Loss on Early Extinguishment of Debt
During the second quarter of 2011, the Company completed a cash tender offer for the 2012 Senior Notes and called for redemption and repaid the remaining notes that were not tendered. The Company incurred a loss on early extinguishment costs to retire the 2012 Senior Notes prior to maturity totaling $1.0 million, of which approximately $0.6 million was non-cash. |
Share-Based Compensation
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6 Months Ended | ||
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Jul. 30, 2011
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Share-Based Compensation | Â | ||
Share-Based Compensation |
During the second quarter of 2011, the Company granted 26,000 stock options to certain employees with a weighted-average exercise price and grant date fair value of $10.19 and $5.48, respectively. These options vest in four equal increments, with 25% vesting over each of the next four years. These options have 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 also granted 18,850 restricted shares to non-employee directors with a weighted-average grant date fair value of $10.41 during the second quarter of 2011. The restricted shares granted to non-employee directors during the second quarter of 2011 vest in one year and share-based compensation expense will be recognized on a straight-line basis over the one-year period.
The Company also granted 182,000 restricted shares to certain employees with a weighted-average grant date fair value of $12.16 during the second quarter of 2011. The restricted shares granted to employees vest in four years and share-based compensation expense will be recognized on a straight-line basis over the four-year period.
The Company recognized share-based compensation expense of $1.3 million and $1.4 million during the thirteen weeks and $3.0 million and $2.8 million during the twenty-six weeks ended July 30, 2011 and July 31, 2010, respectively. The Company issued 202,728 shares and 620,680 shares of common stock during the thirteen and twenty-six weeks ended July 30, 2011, respectively, for restricted stock grants and directors' fees. During the thirteen and twenty-six weeks ended July 30, 2011, the Company cancelled 90,500 and 112,800 shares, respectively, of common stock as a result of forfeitures of restricted stock awards.
The Company also granted 67,369 restricted stock units to non-employee directors with a weighted-average grant date fair value of $10.42 during the second quarter of 2011. Of the 67,369 restricted stock units granted, 1,394 of the restricted stock units vested and compensation expense was fully recognized during the second quarter of 2011 and 65,975 of the 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 restricted stock units, as remeasured at the end of each period. |
Impact Of New And Prospective Accounting Pronouncements
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6 Months Ended | ||
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Jul. 30, 2011
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Impact Of New And Prospective Accounting Pronouncements | Â | ||
Impact Of New And Prospective Accounting Pronouncements |
In January 2010, the Financial Accounting Standards Board ("FASB") issued guidance that provides amendments to FASB Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, and requires more extensive disclosures about (a) transfers in and out of Levels 1 and 2, (b) activity in Level 3 fair value measurements, (c) different classes of assets and liabilities measured at fair value, and (d) the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The guidance is effective for interim or annual reporting periods beginning after December 15, 2009, except for certain disclosures applicable to Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Accordingly, the Company adopted the guidance, except for certain disclosures applicable to Level 3 fair value measurements, at the beginning of 2010, and adopted the guidance applicable to Level 3 fair value measurements at the beginning of 2011.
In December 2010, the FASB issued Emerging Issues Task Force Issue No. 10-G, Disclosure of Supplementary Pro Forma Information for Business Combinations, requiring entities that have entered into a material business combination or a series of immaterial business combinations that are material in the aggregate to present pro forma disclosures required under ASC 805, Business Combinations, as if the business combination occurred at the beginning of the prior annual period when preparing pro forma financial information for both the current and prior annual periods. Additional disclosures describing the nature and amount of material, nonrecurring pro forma adjustments are also required. The guidance is effective for business combinations consummated on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Accordingly, the Company adopted the guidance at the beginning of 2011. See Note 3 to the condensed consolidated financial statements for additional information.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (ASC Topic 220) Presentation of Comprehensive Income, ("ASU 2011-05") which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders' equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The Company plans on adopting the guidance for the first quarter of 2012. The adoption of ASU 2011-05 will not have an impact on the Company's condensed consolidated balance sheets, results of operations or cash flows as it only requires a change in the format of the current presentation. |
Comprehensive (Loss) Income And Changes In Equity
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Comprehensive (Loss) Income And Changes In Equity |
Comprehensive (loss) income includes changes in equity related to foreign currency translation adjustments and unrealized gains or losses from derivatives used for hedging activities.
The following table sets forth the reconciliation from net (loss) earnings to comprehensive (loss) income:
The following table sets forth the balance in accumulated other comprehensive income for the Company:
See additional information related to derivative instruments in Note 12 and Note 13 to the condensed consolidated financial statements and additional information related to pension and other postretirement benefits in Note 10 to the condensed consolidated financial statements.
The following tables set forth the changes in Brown Shoe Company, Inc. shareholders' equity and noncontrolling interests:
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Restructuring And Other Special Charges, Net
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Jul. 30, 2011
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Restructuring And Other Special Charges, Net | Â | ||
Restructuring And Other Special Charges, Net |
Acquisition and Integration Costs
On February 17, 2011, the Company entered into a Stock Purchase Agreement with ASG and ASG's stockholders, pursuant to which a subsidiary of the Company acquired all of the outstanding capital stock of ASG from the ASG stockholders on that date. During the second quarter of 2011 and the first half of 2011, the Company incurred acquisition and integration costs totaling $0.7 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) and $2.4 million ($2.1 million on an after-tax basis, or $0.04 per diluted share), respectively. For the full year of 2010, the Company incurred acquisition costs totaling $1.1 million ($0.7 million on an after-tax basis, or $0.02 per diluted share). All of the costs recorded during 2011 and 2010 were reflected within the Other segment and recorded as a component of restructuring and other special charges, net. See Note 3 to the condensed consolidated financial statements for further information.
Information Technology Initiatives
During 2008, the Company began implementation of an integrated enterprise resource planning ("ERP") information technology system provided by third-party vendors. The ERP information technology system replaced certain of the Company's internally developed and certain other third-party applications and is expected to better support the Company's business model. Although the Company went live on the wholesale portion of its new ERP system in the fourth quarter of 2010, system transition efforts and alignment of existing business processes are expected to continue in 2011. The Company incurred expenses of $1.9 million ($1.3 million on an after-tax basis, or $0.03 per diluted share) and $3.6 million ($2.4 million on an after-tax basis, or $0.06 per diluted share) during the thirteen weeks and twenty-six weeks ended July 31, 2010, respectively, as a component of restructuring and other special charges, net, related to these initiatives. Of the $1.9 million in expenses recorded during the thirteen weeks ended July 31, 2010, $1.7 million was recorded in the Other segment and $0.2 million was recorded in the Wholesale Operations segment. Of the $3.6 million in expenses recorded during the twenty-six weeks ended July 31, 2010, $3.3 million was recorded in the Other segment and $0.3 million was recorded in the Wholesale Operations segment. During 2010, the Company incurred expenses of $6.8 million ($4.6 million on an after-tax basis, or $0.10 per diluted share) related to these initiatives. Of the $6.8 million in expenses recorded during 2010, $6.1 million was recorded in the Other segment, and the remaining expense was recorded in the Wholesale Operations segment. The expenses incurred through 2010 were recorded as a component of restructuring and other special charges, net. Beginning in 2011, expenses incurred related to the ongoing enhancement of the ERP system have been charged as a component of selling and administrative expenses. |
Income Taxes
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Income Taxes | Â | ||
Income Taxes |
The Company's consolidated effective tax rate was a benefit of 34.7% for the second quarter of 2011, compared to a provision of 35.0% for the second quarter of last year reflecting a higher mix of wholesale earnings earned in lower-tax jurisdictions.
The Company's consolidated effective tax rate was a benefit of 14.8% in the first half of 2011, compared to a provision of 36.7% in the first half of last year. The first half rate is lower primarily due to a discrete tax charge of $0.2 million in the first quarter due to the non-deductibility of certain costs related to the ASG acquisition. For tax purposes, the acquisition related expenses recognized for financial statement purposes are treated as an addition to the basis of the ASG stock rather than a current period deduction. In addition, during the first half of 2011, the Company has a higher mix of wholesale earnings, which carry a lower income tax rate than our retail divisions. |
Business Segment Information
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Business Segment Information |
Applicable business segment information is as follows:
The Other segment includes corporate assets and administrative expenses and other costs and recoveries which are not allocated to the operating segments.
During the thirteen weeks and twenty-six weeks ended July 30, 2011, operating earnings of the Wholesale Operations segment included an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $1.5 million and $4.2 million, respectively, and the operating loss of the Other segment included costs related to the Company's acquisition and integration of ASG of $0.7 million and $2.4 million, respectively.
During the thirteen weeks and twenty-six weeks ended July 31, 2010, operating loss of the Other segment included costs related to the Company's information technology initiatives of $1.7 million and $3.3 million, respectively. During the thirteen weeks and twenty-six weeks ended July 31, 2010, operating earnings of the Company's Wholesale Operations segment included costs related to the information technology initiatives of $0.2 million and $0.3 million, respectively.
Following is a reconciliation of operating earnings to (loss) earnings before income taxes:
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Financial Information For The Company And Its Subsidiaries
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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 Credit Agreement. See Note 11 for additional information related to our long-term and short-term financing arrangements. The following table presents the condensed 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 condensed 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.
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Basis Of Presentation
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Basis Of Presentation | Â | ||
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 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 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 (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 January 29, 2011. |
Acquisitions And Divestitures
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Acquisitions And Divestitures |
American Sporting Goods Corporation
On February 17, 2011, the Company entered into a Stock Purchase Agreement with American Sporting Goods Corporation ("ASG") and ASG's stockholders, pursuant to which a subsidiary of the Company acquired all of the outstanding capital stock of ASG (the "ASG Stock") from the ASG stockholders on that date. The aggregate purchase price for the ASG Stock was $156.6 million in cash, including debt assumed by the Company of $11.6 million. In addition, the Company may be required to pay a $2.0 million cash earn-out contingent upon ASG's achievement of certain financial targets. The operating results of ASG have been included in our financial statements since February 17, 2011, and are consolidated within our Wholesale Operations segment.
ASG is a designer, manufacturer and marketer of a broad range of athletic footwear with a strong presence in walking, fitness and basketball. It was founded in 1983 and is headquartered in Aliso Viejo, California.
The acquisition adds performance and lifestyle athletic and outdoor footwear brands to the Company's portfolio, including Avia, rykä, AND 1, Nevados and Yukon, and complements the Company's existing fitness and comfort offerings.
Effective February 17, 2011, the Loan Parties under the Company's Credit Agreement exercised the $150.0 million designated event accordion feature to fund the majority of the purchase price for ASG, increasing the aggregate amount available under the Credit Agreement from $380.0 million to $530.0 million. The Credit Agreement continues to provide for access to an additional $150.0 million of optional availability pursuant to a separate accordion feature, subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase.
The Company incurred acquisition and integration costs of $0.7 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) during the second quarter of 2011, $2.4 million ($2.1 million on an after-tax basis, or $0.04 per diluted share) during the first half of 2011 and $1.1 million ($0.7 million on an after-tax basis, or $0.02 per diluted share) during 2010. All costs are recorded as a component of restructuring and other special charges, net. In addition, during the second quarter and first half of 2011, the Wholesale Operations segment included an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $1.5 million ($0.9 million on an after-tax basis, or $0.02 per diluted share) and $4.2 million ($2.5 million on an after-tax basis, or $0.05 per diluted share), respectively.
The total consideration paid by the Company in connection with the acquisition of ASG was $156.6 million. The cost to acquire ASG has been allocated to the assets acquired and liabilities assumed according to estimated fair values. The allocation has resulted in acquired goodwill of $61.2 million and intangible assets related to trade names, licensing agreements and customer relationships of $46.7 million. The goodwill and intangible assets have been allocated to the Wholesale Operations segment.
The Company has allocated the purchase price of ASG according to its estimate of the fair value of the assets and liabilities as of the acquisition date, February 17, 2011, as follows:
The Company's purchase price allocation contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company has used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of its operations. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur which could affect the accuracy of the Company's fair value estimates, including assumptions regarding industry economic factors and business strategies.
The Company has estimated the fair value of acquired receivables to be $21.1 million, with a gross contractual amount of $22.1 million. The Company does not expect to collect $1.0 million of the acquired receivables. The Company has also estimated the fair value of inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal and a reasonable profit allowance for our post acquisition selling efforts and current replacement cost for raw materials acquired at the closing date. In estimating the fair values for intangible assets other than goodwill, the Company relied in part upon a report of a third-party valuation specialist. With respect to other acquired assets and liabilities, the Company used all available information to make its best estimate of fair values at the business combination date. The Company's allocation of purchase price is considered complete as of July 30, 2011.
Goodwill and intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to synergies and an assembled workforce and is not deductible for tax purposes. The following table illustrates the unaudited pro forma effect on operating results as if the acquisition had been completed as of the beginning of 2010:
For purposes of the pro forma disclosures above, the primary adjustments for 2010 include: i) a non-cash cost of goods sold impact reflecting the sell-through of higher cost product due to a fair value adjustment to acquired inventory of $4.2 million ($3.2 million in the first quarter of 2010 and $1.0 million in the second quarter); ii) amortization of acquired intangibles of $1.0 million ($0.5 million in each of the first quarter and second quarter); and iii) additional interest expense of $3.0 million ($1.5 million in each of the first quarter and second quarter) assuming borrowings at the beginning of 2010 of $156.6 million at 3.5% interest under our Credit Agreement to fund the acquisition. The primary adjustments for 2011 include: i) the elimination of non-cash cost of goods sold impact related to the inventory fair value adjustment of $4.2 million ($2.7 million in the first quarter of 2011 and $1.5 million in the second quarter); and ii) the elimination of $1.6 million of expenses related to the acquisition incurred during the first quarter of 2011. The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results of operations that may be expected in future periods.
During the period from the acquisition date of February 17, 2011 through July 30, 2011, our condensed consolidated statement of earnings include net sales of ASG of $87.2 million (net of intercompany eliminations) and immaterial net earnings, which included an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $4.2 million ($2.5 million on an after-tax basis, or $0.05 per diluted share).
Subsequent Event – Sale of The Basketball Marketing Company, Inc. ("TBMC")
During August 2011, the Company entered into an agreement to sell TBMC to Galaxy International for $55 million in cash. The sale is subject to customary closing conditions and subject to Galaxy International securing financing. TBMC was acquired in the Company's February 17, 2011 acquisition of ASG. TBMC markets and sells footwear bearing the AND 1 brand name. The sale is expected to close during the Company's fiscal third quarter, and the Company plans to use the proceeds to pay down debt.
Edelman Shoe, Inc.
Edelman Shoe, Inc. ("Edelman Shoe") is a leading designer and marketer of fashion footwear. The Sam Edelman brand was launched in 2004 and is primarily sold through department stores and independent retailers.
In 2007, the Company invested cash of $7.1 million in Edelman Shoe, acquiring 42.5% of the outstanding stock. On November 3, 2008, the Company invested an additional $4.1 million of cash in Edelman Shoe, acquiring 7.5% of the outstanding stock, bringing the Company's total equity interest to 50%.
Beginning November 3, 2008, the Company's consolidated financial statements included the accounts of Edelman Shoe as a result of the Company's determination that Edelman Shoe was a variable interest entity ("VIE"), for which the Company was the primary beneficiary. At the beginning of 2010, the Company adopted amended consolidation guidance applicable to VIEs, evaluated the impact on the existing variable interests in Edelman Shoe and determined that Edelman Shoe continued to be a VIE that was appropriately consolidated by the Company.
On June 4, 2010, the Company acquired the remaining 50% of the outstanding stock of Edelman Shoe for $40.0 million, consisting of a combination of $32.7 million of cash, including transaction fees, and $7.3 million in shares of the Company's common stock. The acquisition of the remaining interest in Edelman Shoe was accounted for in accordance with the consolidation guidance applicable to noncontrolling interests, which requires changes in a parent's ownership interest in a subsidiary, without loss of control, to be reflected as an adjustment to the carrying amount of the noncontrolling interest with excess consideration recognized directly to equity attributable to the controlling interest. As a result, the Company's acquisition of the remaining interest in Edelman Shoe resulted in a reduction to total equity of $32.7 million, consisting of a net reduction of $24.1 million to total Brown Shoe Company, Inc. shareholders' equity and the elimination of $8.6 million of the noncontrolling interest in Edelman Shoe. As of June 4, 2010, Edelman Shoe is a wholly-owned subsidiary of the Company. |
Risk Management And Derivatives
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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 July 2012. 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 July 30, 2011 and July 31, 2010 were 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 July 30, 2011, January 29, 2011 and July 31, 2010, the Company had forward contracts maturing at various dates through July 2012, January 2012 and July 2011, respectively. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheet are as follows:
The effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:
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 (loss) 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. |
Commitments And Contingencies
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Commitments And Contingencies | Â | ||
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 Company's most recent proposed expanded remedy workplan was approved by the Colorado authorities, and the Company is implementing that workplan. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be $16.2 million as of July 30, 2011. The Company expects to spend approximately $0.2 million in each of the next five years and $15.2 million in the aggregate thereafter related to the on-site remediation.
The cumulative expenditures for both on-site and off-site remediation through July 30, 2011 are $23.5 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 July 30, 2011, is $7.7 million, of which $1.1 million is recorded within other accrued expenses and $6.6 million is recorded within other liabilities. Of the total $7.7 million reserve, $5.0 million is for on-site remediation and $2.7 million is for off-site remediation. During the thirteen weeks and twenty-six weeks ended July 30, 2011 and July 31, 2010, the Company recorded no expense related to either the on-site or off-site remediation, other than the accretion of interest expense. 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 $1.7 million at July 30, 2011, related to these sites, which has been discounted at 6.4%. On an undiscounted basis, this liability would be $2.4 million. The Company expects to spend approximately $0.2 million in each of the next five years and $1.4 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 million as of July 30, 2011 to complete the cleanup, maintenance and monitoring at all sites. Of the $9.4 million liability, $1.3 million is recorded in other accrued expenses and $8.1 million is recorded in other liabilities. 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
On April 25, 2008, the Board of Commissioners of the County of La Plata, Colorado, filed suit against a subsidiary of the Company in the United States District Court for the District of Colorado, alleging soil and groundwater contamination associated with a former facility located in Durango, Colorado. The Redfield rifle scope business operated a lens crafting facility on this property, which was subsequently sold to the County. The County seeks reimbursement for its past expenditures and any judgment obligating the Company to pay for cleanup of the site. The trial concluded during the third quarter of 2010, and judgment was received in the first quarter of 2011. The judgment did not have a material adverse effect on the Company's results of operations or financial position.
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. All legal costs associated with litigation are expensed as incurred.
Other
In 2004, the Company was notified of the insolvency of an insurance company that insured the Company for workers' compensation and casualty losses from 1973 to 1989. That company is now in liquidation. Certain claims from that time period are still outstanding, for which the Company has an accrued liability of $1.6 million as of July 30, 2011. While management believes it has an appropriate reserve for this matter, the ultimate outcome and cost to the Company may vary.
At July 30, 2011, the Company was contingently liable for remaining lease commitments of approximately $0.7 million in the aggregate, which relate to former retail locations that it exited in prior years. These obligations will continue to decline over the next several years as leases expire. In order for the Company to incur any liability related to these lease commitments, the current lessees would have to default. |
Condensed Consolidated Balance Sheets (USD $)
In Thousands |
Jul. 30, 2011
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Jan. 29, 2011
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Jul. 31, 2010
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Assets | Â | Â | Â |
Cash and cash equivalents | $ 62,553 | $ 126,548 | $ 30,724 |
Receivables | 158,595 | 113,937 | 106,149 |
Inventories | 627,929 | 524,250 | 578,085 |
Prepaid expenses and other current assets | 49,360 | 43,546 | 33,206 |
Total current assets | 898,437 | 808,281 | 748,164 |
Other assets | 139,109 | 133,538 | 118,884 |
Goodwill and intangible assets, net | 174,299 | 70,592 | 73,876 |
Property and equipment | 435,624 | 423,103 | 418,190 |
Allowance for depreciation | (296,546) | (287,471) | (281,983) |
Net property and equipment | 139,078 | 135,632 | 136,207 |
Total assets | 1,350,923 | 1,148,043 | 1,077,131 |
Liabilities and Equity | Â | Â | Â |
Borrowings under revolving credit agreement | 250,000 | 198,000 | 35,500 |
Trade accounts payable | 295,826 | 167,190 | 294,845 |
Other accrued expenses | 139,698 | 146,715 | 139,675 |
Total current liabilities | 685,524 | 511,905 | 470,020 |
Other liabilities | Â | Â | Â |
Long-term debt | 198,540 | 150,000 | 150,000 |
Deferred rent | 33,445 | 34,678 | 38,011 |
Other liabilities | 42,692 | 35,551 | 27,555 |
Total other liabilities | 274,677 | 220,229 | 215,566 |
Equity | Â | Â | Â |
Common stock | 423 | 439 | 439 |
Additional paid-in capital | 114,712 | 134,270 | 130,621 |
Accumulated other comprehensive income | 7,830 | 6,141 | 1,567 |
Retained earnings | 267,112 | 274,230 | 258,444 |
Total Brown Shoe Company, Inc. shareholders' equity | 390,077 | 415,080 | 391,071 |
Noncontrolling interests | 645 | 829 | 474 |
Total equity | 390,722 | 415,909 | 391,545 |
Total liabilities and equity | $ 1,350,923 | $ 1,148,043 | $ 1,077,131 |