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Notes to Consolidated Financial Statements
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Caleres, Inc., originally founded as Brown Shoe Company in 1878 and incorporated in 1913, is a global footwear retailer and wholesaler. In May 2015, the shareholders of Brown Shoe Company, Inc. approved a rebranding initiative that changed the name of the company to Caleres, Inc. (the "Company"). The Company’s shares are traded under the “CAL” symbol on the New York Stock Exchange.
The Company provides a broad offering of licensed, branded and private-label casual, dress and athletic footwear products to women, men and children. Footwear is sold at a variety of price points through multiple distribution channels both domestically and internationally. The Company currently operates
1,262
retail shoe stores in the United States, Canada, Guam and Italy, primarily under the Famous Footwear, Naturalizer and Allen Edmonds names. In addition, through its Brand Portfolio segment, the Company designs, sources and markets footwear to retail stores domestically and internationally, including national chains, online retailers, department stores, mass merchandisers, independent retailers and catalogs. In
2017
, approximately
69%
of the Company’s net sales were at retail, compared to
67%
in
2016
and
66%
in
2015
. Refer to Note 7 to the consolidated financial statements for additional information regarding the Company’s business segments.
The Company’s business is seasonal in nature due to consumer spending patterns with higher back-to-school and holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year.
Consolidation
The 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.
Noncontrolling Interests
Noncontrolling interests in the Company’s consolidated financial statements result from the accounting for noncontrolling interests in partially-owned consolidated subsidiaries or affiliates. The Company consolidates B&H Footwear Company Limited (“B&H Footwear”), a joint venture, into its consolidated financial statements. Net earnings attributable to noncontrolling interests represent the share of net earnings that are attributable to the B&H Footwear equity. Transactions between the Company and B&H Footwear have been eliminated in the consolidated financial statements. As further discussed in Note 17 to the consolidated financial statements, in 2016, the Company communicated its intention to dissolve the joint venture upon the expiration of the joint venture agreement in August 2017. The parties are in the process of dissolving their joint venture arrangements.
Accounting Period
The Company’s fiscal year is the 52- or 53-week period ending the Saturday nearest to January 31. Fiscal year
2017
, which included 53 weeks, ended on
February 3, 2018
. Fiscal years
2016
and
2015
, both of which included 52 weeks, ended on
January 28, 2017
and
January 30, 2016
, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Receivables
The Company evaluates the collectibility of selected accounts receivable on a case-by-case basis and makes adjustments to the bad debt reserve for expected losses. The Company considers factors such as ability to pay, bankruptcy, credit ratings and payment history. For all other accounts, the Company estimates reserves for bad debts based on experience and past due status of the accounts. If circumstances related to customers change, estimates of recoverability are further adjusted. The Company recognized a provision for doubtful accounts of
$1.3 million
in
2017
,
$1.4 million
in
2016
and
$0.5 million
in
2015
.
Customer allowances represent reserves against our wholesale customers’ accounts receivable for margin assistance, product returns, customer deductions and co-op advertising allowances. The Company estimates the reserves needed for margin assistance by reviewing inventory levels on the retail floors, sell-through rates, historical dilution, current gross margin levels and other performance indicators of our major retail customers. Product returns and customer deductions are estimated using historical experience and anticipated future trends. Co-op advertising allowances are estimated based on customer agreements. The Company recognized a provision for customer allowances of
$51.1 million
in
2017
,
$45.2 million
in
2016
and
$47.4 million
in
2015
.
Customer discounts represent reserves against our accounts receivable for discounts that our wholesale customers may take based on meeting certain order, payment or return guidelines. The Company estimates the reserves needed for customer discounts based upon customer net sales and respective agreement terms. The Company recognized a provision for customer discounts of
$4.8 million
in
2017
,
$3.6 million
in
2016
and
$2.6 million
in
2015
.
Inventories
All inventories are valued at the lower of cost and net realizable value with approximately
85%
of consolidated inventories using the last-in, first-out (“LIFO”) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. If the first-in, first-out (“FIFO”) method had been used, consolidated inventories would have been
$4.0 million
and
$4.3 million
higher at
February 3, 2018
and
January 28, 2017
, respectively. Refer to Note 8 to the consolidated financial statements for further discussion.
The costs of inventory, inbound freight and duties, markdowns, shrinkage and royalty expense are classified in cost of goods sold. Costs of warehousing and distribution are classified in selling and administrative expenses and are expensed as incurred. Such warehousing and distribution costs totaled
$89.7 million
,
$77.7 million
and
$70.4 million
in
2017
,
2016
and
2015
, respectively. Costs of overseas sourcing offices and other inventory procurement costs are reflected in selling and administrative expenses and are expensed as incurred. Such sourcing and procurement costs totaled
$23.1 million
,
$21.5 million
and
$23.9 million
in
2017
,
2016
and
2015
, respectively.
The Company applies judgment in valuing inventories by assessing the net realizable value of inventories based on current selling prices. At the Famous Footwear segment and certain Brand Portfolio retail operations, markdowns are recognized when it becomes evident that inventory items will be sold at retail prices less than cost, plus the cost to sell the product. This policy causes the gross profit rates at Famous Footwear and, to a lesser extent, Brand Portfolio to be lower than the initial markup during periods when permanent price reductions are taken to clear product. Within the Brand Portfolio segment, markdown reserves generally reduce the carrying values of inventories to a level where, upon sale of the product, the Company will realize its normal gross profit rate. The Company believes these policies reflect the difference in operating models between the Famous Footwear and Brand Portfolio segments. Famous Footwear periodically runs promotional events to drive sales to clear seasonal inventories. The Brand Portfolio segment relies on permanent price reductions to clear slower-moving inventory.
Markdowns are recorded to reflect expected adjustments to sales prices. In determining markdowns, management considers current and recently recorded sales prices, the length of time the product is held in inventory and quantities of various product styles contained in inventory, among other factors. The ultimate amount realized from the sale of certain products could differ from management estimates. The Company performs physical inventory counts or cycle counts on all merchandise inventory on hand throughout the year and adjusts the recorded balance to reflect the results. The Company records estimated shrinkage between physical inventory counts based on historical results.
Computer Software Costs
The Company capitalizes certain costs in other assets, including internal payroll costs incurred in connection with the development or acquisition of software for internal use. Other assets on the consolidated balance sheets include
$22.3 million
and
$30.0 million
of computer software costs as of
February 3, 2018
and
January 28, 2017
, respectively, which are net of accumulated amortization of
$123.0 million
and
$111.7 million
as of the end of the respective periods.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is provided over the estimated useful lives of the assets or the remaining lease terms, where applicable, using the straight-line method.
Interest Expense
Capitalized Interest
Interest costs for major asset additions are capitalized during the construction or development period and amortized over the lives of the related assets. The Company capitalized interest of
$1.4 million
and
$0.3 million
in
2016
and
2015
, respectively, related to its expansion and modernization project at its Lebanon, Tennessee distribution center, with no corresponding interest capitalized in 2017.
Interest Expense
Interest expense includes interest for borrowings under both the Company’s short-term and long-term debt, net of amounts capitalized. Interest expense includes fees paid under the short-term revolving credit agreement for the unused portion of its line of credit. Interest expense also includes the amortization of deferred debt issuance costs and debt discount as well as the accretion of certain discounted noncurrent liabilities.
Goodwill and Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. The Company adopted the provisions of Accounting Standards Codification (“ASC”),
Intangibles-Goodwill and Other (ASC Topic 350) Testing Goodwill for Impairment
, which permits, but does not require, a company to qualitatively assess indicators of a reporting unit’s fair value when it is unlikely that a reporting unit is impaired. If, after completing the qualitative assessment, a company believes it is likely that a reporting unit is impaired, a discounted cash flow analysis is prepared to estimate fair value. A fair value-based test is applied at the reporting unit level, which is generally at or one level below the operating segment level. The test compares the fair value of the Company’s reporting units to the carrying value of those reporting units. This test requires significant assumptions, estimates and judgments by management, and is subject to inherent uncertainties and subjectivity. The fair value of the reporting unit is determined using an estimate of future cash flows of the reporting unit and a risk-adjusted discount rate to compute a net present value of future cash flows. Projected net sales, gross profit, selling and administrative expense, capital expenditures and working capital requirements are based on the Company's internal projections. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting units directly resulting from the use of its assets in its operations. Assumptions that market participants may use are also considered. The estimate of the fair values of the Company's reporting units is based on the best information available to the Company's management as of the date of the assessment. As further discussed below, during the third quarter of 2017, the Company adopted ASU 2017-04,
Simplifying the Test for Goodwill Impairment,
which eliminates the requirement to calculate the implied fair value of goodwill. Goodwill impairment is recorded if the fair value of the tangible and intangible assets exceeds the fair value of the reporting unit, not to exceed the carrying value of goodwill.
As a result of the acquisition of Allen Edmonds in
2016
, the Company performed a quantitative assessment for the goodwill impairment test as of the first day of the fourth quarter of
2017
. Based on the results of the most recent goodwill impairment quantitative assessment, the Company determined that the fair values of the reporting units exceeded the carrying values.
The Company performs impairment tests on its indefinite-lived intangible assets as of the first day of the fourth quarter of each fiscal year unless events indicate an interim test is required. The indefinite-lived intangible asset impairment reviews performed as of the first day of the Company’s fourth fiscal quarter resulted in no impairment charges. Definite-lived intangible assets, other than goodwill, are amortized over their useful lives and are reviewed for impairment if and when impairment indicators are present.
Investment in Nonconsolidated Affiliate
The Company has an investment in a nonconsolidated affiliate that is accounted for using the cost method. The investment's carrying value of
$7.0 million
was included in other assets on the consolidated balance sheets. During 2016, the Company determined that the investment had an other-than-temporary decline in its fair value that exceeded its carrying value and recorded an impairment charge of
$7.0 million
, which is presented in restructuring and other special charges, net in the consolidated statements of earnings in 2016.
Self-Insurance Reserves
The Company is self-insured and/or retains high deductibles for a significant portion of its workers’ compensation, health, disability, cyber risk, general liability, automobile and property programs, among others. Liabilities associated with the risks that are retained by the Company are estimated by considering historical claims experience, trends of the Company and the industry and other actuarial assumptions. The estimated accruals for these liabilities could be affected if development of costs on claims differ from these assumptions and historical trends. Based on available information as of
February 3, 2018
, the Company believes it has provided adequate reserves for its self-insurance exposure. As of
February 3, 2018
and
January 28, 2017
, self-insurance reserves were
$11.0 million
and
$10.4 million
, respectively.
Revenue Recognition
Retail sales, recognized at the point of sale, are recorded net of returns and exclude sales tax. Wholesale sales are recorded, net of returns, allowances and discounts, generally when the merchandise has been shipped and title and risk of loss have passed to the customer. Revenue for products sold that are shipped directly to an individual consumer is recognized upon delivery to the consumer. Reserves for projected merchandise returns, discounts and allowances are determined based on historical experience and current expectations. Revenue is recognized on license fees related to Company-owned brand-names, where the Company is the licensor, when the related sales of the licensee are made. As further discussed below, the Company will adopt ASC 606,
Revenue with Contracts from Customers
, in the first quarter of 2018, which will change how revenue is recognized for certain aspects of the Company's business.
Gift Cards
The Company sells gift cards to its consumers in its retail stores, through its Internet sites and at other retailers. The Company’s gift cards do not have expiration dates or inactivity fees. The Company recognizes revenue from gift cards when (i) the gift card is redeemed by the consumer or (ii) the likelihood of the gift card being redeemed by the consumer is remote (“gift card breakage”) and the Company determines that it does not have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. The Company determines its gift card breakage rate based upon historical redemption patterns. The Company recognizes gift card breakage during the 24-month period following the sale of the gift card, according to the Company’s historical redemption pattern. Gift card breakage income is included in net sales in the consolidated statements of earnings and the liability established upon the sale of a gift card is included in other accrued expenses within the consolidated balance sheets. The Company recognized
$1.7 million
of gift card breakage in
2017
and
$0.7 million
in
2016
and
2015
.
Loyalty Program
The Company maintains a loyalty program (“Rewards”) at Famous Footwear, through which consumers earn points toward savings certificates for qualifying purchases. Upon reaching specified point values, consumers are issued a savings certificate that may be redeemed for purchases at Famous Footwear. Savings certificates earned must be redeemed within stated expiration dates. In addition to the savings certificates, the Company also offers exclusive member discounts. The value of points and rewards earned by Famous Footwear’s Rewards program members are recorded as a reduction of net sales and a liability is established within other accrued expenses at the time the points are earned based on historical conversion and redemption rates. Approximately
75%
of net sales in the Famous Footwear segment were made to its Rewards members in both
2017
and 2016, compared to
74%
in
2015
. As of
February 3, 2018
and
January 28, 2017
, the Company had a Rewards program liability of
$8.1 million
and
$7.6 million
, respectively, which is included in other accrued expenses on the consolidated balance sheets. As further discussed below, the adoption of ASC 606 in the first quarter of 2018 will have a material impact on the Rewards program liability.
Store Closing and Impairment Charges
The costs of closing stores, including lease termination costs, property and equipment write-offs and severance, as applicable, are recorded when the store is closed or when a binding agreement is reached with the landlord to close the store.
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable. After allowing for an appropriate start-up period, unusual nonrecurring events or favorable trends, property and equipment at stores indicated as impaired are written down to fair value as calculated using a discounted cash flow method. The Company recorded asset impairment charges, primarily related to underperforming retail stores, of
$3.8 million
in
2017
,
$1.6 million
in
2016
and
$2.8 million
in
2015
.
Advertising and Marketing Expense
Advertising and marketing costs are expensed as incurred, except for the costs of direct response advertising that relate primarily to the production and distribution of the Company's catalogs and coupon mailers. Direct response advertising costs are capitalized and amortized over the expected future revenue stream, which is generally one to three months from the date the materials are mailed. External production costs of advertising are expensed when the advertising first appears in the media or in the store.
In addition, the Company participates in co-op advertising programs with certain of its wholesale customers. For those co-op advertising programs where the Company has validated the fair value of the advertising received, co-op advertising costs are reflected as advertising expense within selling and administrative expenses. Otherwise, co-op advertising costs are reflected as a reduction of net sales.
Total advertising and marketing expense was
$83.6 million
,
$78.8 million
and
$78.4 million
in
2017
,
2016
and
2015
, respectively. These costs were offset by co-op advertising allowances recovered by the Company’s retail business of
$4.8 million
,
$4.1 million
and
$6.5 million
in
2017
,
2016
and
2015
, respectively. Total co-op advertising costs reflected as a reduction of net sales were
$10.0 million
in
2017
,
$8.4 million
in
2016
and
$9.7 million
in
2015
. Total advertising costs attributable to future periods that are deferred and recognized as a component of prepaid expenses and other current assets were
$4.0 million
and
$2.3 million
at
February 3, 2018
and
January 28, 2017
, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of its assets and liabilities. The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its deferred tax assets will not be realized. The Company does not recognize a tax benefit unless it concludes that it is more-likely-than-not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in its judgment, is greater than
50%
likely to be realized. The Company records interest and penalties related to unrecognized tax positions within the income tax provision on the consolidated statements of earnings.
As further discussed in Note 6 to the consolidated financial statements, on
December 22, 2017
, the Tax Cuts and Jobs Act was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from
35%
to
21%
effective
January 1, 2018
, the transition of U.S. international taxation from a worldwide tax system to a quasi-territorial tax system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.
Operating Leases
The Company leases its store premises and certain office locations, distribution centers and equipment under operating leases. Approximately
one-half
of the leases entered into by the Company include options that allow the Company to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Some leases also include early termination options that can be exercised under specific conditions.
Contingent Rentals
Many of the leases covering retail stores require contingent rentals in addition to the minimum monthly rental charge based on retail sales volume. The Company records expense for contingent rentals during the period in which the retail sales volume exceeds the respective targets.
Construction Allowances Received From Landlords
At the time its retail facilities are initially leased, the Company often receives consideration from landlords to be applied against the cost of leasehold improvements necessary to open the store. The Company treats these construction allowances as a lease incentive. The allowances are recorded as a deferred rent obligation and amortized to income over the lease term as a reduction of rent expense. The allowances are reflected as a component of other accrued expenses and deferred rent on the consolidated balance sheets.
Straight-Line Rents and Rent Holidays
The Company records rent expense on a straight-line basis over the lease term for all of its leased facilities. For leases that have predetermined fixed escalations of the minimum rentals, the Company recognizes the related rental expense on a straight-line basis and records the difference between the recognized rental expense and amounts payable under the lease as deferred rent. At the time its retail facilities are leased, the Company is frequently not charged rent for a specified period of time, typically
30
to
60
days, while the store is being prepared for opening. This rent-free period is referred to as a rent holiday. The Company recognizes rent expense over the lease term, including any rent holiday, within selling and administrative expenses on the consolidated statements of earnings.
Pre-opening Costs
Pre-opening costs associated with opening retail stores, including payroll, supplies and facility costs, are expensed as incurred.
Earnings Per Common Share Attributable to Caleres, Inc. Shareholders
The Company uses the two-class method to calculate basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. Unvested restricted stock awards are considered participating units because they entitle holders to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Under the two-class method, basic earnings per common share attributable to Caleres, Inc. shareholders is computed by dividing the net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities by the weighted-average number of common shares outstanding during the year. Diluted earnings per common share attributable to Caleres, Inc. shareholders is computed by dividing the net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities by the weighted-average number of common shares and potential dilutive securities outstanding during the year. Potential dilutive securities consist of outstanding stock options and contingently issuable shares for the Company's performance share awards.
Refer to Note 3 to the consolidated financial statements for additional information related to the calculation of earnings per common share attributable to Caleres, Inc. shareholders.
Comprehensive Income
Comprehensive income includes the effect of foreign currency translation adjustments, pension and other postretirement benefits adjustments and unrealized gains or losses from derivatives used for hedging activities.
Foreign Currency Translation Adjustment
For certain of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into United States dollars at the period-end exchange rate or historical rates as appropriate. Consolidated statements of earnings amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total Caleres, Inc. shareholders’ equity. Transaction gains and losses are included in the consolidated statements of earnings.
Pension and Other Postretirement Benefits Adjustments
The Company determines the expense and obligations for retirement and other benefit plans using assumptions related to discount rates, expected long-term rates of return on invested plan assets, expected salary increases and certain employee-related factors. The Company determines the fair value of plan assets and benefit obligations as of the January 31 measurement date. The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total Caleres, Inc. shareholders’ equity and is recognized into the plans’ expense over time. Refer to additional information related to pension and other postretirement benefits in Note 5 and Note 15 to the consolidated financial statements.
Derivative Financial Instruments
The Company recognizes all derivative financial instruments as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. The Company evaluates its exposure to volatility in foreign currency rates and may enter into derivative transactions. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. Refer to additional information related to derivative financial instruments in Note 13, Note 14 and Note 15 to the consolidated financial statements.
Litigation Contingencies
The Company is the defendant in several claims and lawsuits arising in the ordinary course of business. The Company believes any of these ordinary- course-of-business proceedings will not have a material adverse effect on the consolidated financial position or results of operations. The Company accrues its best estimate of the cost of resolution of these claims. Legal defense costs of such claims are recognized in the period in which the costs are incurred. Refer to Note 18 to the consolidated financial statements for a further description of commitments and contingencies.
Environmental Matters
The Company is involved in environmental remediation and ongoing compliance activities at several sites. The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility and residential neighborhoods adjacent to and near the property, which have been affected by solvents previously used at the facility. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. The Company's prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws to address conditions that may be identified in the future. Refer to Note 18 to the consolidated financial statements for a further description of specific properties.
Environmental expenditures relating to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated and are evaluated independently of any future claims recovery. Generally, the timing of these accruals coincides with completion of a feasibility study or our commitment to a formal plan of action, and our estimates of cost are subject to change as new information becomes available. Costs of future expenditures for environmental remediation obligations are discounted to their present value in those situations requiring only continuing maintenance and monitoring based upon a schedule of fixed payments.
Business Combination Accounting
The Company allocates the purchase price of an acquired entity to the assets and liabilities acquired based upon their estimated fair values at the business combination date. The Company also identifies and estimates the fair values of intangible assets that should be recognized as assets apart from goodwill. 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 Company typically engages third-party valuation specialists to assist in the estimation of fair values for intangible assets other than goodwill, inventory and fixed assets. The carrying values of acquired receivables and trade accounts payable have historically approximated their fair values at the business combination date. With respect to other acquired assets and liabilities, the Company uses all available information to make the best estimates of their fair values at the business combination date.
The Company’s purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. 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 estimates, including assumptions regarding industry economic factors and business strategies.
Share-Based Compensation
The Company has share-based incentive compensation plans under which certain officers, employees and members of the Board of Directors are participants and may be granted restricted stock, stock performance awards and stock options. Additionally, share-based grants may be made to non-employee members of the Board of Directors in the form of restricted stock units (“RSUs”) payable in cash or the Company's common stock at no cost to the non-employee member of the Board of Directors. The Company accounts for share-based compensation in accordance with the fair value recognition provisions of ASC 718,
Compensation – Stock Compensation
, and ASC 505,
Equity
, which require all share-based payments to employees and members of the Board of Directors, including grants of employee stock options, to be recognized as expense in the consolidated financial statements based on their fair values. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Stock options generally vest over four years, with
25%
vesting annually and expense is recognized on a straight-line basis separately for each vesting portion of the stock option award. Expense for restricted stock is based on the fair value of the restricted stock on the date of grant and is generally recognized on a straight-line basis over a four-year vesting period. Expense for stock performance awards is recognized based upon the fair value of the awards on the date of grant and the anticipated number of shares or units to be awarded on a straight-line basis over the respective term of the award, or individual vesting portion of an award. Expense for the initial grant of RSUs is recognized ratably over the one-year vesting period based upon the fair value of the RSUs, and for cash-equivalent RSUs, is remeasured at the end of each period. If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. Refer to additional information related to share-based compensation in Note 16 to the consolidated financial statements.
Impact of Recently Adopted Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11,
Simplifying the Measurement of Inventory (Topic 330),
which requires entities to measure inventory at "the lower of cost and net realizable value", simplifying the current guidance under which entities must measure inventory at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using the last-in, first-out (LIFO) method. The ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted the ASU in the first quarter of 2017, which did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting (Topic 718)
, which simplifies accounting for certain aspects of share-based payments to employees, including income taxes, forfeitures and statutory income tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the ASU during the first quarter of 2017, which had the following impact to the consolidated financial statements:
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The Company recognized excess tax benefits during 2017 of
$1.3 million
related to share-based plans, which are required to be recognized in the statements of earnings on a prospective basis. Prior to the adoption of the ASU, the excess tax benefit related to share-based plans was recorded in additional paid-in-capital.
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The Company elected to adopt the provision of the ASU to account for forfeitures as they occur. This election was applied on a modified retrospective basis, resulting in a net increase to Caleres, Inc. shareholders' equity of
$0.4 million
.
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The ASU requires cash flows from excess tax benefits related to share-based payments to be reported as operating activities in the consolidated statements of cash flows. The Company elected to adopt this provision on a prospective basis and as a result, the excess tax benefits related to share-based plans for 2016 and 2015 are presented as financing activities, while the benefit for 2017 is presented as an operating activity.
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In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment,
which simplifies the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill. Under the ASU, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. The ASU is effective prospectively for annual and interim impairment tests beginning after December 15, 2019, with early adoption permitted. The Company adopted the ASU during the third quarter of 2017, which had no impact on the consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income
, which contains amendments that allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted the ASU during the fourth quarter of 2017, which resulted in the reclassification of
$5.7 million
from accumulated other comprehensive loss to retained earnings. The reclassification was comprised of a
$5.9 million
unrealized gain on pension and other postretirement benefits and a
$0.2 million
unrealized loss on derivative financial instruments.
Impact of Prospective Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and subsequently issued ASU 2015-14 to defer the effective date. Several ASUs to clarify the implementation guidance in ASU 2014-09 have also been issued. Topic 606 provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company will adopt the ASUs during the first quarter of 2018 using the modified retrospective method.
The area most significantly impacted by the ASUs will be the value assigned to loyalty points issued under the Company's loyalty program for the Famous Footwear segment. The new standards will require a deferral of revenue associated with loyalty points using a relative stand-alone selling price method rather than the incremental cost approach the Company uses under the current standard. The standards allow entities to elect various practical expedients. The Company will elect the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. The Company will also elect the practical expedient to exclude sales and similar taxes collected from consumers from the measurement of the transaction price for its retail sales. Although adoption of the ASUs will result in a significant initial adjustment to deferred revenue related to loyalty points and require certain changes in presentation to the Company's consolidated balance sheets, it is not anticipated to significantly impact the Company's consolidated statements of earnings on an ongoing basis. The cumulative effect adjustment upon adoption of the ASUs in the first quarter of 2018 is expected to decrease the opening balance of retained earnings by approximately
$5 million
. While we are substantially complete with quantifying the impact of adopting the ASUs, the Company's assessment will be finalized during the first quarter of 2018.
The Company has also identified and implemented changes to its accounting policies and practices and accounting systems. In addition, specific controls over the evaluation of the impact of adoption of the ASUs have been designed and implemented, including, but not limited to, the calculation of the cumulative effect adjustment to retained earnings and disclosure requirements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
which requires lessees to recognize most leases on the balance sheet. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. The Company's implementation team is developing and executing the plan to adopt the ASU. The Company's accounting systems to comply with the requirements of the new standard have been upgraded and the Company is in the process of evaluating the impact of the standard on its leases and processes. The Company anticipates electing the package of practical expedients permitted within the ASU. Due to the large number of retail operating leases to which the Company is a party, the Company anticipates that the impact to its consolidated balance sheets upon adoption in the first quarter of 2019 will be material. The Company is still assessing the impact to the consolidated statements of earnings. As the impact of the ASU is non-cash in nature, the impact to the Company's consolidated statements of cash flows is not expected to be material. Adoption of the ASU is not expected to trigger non-compliance with any covenant or other restrictions under the provisions of any of the Company’s debt obligations. The Company is monitoring the proposed ASU,
Targeted Improvements, Leases
(ASC 842)
that, if finalized as proposed, would provide an optional transition method that would allow the Company to only apply ASC 842 in the year of adoption and apply the legacy guidance in ASC 840,
Leases
, including its disclosure requirements, in the comparative periods.
In October 2016, the FASB issued ASU 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory
, which requires the recognition of the income tax effects of intercompany sales and intra-entity transfers of assets, other than inventory, when the transfer occurs. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The ASU will be adopted during the first quarter of 2018 using a modified retrospective approach. The adoption will require the Company to reclassify to retained earnings the tax impacts of intra-entity transfers of intangible assets that occurred prior to adoption. As a result, the Company will record a
$5.4 million
reduction to an income tax asset and a
$5.1 million
increase to deferred tax liabilities, with a corresponding reduction in retained earnings of
$10.5 million
.
In March 2017, the FASB issued ASU 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
The ASU amends ASC 715,
Compensation — Retirement Benefits
, to require employers that present a measure of operating income in their statements of earnings to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating expenses. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Upon adoption of the ASU during the first quarter of 2018, the Company will separately present the components of net periodic benefit cost or income, excluding the service cost component, in non-operating expenses on a retrospective basis. Net periodic benefit income, excluding the service cost component, was
$12.3 million
,
$15.0 million
and
$19.0 million
for 2017, 2016 and 2015, respectively.
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities
, which amends the hedge accounting model in ASC 815 to better portray the economic results of an entity's risk management activities in its financial statements and simplifies the application of hedge accounting in certain situations. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company will adopt the ASU in the first quarter of 2018, which is not expected to have a material impact on the Company's consolidated financial statements.
2. ACQUISITION
Allen Edmonds
On
December 13, 2016
, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with Apollo Investors, LLC (the "Seller") and Apollo Buyer Holding Company, Inc. (the "Holding Company"), pursuant to which the Company acquired all outstanding capital stock of
Allen Edmonds
("Allen Edmonds"). The aggregate purchase price for the Allen Edmonds stock was
$259.9 million
, net of cash received of
$0.7 million
. The purchase was funded with cash and funds available under the Company's revolving credit agreement. Refer to Note 11 to the consolidated financial statements for additional information regarding the revolving credit agreement. The operating results of Allen Edmonds since December 13, 2016 have been included in the Company’s consolidated financial statements within the Brand Portfolio segment.
Allen Edmonds, founded in 1922, is a U.S.-based direct-to-consumer and wholesaler of premium men’s footwear, apparel, leather goods and accessories with a strong manufacturing heritage. The acquisition increased the Company's exposure in men’s footwear, solidifying a new revenue stream to drive overall growth.
During 2017, the Company incurred integration and reorganization costs totaling
$4.0 million
(
$2.6 million
on an after-tax basis, or
$0.06
per diluted share), related to the men's business, as further discussed in Note 4 to the consolidated financial statements. During 2016, the Company incurred acquisition and integration costs of
$5.8 million
(
$5.0 million
on an after-tax basis, or
$0.11
per diluted share), which were recorded as a component of restructuring and other special charges, net. Of the
$5.8 million
,
$5.2 million
was reflected within the Other category and
$0.6 million
was reflected within the Brand Portfolio segment. In addition, the Brand Portfolio segment recognized
$4.9 million
(
$3.0 million
on an after-tax basis, or
$0.07
per diluted share) in cost of goods sold in 2017 and
$1.2 million
(
$0.7 million
on an after-tax basis, or
$0.02
per diluted share) in 2016 related to the amortization of the inventory fair value adjustment required for purchase accounting. The inventory fair value adjustment was fully amortized as of
July 29, 2017
.
The assets and liabilities of Allen Edmonds were recorded at their estimated fair values, and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed, including identified intangible assets, was recorded as goodwill. The Company allocated the purchase price as of the acquisition date, December 13, 2016 as follows:
|
|
|
|
|
|
($ thousands)
|
|
December 13, 2016
|
|
ASSETS
|
|
|
Current assets:
|
|
|
Cash and cash equivalents
|
|
$
|
668
|
|
Receivables
|
|
6,273
|
|
Inventories
|
|
52,364
|
|
Prepaid expense and other current assets
|
|
2,353
|
|
Total current assets
|
|
61,658
|
|
Other assets
|
|
1,060
|
|
Goodwill
|
|
113,127
|
|
Intangible assets
|
|
102,920
|
|
Property and equipment
|
|
32,243
|
|
Total assets
|
|
$
|
311,008
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
Current liabilities:
|
|
|
Trade accounts payable
|
|
$
|
12,256
|
|
Other accrued expenses
|
|
12,692
|
|
Total current liabilities
|
|
24,948
|
|
Deferred income taxes
|
|
25,109
|
|
Other liabilities
|
|
351
|
|
Total liabilities
|
|
50,408
|
|
Net assets
|
|
$
|
260,600
|
|
The Company’s purchase price allocation contained uncertainties because it required management to make assumptions and to apply judgment to estimate the fair value of the 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 used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the 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.
A third-party valuation specialist assisted the Company with its fair value estimates for inventory, property and equipment and intangible assets other than goodwill. The Company 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 the completion and post-transaction selling effort based on profit for similar finished goods. The book value of the raw materials acquired was considered a reasonable representation of fair value. With respect to other acquired assets and liabilities, the Company used all available information to make its best estimate of fair values at the acquisition date. The Company's allocation of purchase price was considered complete as of
October 28, 2017
.
Goodwill and intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to non-separable retail customer relationships, synergies and an assembled workforce and is not deductible for tax purposes. Refer to Note 10 to the consolidated financial statements for additional information regarding goodwill and intangible assets.
Allen Edmonds contributed
$178.6 million
of net sales in 2017 and
$24.3 million
during the period from the acquisition date through January 28, 2017.
3. EARNINGS PER SHARE
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company.
The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in $ thousands, except per share amounts)
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
NUMERATOR
|
|
|
|
|
|
Net earnings
|
$
|
87,231
|
|
|
$
|
66,086
|
|
|
$
|
81,824
|
|
Net earnings attributable to noncontrolling interests
|
(31
|
)
|
|
(428
|
)
|
|
(345
|
)
|
Net earnings allocated to participating securities
|
(2,384
|
)
|
|
(1,750
|
)
|
|
(2,587
|
)
|
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities
|
$
|
84,816
|
|
|
$
|
63,908
|
|
|
$
|
78,892
|
|
|
|
|
|
|
|
DENOMINATOR
|
|
|
|
|
|
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders
|
41,801
|
|
|
42,026
|
|
|
42,455
|
|
Dilutive effect of share-based awards
|
179
|
|
|
155
|
|
|
201
|
|
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders
|
41,980
|
|
|
42,181
|
|
|
42,656
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders
|
$
|
2.03
|
|
|
$
|
1.52
|
|
|
$
|
1.86
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders
|
$
|
2.02
|
|
|
$
|
1.52
|
|
|
$
|
1.85
|
|
Options to purchase
16,667
,
63,915
and
56,997
shares of common stock in
2017
,
2016
and
2015
, respectively, were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be antidilutive.
The Company repurchased
225,000
,
900,000
and
151,500
shares during the years ended
February 3, 2018
,
January 28, 2017
and
January 30, 2016
, respectively, under the publicly announced share repurchase program, which permits repurchases of up to
2.5 million
shares. Therefore, as of
February 3, 2018
, the Company has repurchased a total of
1.3 million
shares at a cost of
$34.1 million
.
4. RESTRUCTURING AND OTHER INITIATIVES, NET
Acquisition and Integration Costs
On
December 13, 2016
, the Company acquired the outstanding capital stock of Allen Edmonds, as further discussed in Note 2 to the consolidated financial statements. During 2017, the Company incurred integration and reorganization costs, primarily for professional fees and severance, totaling
$4.0 million
(
$2.6 million
on an after-tax basis, or
$0.06
per diluted share), related to the men's business. Of the
$4.0 million
included in restructuring and other special costs in the consolidated statements of earnings,
$2.5 million
is included in the Other category and
$1.5 million
is reflected within the Brand Portfolio segment. During 2016, the Company incurred acquisition and integration costs totaling
$5.8 million
(
$5.0 million
on an after-tax basis, or
$0.11
per diluted share), of which
$5.2 million
was reflected within the Other category and
$0.6 million
was reflected within the Brand Portfolio segment.
Retail Operations Restructuring
During
2017, the Company incurred costs, primarily for severance expense, of
$0.9 million
(
$0.6 million
on an after-tax basis, or
$0.02
per diluted share) related to restructuring of its retail operations. Of the
$0.9 million
included in restructuring and other special costs in the consolidated statements of earnings,
$0.6 million
is reflected within the Famous Footwear segment,
$0.2 million
is reflected within the Other category and
$0.1 million
is included in the Brand Portfolio segment.
Impairment of Note Receivable
During 2014, the Company sold Shoes.com for an aggregate purchase price of
$15.0 million
, subject to working capital and other adjustments. The Company received
$4.4 million
in cash and a
$7.5 million
face value secured convertible note ("convertible note") at closing. The convertible note required installments over four years with the first principal payment of
$1.25 million
due on
July 1, 2017
and quarterly installments of
$0.6 million
thereafter, plus accrued interest, until it matured on
December 12, 2019
. The Company recognized a pre-tax gain on the sale of
$4.7 million
.
On
January 27, 2017
, Shoes.com announced the business had ceased operating and would be working with creditors to liquidate. In conjunction with the announcement, the Company recorded an impairment charge of
$8.0 million
(
$4.9 million
on an after-tax basis, or
$0.11
per diluted share), comprised of the fair value of the convertible note of
$7.3 million
, and associated accounts receivable of
$0.7 million
. Of the
$8.0 million
in costs recorded in restructuring and other special charges, net during 2016,
$7.3 million
was reflected within the Other category and
$0.7 million
was reflected within the Brand Portfolio segment.
Impairment of Investment in Nonconsolidated Affiliate
In August 2014, the Company invested
$7.0 million
in a nonconsolidated affiliate that is accounted for using the cost method and was presented within other assets on the consolidated balance sheets. During 2016, the Company determined that the investment had an other-than-temporary decline in its fair value that exceeded its carrying value and recorded an impairment charge of
$7.0 million
(
$7.0 million
on an after-tax basis, or
$0.16
per diluted share) in restructuring and other special charges, net, which was included in the Other category.
Business Exits and Restructuring
The Company incurred costs of
$4.2 million
(
$3.3 million
on an after-tax basis, or
$0.08
per diluted share) during 2016 related to the planned exit of its international e-commerce business and other restructuring. Approximately
$2.6 million
represents severance and closure costs and were presented within restructuring and other special charges, net within the Brand Portfolio segment. The remaining
$1.6 million
, which was included in cost of goods sold within the Brand Portfolio segment, represents incremental inventory markdowns required to reduce the value of inventory to net realizable value.
5. RETIREMENT AND OTHER BENEFIT PLANS
The Company sponsors pension plans in both the United States and Canada. The Company’s domestic pension plans cover substantially all United States employees. Under the domestic plans, salaried, management and certain hourly employees’ pension benefits are based on a two-rate formula applied to each year of service. Participants receive the larger of the accrued benefit as of
December 31, 2015
(based on service commencing at the date of hire and a
35
-year service cap and an average annual salary for the
five
highest consecutive years during the last
10
year period) and the benefit calculated under the current plan provisions using pay and service from the date of hire. Generally, under the current plan provisions, a participant receives credit for
one
year of service for each
365
days of employment as an eligible employee with the Company commencing after the employee's date of participation in the plan, up to
30
years. A service credit of
0.825%
is applied to that portion of the average annual salary for the last
10
years that does not exceed “covered compensation,” which is the
35
-year average compensation subject to FICA tax based on a participant’s year of birth, and a service credit of
1.425%
is applied to that portion of the average salary during those
10
years that exceeds said level.
The Company’s Canadian pension plans cover certain employees based on plan specifications. Under the Canadian plans, employees’ pension benefits are based on the employee’s highest consecutive
five
years of compensation during the
10
years before retirement. The Company’s funding policy for all plans is to make the minimum annual contributions required by applicable regulations. The Company also maintains an unfunded Supplemental Executive Retirement Plan (“SERP”).
In addition to providing pension benefits, the Company sponsors unfunded defined benefit postretirement life insurance plans that cover both salaried and hourly employees who became eligible for benefits by January 1, 1995. The life insurance plans provide coverage of up to
$20 thousand
dollars for qualifying retired employees.
Benefit Obligations
The following table sets forth changes in benefit obligations, including all domestic and Canadian plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
($ thousands)
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
Benefit obligation at beginning of year
|
|
$
|
340,278
|
|
$
|
326,077
|
|
|
$
|
1,666
|
|
$
|
1,411
|
|
Service cost
|
|
9,705
|
|
8,288
|
|
|
—
|
|
—
|
|
Interest cost
|
|
14,948
|
|
15,275
|
|
|
68
|
|
76
|
|
Plan participants’ contribution
|
|
11
|
|
11
|
|
|
7
|
|
9
|
|
Plan amendments
|
|
(2,985
|
)
|
316
|
|
|
—
|
|
—
|
|
Actuarial loss
|
|
18,505
|
|
11,155
|
|
|
40
|
|
357
|
|
Benefits paid
|
|
(13,703
|
)
|
(19,853
|
)
|
|
(187
|
)
|
(187
|
)
|
Settlement gain
|
|
—
|
|
(1,304
|
)
|
|
—
|
|
—
|
|
Contractual termination benefits
|
|
—
|
|
77
|
|
|
—
|
|
—
|
|
Curtailments
|
|
(10,534
|
)
|
—
|
|
|
—
|
|
—
|
|
Foreign exchange rate changes
|
|
244
|
|
236
|
|
|
—
|
|
—
|
|
Benefit obligation at end of year
|
|
$
|
356,469
|
|
$
|
340,278
|
|
|
$
|
1,594
|
|
$
|
1,666
|
|
The accumulated benefit obligation for the United States pension plans was
$346.9 million
and
$320.1 million
as of
February 3, 2018
and
January 28, 2017
, respectively. The accumulated benefit obligation for the Canadian pension plans was
$4.2 million
and
$3.8 million
as of
February 3, 2018
and
January 28, 2017
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Weighted–average assumptions used to determine benefit obligations, end of year
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
Discount rate
|
|
4.00
|
%
|
4.40
|
%
|
|
4.00
|
%
|
4.40
|
%
|
Rate of compensation increase
|
|
3.00
|
%
|
3.00
|
%
|
|
N/A
|
|
N/A
|
|
As of
February 3, 2018
, the Company is using the RP-2014 Bottom Quartile tables, projected using generational scale MP-2017, an updated projection scale issued by the Society of Actuaries in 2017, grading to
0.75%
by 2033, to estimate the plan liabilities. Actuarial gains, related to the change in mortality projection scales, reduced the projected benefit obligation by approximately
$3.2 million
as of February 3, 2018.
During 2014, the Company announced amendments to the domestic qualified pension plan and the SERP, including certain changes to eligibility and service period requirements as well as changes to the benefit formula, including the calculation of participants' final average compensation. Certain changes became effective in January 2015, while other changes became effective in January 2016. These plan amendments decreased the pension liability by
$3.0 million
as of
February 3, 2018
and increased the liability by
$0.3 million
as of
January 28, 2017
. In addition, during 2017, the Company announced changes to the domestic qualified pension plan that will become effective in January 2019. Except for grandfathered employees and certain hourly associates in our retail divisions, final average compensation, taxable covered compensation and credit service for purposes of determining accrued pension benefits will be frozen as of December 31, 2018. These plan changes resulted in a curtailment, which decreased the pension liability by
$10.5 million
as of February 3, 2018 and increased the net periodic benefit income by
$2.2 million
.
Plan Assets
Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income Security Act (“ERISA”). The plan’s investment objective is to earn a competitive total return on assets, while also ensuring plan assets are adequately managed to provide for future pension obligations. This results in the protection of plan surplus and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income instruments and, while maintaining an equity commitment, managing an equity overlay strategy. The overlay strategy is intended to protect the managed equity portfolios against adverse stock market environments. The Company delegates investment management of the plan assets to specialists in each asset class and regularly monitors manager performance and compliance with investment guidelines. The Company’s overall investment strategy is to achieve a mix of approximately
97%
of investments for long-term growth and
3%
for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers. The target allocations for plan assets for
2017
were
70%
equities and
30%
debt securities. Allocations may change periodically based upon changing market conditions. Equities did not include any Company stock at
February 3, 2018
or
January 28, 2017
.
Assets of the Canadian pension plans, which total approximately
$4.7 million
at
February 3, 2018
, were invested
55%
in equity funds,
38%
in bond funds and
7%
in money market funds. The Canadian pension plans did not include any Company stock as of
February 3, 2018
or
January 28, 2017
.
A financial instrument’s level within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Refer to further discussion on the fair value hierarchy in Note 14 to the consolidated financial statements. Following is a description of the pension plan investments measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy.
|
|
•
|
Cash and cash equivalents include cash collateral and margin as well as money market funds. The fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency and therefore are classified within Level 1 of the fair value hierarchy.
|
|
|
•
|
Investments in U.S. government securities, mutual funds, real estate investment trusts, exchange-traded funds, corporate stocks - common, preferred securities and S&P 500 Index put and call options (traded on security exchanges) are classified within Level 1 of the fair value hierarchy because the fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency.
|
|
|
•
|
Interest rate swap agreements are valued at fair value based on vendor-quoted pricing for which inputs are observable and can be corroborated; therefore, these are classified within Level 2 of the fair value hierarchy.
|
|
|
•
|
The alternative investment fund, with a fair value of
$13.4 million
and
$12.1 million
as of
February 3, 2018
and
January 28, 2017
, respectively, is an investment in a pool of long-duration domestic investment grade assets. This investment is valued at fair value based on vendor-quoted pricing for which inputs are observable and can be corroborated and therefore, are classified within Level 2 of the fair value hierarchy.
|
|
|
•
|
The unallocated insurance contract is valued at contract value, which approximates fair value; therefore, this contract is classified within Level 3 of the fair value hierarchy. The unallocated insurance contract fair value was
$0.1 million
as of both
February 3, 2018
and
January 28, 2017
.
|
The fair values of the Company’s pension plan assets at
February 3, 2018
by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at February 3, 2018
|
($ thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,998
|
|
|
$
|
8,998
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government securities
|
|
98,027
|
|
|
98,027
|
|
|
—
|
|
|
—
|
|
Mutual fund
|
|
41,344
|
|
|
41,344
|
|
|
—
|
|
|
—
|
|
Real estate investment trusts
|
|
1,412
|
|
|
1,412
|
|
|
—
|
|
|
—
|
|
Exchange-traded funds
|
|
68,362
|
|
|
68,362
|
|
|
—
|
|
|
—
|
|
Corporate stocks - common
|
|
175,928
|
|
|
175,928
|
|
|
—
|
|
|
—
|
|
Preferred securities
|
|
703
|
|
|
703
|
|
|
—
|
|
|
—
|
|
S&P 500 Index options
|
|
(1,186
|
)
|
|
(1,186
|
)
|
|
—
|
|
|
—
|
|
Alternative investment fund
|
|
13,412
|
|
|
—
|
|
|
13,412
|
|
|
—
|
|
Unallocated insurance contract
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Total
|
|
$
|
407,081
|
|
|
$
|
393,588
|
|
|
$
|
13,412
|
|
|
$
|
81
|
|
The fair values of the Company’s pension plan assets at
January 28, 2017
by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 28, 2017
|
($ thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,484
|
|
|
$
|
16,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government securities
|
|
97,226
|
|
|
97,226
|
|
|
—
|
|
|
—
|
|
Mutual fund
|
|
34,833
|
|
|
34,833
|
|
|
—
|
|
|
—
|
|
Real estate investment trusts
|
|
1,505
|
|
|
1,505
|
|
|
—
|
|
|
—
|
|
Exchange-traded funds
|
|
62,244
|
|
|
62,244
|
|
|
—
|
|
|
—
|
|
Corporate stocks - common
|
|
141,372
|
|
|
141,372
|
|
|
—
|
|
|
—
|
|
Preferred securities
|
|
706
|
|
|
706
|
|
|
—
|
|
|
—
|
|
S&P 500 Index options
|
|
4,392
|
|
|
4,392
|
|
|
—
|
|
|
—
|
|
Interest rate swap agreements
|
|
(8,997
|
)
|
|
—
|
|
|
(8,997
|
)
|
|
—
|
|
Alternative investment fund
|
|
12,101
|
|
|
—
|
|
|
12,101
|
|
|
—
|
|
Unallocated insurance contract
|
|
90
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Total
|
|
$
|
361,956
|
|
|
$
|
358,762
|
|
|
$
|
3,104
|
|
|
$
|
90
|
|
The following table sets forth changes in the fair value of plan assets, including all domestic and Canadian plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
($ thousands)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Fair value of plan assets at beginning of year
|
$
|
361,956
|
|
|
$
|
379,638
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
58,106
|
|
|
1,755
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
450
|
|
|
1,458
|
|
|
180
|
|
|
178
|
|
Plan participants’ contributions
|
11
|
|
|
11
|
|
|
7
|
|
|
9
|
|
Benefits paid
|
(13,703
|
)
|
|
(19,853
|
)
|
|
(187
|
)
|
|
(187
|
)
|
Settlement gain
|
—
|
|
|
(1,304
|
)
|
|
—
|
|
|
—
|
|
Foreign exchange rate changes
|
261
|
|
|
251
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
$
|
407,081
|
|
|
$
|
361,956
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded Status
The over-funded status as of
February 3, 2018
and
January 28, 2017
for pension benefits was
$50.6 million
and
$21.7 million
, respectively. The under-funded status as of
February 3, 2018
and
January 28, 2017
for other postretirement benefits was
$1.6 million
and
$1.7 million
, respectively.
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
($ thousands)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Prepaid pension costs (noncurrent assets)
|
$
|
62,575
|
|
|
$
|
32,489
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit liabilities (current liability)
|
(3,988
|
)
|
|
(2,765
|
)
|
|
(238
|
)
|
|
(250
|
)
|
Accrued benefit liabilities (noncurrent liability)
|
(7,975
|
)
|
|
(8,043
|
)
|
|
(1,356
|
)
|
|
(1,416
|
)
|
Net amount recognized at end of year
|
$
|
50,612
|
|
|
$
|
21,681
|
|
|
$
|
(1,594
|
)
|
|
$
|
(1,666
|
)
|
The projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets, which includes only the Company’s SERP, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
|
|
Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets
|
|
|
|
|
($ thousands)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
End of Year
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
11,959
|
|
|
$
|
10,808
|
|
|
$
|
11,959
|
|
|
$
|
10,808
|
|
Accumulated benefit obligation
|
10,956
|
|
|
9,646
|
|
|
10,956
|
|
|
9,646
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The accumulated postretirement benefit obligation exceeds assets for all of the Company’s other postretirement benefit plans.
The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit income at
February 3, 2018
and
January 28, 2017
, and the expected amortization of the
February 3, 2018
amounts as components of net periodic benefit income for fiscal year
2018
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
($ thousands)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Components of accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
22,424
|
|
|
$
|
35,104
|
|
|
$
|
(634
|
)
|
|
$
|
(635
|
)
|
Net prior service credit
|
(4,618
|
)
|
|
(4,385
|
)
|
|
—
|
|
|
—
|
|
|
$
|
17,806
|
|
|
$
|
30,719
|
|
|
$
|
(634
|
)
|
|
$
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
($ thousands)
|
|
|
2018
|
|
|
|
|
2018
|
|
Expected amortization, net of tax:
|
|
|
|
|
|
|
|
Amortization of net actuarial loss (gain)
|
|
|
$
|
3,042
|
|
|
|
|
$
|
(92
|
)
|
Amortization of net prior service credit
|
|
|
(1,164
|
)
|
|
|
|
—
|
|
|
|
|
$
|
1,878
|
|
|
|
|
$
|
(92
|
)
|
Net Periodic Benefit Income
Net periodic benefit income for
2017
,
2016
and
2015
for all domestic and Canadian plans included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
($ thousands)
|
|
2017
|
|
2016
|
|
2015
|
|
|
2017
|
|
2016
|
|
2015
|
|
Service cost
|
|
$
|
9,705
|
|
$
|
8,288
|
|
$
|
12,639
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
|
14,948
|
|
15,275
|
|
14,321
|
|
|
68
|
|
76
|
|
56
|
|
Expected return on assets
|
|
(27,589
|
)
|
(28,949
|
)
|
(31,682
|
)
|
|
—
|
|
—
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
4,315
|
|
272
|
|
604
|
|
|
(145
|
)
|
(163
|
)
|
(220
|
)
|
Prior service credit
|
|
(1,780
|
)
|
(1,840
|
)
|
(1,906
|
)
|
|
—
|
|
—
|
|
—
|
|
Settlement cost
|
|
—
|
|
259
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Cost of contractual termination benefits
|
|
—
|
|
77
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Curtailments
|
|
(2,165
|
)
|
—
|
|
(184
|
)
|
|
—
|
|
—
|
|
—
|
|
Total net periodic benefit income
|
|
$
|
(2,566
|
)
|
$
|
(6,618
|
)
|
$
|
(6,208
|
)
|
|
$
|
(77
|
)
|
$
|
(87
|
)
|
$
|
(164
|
)
|
Weighted-average assumptions used to determine net periodic benefit income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
2017
|
|
2016
|
|
2015
|
|
Discount rate
|
|
4.40
|
%
|
4.70
|
%
|
3.90
|
%
|
|
4.40
|
%
|
4.70
|
%
|
3.90
|
%
|
Rate of compensation increase
|
|
3.00
|
%
|
3.00
|
%
|
3.00
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
|
Expected return on plan assets
|
|
8.00
|
%
|
8.00
|
%
|
8.25
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
|
The net actuarial loss (gain) subject to amortization is amortized on a straight-line basis over the average future service of active plan participants as of the measurement date. The prior service credit is amortized on a straight-line basis over the average future service of active plan participants benefiting under the plan at the time of each plan amendment.
The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plan’s investment portfolio. Assumed projected rates of return for each asset class were selected after analyzing experience and future expectations of the returns. The overall expected rate of return for the portfolio was developed based on the target allocation for each asset class.
Expected Cash Flows
Information about expected cash flows for all pension and postretirement benefit plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
($ thousands)
|
|
Funded Plan
|
|
SERP
|
|
Total
|
|
|
Other Postretirement Benefits
|
|
Employer Contributions
|
|
|
|
|
|
|
2018 expected contributions to plan trusts
|
|
$
|
159
|
|
$
|
—
|
|
$
|
159
|
|
|
$
|
—
|
|
2018 expected contributions to plan participants
|
|
—
|
|
4,063
|
|
4,063
|
|
|
243
|
|
2018 refund of assets (e.g. surplus) to employer
|
|
186
|
|
—
|
|
186
|
|
|
—
|
|
Expected Benefit Payments
|
|
|
|
|
|
|
2018
|
|
$
|
12,766
|
|
$
|
4,063
|
|
$
|
16,829
|
|
|
$
|
243
|
|
2019
|
|
13,363
|
|
1,176
|
|
14,539
|
|
|
216
|
|
2020
|
|
14,131
|
|
3,079
|
|
17,210
|
|
|
192
|
|
2021
|
|
14,933
|
|
322
|
|
15,255
|
|
|
169
|
|
2022
|
|
15,638
|
|
656
|
|
16,294
|
|
|
148
|
|
2023 – 2027
|
|
86,432
|
|
1,817
|
|
88,249
|
|
|
481
|
|
Defined Contribution Plans
The Company’s domestic defined contribution 401(k) plan covers salaried and certain hourly employees. Company contributions represent a partial matching of employee contributions, generally up to a maximum of
3.5%
of the employee’s salary and bonus. The Company’s expense for this plan was
$3.9 million
in
2017
,
$3.5 million
in
2016
, and
$3.6 million
in
2015
.
The Company’s Canadian defined contribution plan covers certain salaried and hourly employees. The Company makes contributions for all eligible employees, ranging from
3%
to
5%
of the employee’s salary. In addition, eligible employees may voluntarily contribute to the plan. The Company’s expense for this plan was
$0.3 million
in
2017
and
$0.2 million
in
2016
and
2015
, respectively.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants 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 of
$6.4 million
and
$5.1 million
as of
February 3, 2018
and
January 28, 2017
, respectively, are presented in employee compensation and benefits in the accompanying consolidated balance sheets. The assets held by the trust of
$6.4 million
as of
February 3, 2018
and
$5.1 million
as of
January 28, 2017
are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to selling and administrative expenses in the accompanying consolidated statements of earnings.
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 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 of
$2.3 million
as of
February 3, 2018
and
$1.9 million
as of
January 28, 2017
are based on
69,527
and
57,234
outstanding PSUs, respectively, and are presented in other liabilities in the accompanying consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are charged to selling and administrative expenses in the accompanying consolidated statements of earnings.
6. INCOME TAXES
On
December 22, 2017
, the Tax Cuts and Jobs Act (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from
35%
to
21%
effective January 1, 2018, the transition of U.S. international taxation from a worldwide tax system to a quasi-territorial tax system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. The Company has calculated its best estimate of the impact of the Act in its income tax provision in accordance with its understanding of the Act and guidance available as of February 3, 2018 and, as a result, has recorded a
$0.3 million
income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional income tax benefit is comprised of a
$24.6 million
deferred tax benefit for the remeasurement of deferred tax assets and liabilities to the
21%
rate at which they are expected to reverse, partially offset by a one-time tax expense on deemed repatriation of
$22.9 million
and
$1.4 million
deferred tax expense recorded in connection with Internal Revenue Code section 162(m) and other provisions in the Act.
In December 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. SAB 118 permits provisional amounts to be recorded during a measurement period, not to exceed one year beyond the enactment date. In accordance with SAB 118, the Company has determined that the tax benefits and expenses described above are provisional amounts and reasonable estimates at February 3, 2018. The Company
continues to analyze these provisional estimates and the impact of these changes may be material. Further analysis of all provisional amounts associated with the Act is necessary as a result of pending issuance of Notices and Regulations related to the Act and finalization of foreign earnings and profits for 2017. Any subsequent adjustment to these amounts will be recorded to the Company's income tax provision in 2018 when the analysis is complete.
The Act also includes the Global Intangibles Low-taxed Income ("GILTI") provision, a new minimum tax on global intangible low-taxed income, and the Base Erosion Anti-Avoidance ("BEAT"), a new tax for certain payments to foreign related parties. As of the date of this filing, the Company is still evaluating the GILTI and BEAT provisions on future periods and has not yet elected an accounting policy related to its treatment of these future tax liabilities.
The components of earnings before income taxes consisted of domestic earnings before income taxes of
$78.2 million
,
$60.9 million
and
$68.2 million
in
2017
,
2016
and
2015
, respectively, and foreign earnings before income taxes of
$44.5 million
,
$36.4 million
and
$40.6 million
in
2017
,
2016
and
2015
, respectively.
The components of income tax provision (benefit) on earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Federal
|
|
|
|
|
|
|
Current
|
|
$
|
31,102
|
|
|
$
|
10,577
|
|
|
$
|
9,530
|
|
Deferred
|
|
(10,358
|
)
|
|
14,164
|
|
|
11,202
|
|
|
|
20,744
|
|
|
24,741
|
|
|
20,732
|
|
State
|
|
|
|
|
|
|
Current
|
|
7,691
|
|
|
3,844
|
|
|
497
|
|
Deferred
|
|
913
|
|
|
(1,157
|
)
|
|
1,176
|
|
|
|
8,604
|
|
|
2,687
|
|
|
1,673
|
|
|
|
|
|
|
|
|
Foreign
|
|
6,127
|
|
|
3,740
|
|
|
4,537
|
|
Total income tax provision
|
|
$
|
35,475
|
|
|
$
|
31,168
|
|
|
$
|
26,942
|
|
The Company made federal, state and foreign tax payments, net of refunds, of
$18.7 million
,
$16.9 million
and
$22.1 million
in
2017
,
2016
and
2015
, respectively.
The differences between the income tax provision reflected in the consolidated financial statements and the amounts calculated at the federal statutory income tax rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Income taxes at statutory rate
(1)
|
|
$
|
41,376
|
|
|
$
|
34,039
|
|
|
$
|
38,068
|
|
State income taxes, net of federal tax benefit
|
|
3,579
|
|
|
3,149
|
|
|
2,481
|
|
Foreign earnings taxed at lower rates
|
|
(8,072
|
)
|
|
(8,404
|
)
|
|
(9,491
|
)
|
Excess tax benefit related to share-based plans
|
|
(1,265
|
)
|
|
—
|
|
|
—
|
|
Tax Cuts and Jobs Act, net benefit
|
|
(294
|
)
|
|
—
|
|
|
—
|
|
Valuation allowance release on state loss carryforwards
|
|
(100
|
)
|
|
—
|
|
|
(1,635
|
)
|
Disposal and settlement of Shoes.com
|
|
—
|
|
|
—
|
|
|
(1,701
|
)
|
Valuation allowance release on other tax carryforwards
|
|
—
|
|
|
(179
|
)
|
|
(1,367
|
)
|
Valuation allowance for impairment of investment in nonconsolidated affiliate
|
|
—
|
|
|
2,450
|
|
|
—
|
|
Non-deductibility of acquisition costs
|
|
—
|
|
|
1,280
|
|
|
—
|
|
Settlement of federal and state audit matters
|
|
—
|
|
|
(945
|
)
|
|
—
|
|
Other
|
|
251
|
|
|
(222
|
)
|
|
587
|
|
Total income tax provision
|
|
$
|
35,475
|
|
|
$
|
31,168
|
|
|
$
|
26,942
|
|
(1) The federal statutory tax rate was 33.7% in 2017, reflecting a single month impact from tax reform, and was 35.0% in both 2016 and 2015.
|
In
2017
, the Company's effective tax rate was impacted by several discrete tax benefits, which totaled
$2.3 million
for the year. The discrete tax benefits include
$1.3 million
related to share-based compensation as a result of the adoption of ASU 2016-09 in 2017. The
ASU requires prospective recognition of excess tax benefits in the statements of earnings, rather than in additional paid-in-capital. If these discrete tax benefits had not been recognized, the Company's full fiscal year
2017
effective tax rate would have been
30.8%
.
The other category of income tax provision principally represents the impact of expenses that are not deductible or partially deductible for federal income tax purposes and adjustments in the amounts of deferred tax assets that are anticipated to be realized.
Significant components of the Company’s deferred income tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
February 3, 2018
|
|
|
January 28, 2017
|
|
Deferred Tax Assets
|
|
|
|
|
Employee benefits, compensation and insurance
|
|
$
|
10,011
|
|
|
$
|
18,783
|
|
Accrued expenses
|
|
12,122
|
|
|
18,843
|
|
Postretirement and postemployment benefit plans
|
|
401
|
|
|
706
|
|
Deferred rent
|
|
6,438
|
|
|
8,319
|
|
Accounts receivable reserves
|
|
5,105
|
|
|
7,479
|
|
Net operating loss (“NOL”) carryforward/carryback
|
|
7,540
|
|
|
23,302
|
|
Capital loss carryforward
|
|
1,450
|
|
|
2,185
|
|
Inventory capitalization and inventory reserves
|
|
3,058
|
|
|
3,871
|
|
Impairment of investment in nonconsolidated affiliate
|
|
1,470
|
|
|
2,590
|
|
Alternative minimum tax credit carryforward
|
|
—
|
|
|
270
|
|
Other
|
|
1,234
|
|
|
1,580
|
|
Total deferred tax assets, before valuation allowance
|
|
48,829
|
|
|
87,928
|
|
Valuation allowance
|
|
(5,763
|
)
|
|
(7,890
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
43,066
|
|
|
80,038
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
Retirement plans
|
|
(13,071
|
)
|
|
(8,421
|
)
|
LIFO inventory valuation
|
|
(42,032
|
)
|
|
(61,301
|
)
|
Capitalized software
|
|
(4,141
|
)
|
|
(8,715
|
)
|
Depreciation
|
|
(1,786
|
)
|
|
(9,076
|
)
|
Intangible assets
|
|
(28,831
|
)
|
|
(41,645
|
)
|
Other
|
|
(1,567
|
)
|
|
(1,096
|
)
|
Total deferred tax liabilities
|
|
(91,428
|
)
|
|
(130,254
|
)
|
Net deferred tax liability
|
|
$
|
(48,362
|
)
|
|
$
|
(50,216
|
)
|
As of
February 3, 2018
, the Company had various federal and state net operating loss carryforwards totaling
$7.5 million
, with expiration dates between
2018
and
2037
. The Company's state net operating loss carryforwards have tax values totaling
$7.0 million
, for which the Company has recorded a valuation allowance of
$2.8 million
. The remaining net operating loss will be carried forward to future tax years. The Company also has valuation allowances of
$1.5 million
related to the impairment of an investment in a nonconsolidated affiliate, as further described in Note 4 to the consolidated financial statements, and
$1.5 million
related to capital loss carryforwards. In connection with the Allen Edmonds acquisition, the Company acquired net operating loss carryforwards totaling
$15.6 million
, which were fully utilized during 2017.
As of
February 3, 2018
,
no
deferred taxes have been provided on the accumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax, beyond the amounts recorded for the one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, as required by the Act. The Company periodically evaluates its foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determines the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided. If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes on unremitted foreign earnings. If the Company’s unremitted foreign earnings were not considered indefinitely reinvested as of
February 3, 2018
, an immaterial amount of additional deferred taxes would have been provided.
Uncertain Tax Positions
ASC 740,
Income Taxes
, establishes a single model to address accounting for uncertain tax positions. The standard clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company had no unrecognized tax benefits as of February 3, 2018 or January 28, 2017.
For federal purposes, the Company’s tax years
2014
to
2016
(fiscal years ending
January 31, 2015
,
January 30, 2016
and
January 28, 2017
) remain open to examination. The Company also files tax returns in various foreign jurisdictions and numerous states for which various tax years are subject to examination. The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next 12 months.
7. BUSINESS SEGMENT INFORMATION
The Company's reportable segments are Famous Footwear and Brand Portfolio.
The Famous Footwear segment is comprised of Famous Footwear and Famous.com. Famous Footwear operated
1,026
stores at the end of
2017
, primarily selling branded footwear for the entire family.
The Brand Portfolio segment is comprised of our branded footwear, our branded retail stores and e-commerce sites associated with those brands. This segment sources and markets licensed, branded and private-label footwear primarily to national chains, online retailers, department stores, mass merchandisers, independent retailers and catalogs as well as Company-owned Famous Footwear, Allen Edmonds, Naturalizer and Sam Edelman stores, and e-commerce businesses. The Brand Portfolio segment included
151
branded retail stores in the United States,
84
branded retail stores in Canada, and
one
branded retail store in Italy at the end of
2017
.
The Company’s Famous Footwear and Brand Portfolio reportable segments are operating units that are managed separately. An operating segment’s performance is evaluated and resources are allocated based primarily on operating earnings (loss). Operating earnings (loss) represent gross profit, less selling and administrative expenses and restructuring and other special charges, net. The accounting policies of the reportable segments are the same as those described in Note 1 to the consolidated financial statements. Intersegment sales are generally recorded at a profit to the selling segment. All intersegment earnings related to inventory on hand at the purchasing segment are eliminated against the earnings of the selling segment.
Corporate assets, administrative expenses and other costs and recoveries that are not allocated to the operating units are reported in the Other category.
Following is a summary of certain key financial measures for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Famous Footwear
|
|
Brand Portfolio
|
|
Other
|
|
Total
|
|
Fiscal 2017
|
|
|
|
|
External sales
|
$
|
1,637,627
|
|
$
|
1,147,957
|
|
$
|
—
|
|
$
|
2,785,584
|
|
Intersegment sales
|
—
|
|
85,124
|
|
—
|
|
85,124
|
|
Depreciation and amortization
|
29,990
|
|
16,873
|
|
17,207
|
|
64,070
|
|
Operating earnings (loss)
|
92,230
|
|
80,212
|
|
(32,411
|
)
|
140,031
|
|
Segment assets
|
500,862
|
|
814,508
|
|
174,045
|
|
1,489,415
|
|
Purchases of property and equipment
|
22,920
|
|
15,865
|
|
5,935
|
|
44,720
|
|
Capitalized software
|
483
|
|
232
|
|
5,743
|
|
6,458
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
|
|
External sales
|
$
|
1,590,065
|
|
$
|
989,323
|
|
$
|
—
|
|
$
|
2,579,388
|
|
Intersegment sales
|
—
|
|
91,415
|
|
—
|
|
91,415
|
|
Depreciation and amortization
|
27,832
|
|
11,028
|
|
17,271
|
|
56,131
|
|
Operating earnings (loss)
|
83,735
|
|
76,248
|
|
(48,998
|
)
|
110,985
|
|
Segment assets
|
526,555
|
|
838,328
|
|
110,390
|
|
1,475,273
|
|
Purchases of property and equipment
|
37,697
|
|
8,828
|
|
3,998
|
|
50,523
|
|
Capitalized software
|
3,468
|
|
50
|
|
5,521
|
|
9,039
|
|
|
|
|
|
|
Fiscal 2015
|
|
|
|
|
External sales
|
$
|
1,572,665
|
|
$
|
1,004,765
|
|
$
|
—
|
|
$
|
2,577,430
|
|
Intersegment sales
|
—
|
|
100,186
|
|
—
|
|
100,186
|
|
Depreciation and amortization
|
25,842
|
|
9,339
|
|
16,258
|
|
51,439
|
|
Operating earnings (loss)
|
109,030
|
|
66,578
|
|
(40,501
|
)
|
135,107
|
|
Segment assets
|
542,842
|
|
534,137
|
|
226,344
|
|
1,303,323
|
|
Purchases of property and equipment
|
48,761
|
|
18,340
|
|
6,378
|
|
73,479
|
|
Capitalized software
|
2,538
|
|
—
|
|
5,197
|
|
7,735
|
|
Following is a reconciliation of operating earnings to earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Operating earnings
|
|
$
|
140,031
|
|
|
$
|
110,985
|
|
|
$
|
135,107
|
|
Interest expense
|
|
(18,089
|
)
|
|
(15,111
|
)
|
|
(16,589
|
)
|
Loss on early extinguishment of debt
|
|
—
|
|
|
—
|
|
|
(10,651
|
)
|
Interest income
|
|
764
|
|
|
1,380
|
|
|
899
|
|
Earnings before income taxes
|
|
$
|
122,706
|
|
|
$
|
97,254
|
|
|
$
|
108,766
|
|
For geographic purposes, the domestic operations include the Company's domestic retail operations, the wholesale distribution of licensed, branded and private-label footwear to a variety of retail customers, including the Famous Footwear and Brand Portfolio stores, as well as the Company's e-commerce businesses.
The Company’s foreign operations primarily consist of wholesale and retail operations in the Far East, Canada and Italy. The Far East operations include first-cost transactions, where footwear is sold at foreign ports to customers who then import the footwear into the United States and other countries.
A summary of the Company’s net sales and long-lived assets by geographic area were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net Sales
|
|
|
|
|
|
|
United States
|
|
$
|
2,603,725
|
|
|
$
|
2,385,111
|
|
|
$
|
2,342,590
|
|
Far East
|
|
98,287
|
|
|
134,430
|
|
|
177,654
|
|
Canada
|
|
75,764
|
|
|
59,847
|
|
|
57,186
|
|
Latin America and other
|
|
7,808
|
|
|
—
|
|
|
—
|
|
Total net sales
|
|
$
|
2,785,584
|
|
|
$
|
2,579,388
|
|
|
$
|
2,577,430
|
|
|
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
|
|
|
United States
|
|
$
|
450,323
|
|
|
$
|
617,211
|
|
|
$
|
417,198
|
|
Europe
|
|
177,755
|
|
|
286
|
|
|
271
|
|
Canada
|
|
10,878
|
|
|
10,141
|
|
|
8,596
|
|
Far East
|
|
1,686
|
|
|
1,814
|
|
|
2,193
|
|
Other
|
|
1,984
|
|
|
2,076
|
|
|
—
|
|
Total long-lived assets
|
|
$
|
642,626
|
|
|
$
|
631,528
|
|
|
$
|
428,258
|
|
Long-lived assets consisted primarily of property and equipment, intangible assets, goodwill, prepaid pension costs and other noncurrent assets.
8. INVENTORIES
The Company's net inventory balance was comprised of the following:
|
|
|
|
|
|
|
|
($ thousands)
|
February 3, 2018
|
|
January 28, 2017
|
|
Raw materials
|
$
|
17,531
|
|
$
|
15,378
|
|
Work-in-process
|
689
|
|
1,093
|
|
Finished goods
|
551,159
|
|
569,293
|
|
Inventories, net
|
$
|
569,379
|
|
$
|
585,764
|
|
As of
February 3, 2018
and
January 28, 2017
, the Company's inventory balance includes
$1.4 million
and
$1.6 million
, respectively, of product subject to a consignment arrangement with wholesale customers.
9. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
February 3, 2018
|
|
|
January 28, 2017
|
|
Land and buildings
|
|
$
|
49,621
|
|
|
$
|
40,363
|
|
Leasehold improvements
|
|
233,034
|
|
|
215,347
|
|
Technology equipment
|
|
53,070
|
|
|
52,680
|
|
Machinery and equipment
|
|
67,778
|
|
|
67,245
|
|
Furniture and fixtures
|
|
131,884
|
|
|
148,473
|
|
Construction in progress
|
|
7,425
|
|
|
6,996
|
|
Property and equipment
|
|
542,812
|
|
|
531,104
|
|
Allowances for depreciation
|
|
(330,013
|
)
|
|
(311,908
|
)
|
Property and equipment, net
|
|
$
|
212,799
|
|
|
$
|
219,196
|
|
Useful lives of property and equipment are as follows:
|
|
|
Buildings
|
5-30 years
|
Leasehold improvements
|
5-20 years
|
Technology equipment
|
2-10 years
|
Machinery and equipment
|
4-20 years
|
Furniture and fixtures
|
3-10 years
|
The Company recorded charges for impairment within selling and administrative expenses of
$3.8 million
,
$1.6 million
and
$2.8 million
in
2017
,
2016
and
2015
, respectively, primarily for leasehold improvements and furniture and fixtures in the Company’s retail stores. Fair value was based on estimated future cash flows to be generated by retail stores, discounted at a market rate of interest.
Interest costs for major asset additions are capitalized during the construction or development period and amortized over the lives of the related assets. In
2016
and
2015
, the Company capitalized interest of
$1.4 million
and
$0.3 million
, respectively, related to its expansion and modernization project at its Lebanon, Tennessee distribution center that was completed in 2016.
No
interest was capitalized in
2017
.
10. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets were as follows:
|
|
|
|
|
|
|
|
|
($ thousands)
|
February 3, 2018
|
|
|
January 28, 2017
|
|
|
|
|
|
Intangible Assets
|
|
|
|
Famous Footwear
|
$
|
2,800
|
|
|
$
|
2,800
|
|
Brand Portfolio
|
285,988
|
|
|
286,488
|
|
Total intangible assets
|
288,788
|
|
|
289,288
|
|
Accumulated amortization
|
(76,701
|
)
|
|
(72,628
|
)
|
Total intangible assets, net
|
212,087
|
|
|
216,660
|
|
Goodwill
|
|
|
|
Brand Portfolio
|
127,081
|
|
|
127,098
|
|
Total goodwill
|
127,081
|
|
|
127,098
|
|
Goodwill and intangible assets, net
|
$
|
339,168
|
|
|
$
|
343,758
|
|
As further described in Note 2 to the consolidated financial statements, the Company acquired Allen Edmonds on December 13, 2016. The allocation of the purchase price resulted in incremental intangible assets of
$102.9 million
, consisting of trademarks and customer relationships of
$97.5 million
and
$5.4 million
, respectively, and incremental goodwill of
$113.1 million
.
The Company's intangible assets as of
February 3, 2018
and
January 28, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
|
February 3, 2018
|
|
|
Estimated Useful Lives
|
|
Original Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
15-40 years
|
|
$
|
165,288
|
|
|
$
|
76,296
|
|
|
$
|
88,992
|
|
Trademarks
|
|
Indefinite
|
|
118,100
|
|
(1
|
)
|
—
|
|
|
118,100
|
|
Customer relationships
|
|
15 years
|
|
5,400
|
|
(1
|
)
|
405
|
|
|
4,995
|
|
|
|
|
|
$
|
288,788
|
|
|
$
|
76,701
|
|
|
$
|
212,087
|
|
(1) The Allen Edmonds trademark and customer relationships intangible assets were acquired in the Allen Edmonds acquisition, as further discussed in Note 2 to the consolidated financial statements. Immaterial adjustments attributable to the purchase price
allocation were recorded during 2017, resulting in an adjustment to the original cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
|
Estimated Useful Lives
|
|
Original Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
15-40 years
|
|
$
|
165,288
|
|
|
$
|
72,604
|
|
|
$
|
92,684
|
|
Trademarks
|
|
Indefinite
|
|
117,900
|
|
(1
|
)
|
—
|
|
|
117,900
|
|
Customer relationships
|
|
15 years
|
|
6,100
|
|
(1
|
)
|
24
|
|
|
6,076
|
|
|
|
|
|
$
|
289,288
|
|
|
$
|
72,628
|
|
|
$
|
216,660
|
|
Amortization expense related to intangible assets was
$4.1 million
in
2017
and
$3.7 million
in
2016
and
2015
. The Company estimates
$4.1 million
of amortization expense related to intangible assets in each of the years from
2018 through 2022
. As a result of its annual impairment testing, the Company did not record any impairment charges during
2017
,
2016
and
2015
related to intangible assets.
Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired, using either the qualitative assessment or a quantitative fair value-based test, as further discussed in Note 1 to the consolidated financial statements. As a result of the acquisition of Allen Edmonds in 2016, the Company performed a quantitative goodwill impairment test as of the first day of the Company’s fourth fiscal quarter and determined that the fair values of the reporting units exceeded the carrying values.
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events indicate an interim test is required. The indefinite-lived intangible asset impairment reviews resulted in
no
impairment charges.
11. LONG-TERM AND SHORT-TERM FINANCING ARRANGEMENTS
Credit Agreement
The Company maintains a revolving credit facility for working capital needs in an aggregate amount of up to
$600.0 million
, with the option to increase by up to
$150.0 million
. On
December 18, 2014
, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement, which was further amended on
July 20, 2015
to release all of the Company’s subsidiaries that were borrowers under or that guaranteed the Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC (as so amended, the “Credit Agreement”). On
December 13, 2016
, Allen Edmonds was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC and Allen Edmonds are each co-borrowers and guarantors under the Credit Agreement. The Credit Agreement matures on
December 18, 2019
. The Credit Agreement amended and restated the Third Amended and Restated Credit Agreement, dated
January 7, 2011
(the "Former Credit Agreement").
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, 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 Interbank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits the Company’s ability to create, incur, assume or permit to exist additional indebtedness and 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
12.5%
of the Loan Cap 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, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for
30
consecutive business days) after a cash dominion event has occurred and been discontinued on two occasions in any 12-month period.
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)
10.0%
of the lesser of the Loan Cap and (ii)
$50.0 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
February 3, 2018
.
The maximum amount of borrowings under the Credit Agreement at the end of any month was
$260.0 million
in both
2017
and
2016
. As discussed further in Note 2 to the consolidated financial statements, the Company utilized the Credit Agreement in December 2016 to fund the Allen Edmonds acquisition. The average daily borrowings during the year were
$93.5 million
and
$34.8 million
in
2017
and
2016
, respectively, and the weighted-average interest rates approximated
2.5%
and
2.7%
in
2017
and
2016
, respectively. At
February 3, 2018
, the Company had
no
borrowings outstanding and
$10.4 million
in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was
$535.2 million
at
February 3, 2018
.
$200 Million Senior Notes Due 2019
During 2011, the Company issued
$200.0 million
aggregate principal amount of
7.125%
Senior Notes due 2019 (the “2019 Senior Notes”). The 2019 Senior Notes were guaranteed on a senior unsecured basis by each of its subsidiaries that was an obligor under the Credit Agreement. Interest on the 2019 Senior Notes was payable on
May 15
and
November 15
of each year. The 2019 Senior Notes were scheduled to mature on
May 15, 2019
but were callable at specified redemption prices, plus accrued and unpaid interest.
On
July 20, 2015
, the Company commenced a cash tender offer (the "Tender Offer") to purchase any and all of the outstanding aggregate principal amount of its 2019 Senior Notes. Upon expiration of the Tender Offer on
July 24, 2015
,
$160.7 million
aggregate principal amount of the 2019 Senior Notes were validly tendered at the redemption price of
103.950%
, representing the specified redemption price and a tender premium. On
August 26, 2015
, the remaining outstanding
$39.3 million
aggregate principal amount of outstanding 2019 Senior Notes were redeemed at the redemption price of
103.563%
.
$200 Million Senior Notes Due 2023
On
July 27, 2015
, the Company issued
$200.0 million
aggregate principal amount of
6.25%
Senior Notes due 2023 (the "2023 Senior Notes") in a private placement. On
October 22, 2015
, the Company commenced an offer to exchange its 2023 Senior Notes outstanding for substantially identical debt securities registered under the Securities Act of 1933. The exchange offer was completed on
November 23, 2015
and did not affect the amount of the Company's indebtedness outstanding. The net proceeds from the issuance of the 2023 Senior Notes were approximately
$196.3 million
after deducting fees and expenses associated with the offering. The Company used the net proceeds, together with cash on hand, to redeem the outstanding 2019 Senior Notes.
The 2023 Senior Notes are guaranteed on a senior unsecured basis by each of the Company's subsidiaries that is a borrower or guarantor under the Credit Agreement. Interest on the 2023 Senior Notes is payable on
February 15
and
August 15
of each year. The 2023 Senior Notes will mature on
August 15, 2023
. Prior to
August 15, 2018
, the Company may redeem some or all of the 2023 Senior Notes at a redemption price equal to 100% of the principal amount of the 2023 Senior Notes plus a "make-whole" premium (as defined in the 2023 Senior Notes indenture) and accrued and unpaid interest to the redemption date. After
August 15, 2018
, the Company may redeem all or a part of the 2023 Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest (as defined in the 2023 Senior Notes indenture), if redeemed during the 12-month period beginning on
August 15
of the years indicated below:
|
|
|
|
|
|
|
|
Year
|
Percentage
|
|
2018
|
104.688
|
%
|
2019
|
103.125
|
%
|
2020
|
101.563
|
%
|
2021 and thereafter
|
100.000
|
%
|
If the Company experiences specific kinds of changes of control, it would be required to offer to purchase the 2023 Senior Notes at a purchase price equal to
101%
of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to, but not including, the date of repurchase.
The 2023 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 February 3, 2018, the Company was in compliance with all covenants and restrictions relating to the 2023 Senior Notes.
Cash payments of interest for these financing arrangements during
2017
,
2016
and
2015
were
$16.5 million
,
$15.2 million
and
$11.9 million
, respectively.
Loss on Early Extinguishment of Debt
During 2015, the Company incurred a loss on early extinguishment of debt of
$10.7 million
with
no
corresponding losses in 2016 or 2017. The loss in 2015 represents the tender offer and call premiums, the unamortized debt issuance costs and the original issue discount related to the 2019 Senior Notes. Of the
$10.7 million
loss on early extinguishment of debt recognized in 2015, approximately
$3.0 million
was non-cash.
12. LEASES
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. The minimum lease terms for the Company’s retail stores generally range from
five
to
10 years
. Approximately
45%
of the retail store leases contain renewal options for varying periods. The term of the manufacturing facility lease is
eight years
. The terms of the leases for office facilities and distribution centers range from
10
to
20
years with renewal options of
five
to
20 years
.
At the time its retail facilities are initially leased, the Company often receives consideration from landlords for a portion of the cost of leasehold improvements necessary to open the store, which are recorded as a deferred rent obligation and amortized to income over the lease term as a reduction of rent expense. In addition to minimum rental payments, certain of the retail store leases require contingent payments based on sales levels. The Company is also required to pay real estate taxes, maintenance and insurance which can vary year by year, and are therefore not included in the minimum rent payments below. A majority of the Company’s retail operating leases contain provisions that allow it to modify amounts payable under the lease or terminate the lease in certain circumstances, such as experiencing actual sales volume below a defined threshold and/or co-tenancy provisions associated with the facility.
The following is a summary of rent expense for operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Minimum rent
|
|
$
|
171,980
|
|
|
$
|
160,806
|
|
|
$
|
149,902
|
|
Contingent rent
|
|
513
|
|
|
470
|
|
|
520
|
|
Sublease income
|
|
(1,705
|
)
|
|
(1,665
|
)
|
|
(1,223
|
)
|
Total
|
|
$
|
170,788
|
|
|
$
|
159,611
|
|
|
$
|
149,199
|
|
Future minimum rent payments under noncancelable operating leases with an initial term of one year or more at
February 3, 2018
were as follows:
|
|
|
|
|
|
($ thousands)
|
|
|
|
2018
|
|
$
|
177,056
|
|
2019
|
|
146,218
|
|
2020
|
|
126,898
|
|
2021
|
|
103,692
|
|
2022
|
|
82,402
|
|
Thereafter
|
|
229,157
|
|
Total minimum operating lease payments
(1)
|
|
$
|
865,423
|
|
(1) Minimum operating lease payments have not been reduced by minimum sublease rental income of
$0.6 million
due in the future under noncancelable sublease agreements.
13. RISK MANAGEMENT AND DERIVATIVES
General Risk Management
The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions. The financial institutions are located throughout the world and the Company’s policy is designed to limit exposure to any one institution or geographic region. The Company’s periodic evaluations of the relative credit standing of these financial institutions are considered in the Company’s investment strategy.
The Company’s Brand Portfolio segment sells to national chains, online retailers, department stores, mass merchandisers, independent retailers and catalogs in the United States, Canada and approximately
57
other countries. Receivables arising from these sales are not collateralized. However, a portion is covered by documentary letters of credit. Credit risk is affected by conditions or occurrences within the economy and the retail industry. The Company maintains an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and historical trends.
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 financial 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 international financial institutions and have varying maturities through
February 2019
. 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 and 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 consolidated statements of earnings. Hedge ineffectiveness is evaluated using the hypothetical derivative method. The amount of hedge ineffectiveness for
2017
,
2016
and
2015
was not material.
The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s consolidated balance sheets 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
February 3, 2018
and
January 28, 2017
, the Company had forward contracts maturing at various dates through
February 2019
and
February 2018
, respectively. The contract amounts in the following table represent the net notional amount of all purchase and sale contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
(U.S. $ equivalent in thousands)
|
|
February 3, 2018
|
|
|
January 28, 2017
|
|
Financial Instruments
|
|
|
|
|
Euro
|
|
$
|
21,223
|
|
|
$
|
13,297
|
|
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
|
|
16,874
|
|
|
18,826
|
|
Chinese yuan
|
|
12,058
|
|
|
7,723
|
|
New Taiwanese dollars
|
|
596
|
|
|
526
|
|
United Arab Emirates dirham
|
|
—
|
|
|
823
|
|
Japanese yen
|
|
—
|
|
|
769
|
|
Other currencies
|
|
415
|
|
|
124
|
|
Total financial instruments
|
|
$
|
51,166
|
|
|
$
|
42,088
|
|
The classification and fair values of derivative instruments designated as hedging instruments included within the consolidated balance sheets as of
February 3, 2018
and
January 28, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Balance Sheet Location
|
Fair Value
|
|
|
Balance Sheet Location
|
Fair Value
|
|
Foreign exchange forwards contracts:
|
|
|
|
|
|
|
February 3, 2018
|
Prepaid expenses and other current assets
|
|
$
|
1,540
|
|
|
Other accrued expenses
|
|
$
|
542
|
|
January 28, 2017
|
Prepaid expenses and other current assets
|
|
$
|
234
|
|
|
Other accrued expenses
|
|
$
|
874
|
|
During
2017
and
2016
, the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Foreign exchange forward contracts:
Income Statement Classification
(Losses) Gains - Realized
|
|
(Loss) Gain
Recognized in
OCI on
Derivatives
|
|
|
Gain (Loss) Reclassified
from Accumulated
OCI into Earnings
|
|
|
Loss
Recognized in
OCI on
Derivatives
|
|
|
(Loss) Gain Reclassified
from Accumulated
OCI into Earnings
|
|
Net sales
|
|
$
|
(25
|
)
|
|
$
|
30
|
|
|
$
|
(61
|
)
|
|
$
|
(125
|
)
|
Cost of goods sold
|
|
1,144
|
|
|
171
|
|
|
(1,308
|
)
|
|
64
|
|
Selling and administrative expenses
|
|
1,011
|
|
|
157
|
|
|
(359
|
)
|
|
(441
|
)
|
Interest expense
|
|
(1
|
)
|
|
(1
|
)
|
|
(21
|
)
|
|
(4
|
)
|
All of the gains and losses currently included within accumulated other comprehensive loss associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 1 and Note 14 to the consolidated financial statements.
14. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value measurement disclosure requirements specify 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 inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
|
|
•
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
•
|
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and
|
|
|
•
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
In determining fair value, the Company uses 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 primarily consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company's capital for the purpose of funding operations 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 participants 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 consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs 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 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 liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the accompanying consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, restricted stock units (“RSUs”) payable in cash or common stock of the Company may be granted at no cost to non-employee directors. The RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units and are payable in cash or common stock on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each RSU payable in cash is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
During the fourth quarter of 2017, the Company converted
210,302
RSUs payable in cash to RSUs payable in common stock. The amended RSUs were previously to be settled and payable in cash.
Additional information related to RSUs for non-employee directors is disclosed in Note 16 to the consolidated financial statements.
Performance Share Units
Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period at no cost to certain officers and key employees if certain financial goals are met. Under the plan, employees are granted performance share awards at a target number of shares or units, which generally vest over a
three
-year service period. At the end of the vesting period, the employee will have earned an amount of shares or units between
0%
and
200%
of the targeted award, depending on the achievement of specified financial goals for the service period. The fair value of each performance share unit is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). During the first quarter of 2017, the Company's remaining performance share awards granted in units vested and were settled in cash at fair value. Additional information related to performance share units is disclosed in Note 16 to the consolidated financial statements.
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 is disclosed in Note 1 and Note 13 to the consolidated financial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at
February 3, 2018
and
January 28, 2017
. The Company did not have any transfers between Level 1 and Level 2 during
2017
or
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
($ thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 3, 2018
|
|
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
|
$
|
53,106
|
|
|
$
|
53,106
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
|
6,445
|
|
|
6,445
|
|
|
—
|
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
|
(6,445
|
)
|
|
(6,445
|
)
|
|
—
|
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
|
(2,289
|
)
|
|
(2,289
|
)
|
|
—
|
|
|
—
|
|
Restricted stock units for non-employee directors
|
|
(4,343
|
)
|
|
(4,343
|
)
|
|
—
|
|
|
—
|
|
Derivative financial instruments, net
|
|
998
|
|
|
—
|
|
|
998
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
As of January 28, 2017
|
|
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
|
$
|
27,530
|
|
|
$
|
27,530
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
|
5,051
|
|
|
5,051
|
|
|
—
|
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
|
(5,051
|
)
|
|
(5,051
|
)
|
|
—
|
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
|
(1,909
|
)
|
|
(1,909
|
)
|
|
—
|
|
|
—
|
|
Restricted stock units for non-employee directors
|
|
(9,390
|
)
|
|
(9,390
|
)
|
|
—
|
|
|
—
|
|
Performance share units
|
|
(3,352
|
)
|
|
(3,352
|
)
|
|
—
|
|
|
—
|
|
Derivative financial instruments, net
|
|
(640
|
)
|
|
—
|
|
|
(640
|
)
|
|
—
|
|
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 Measurement
. Long-lived assets held and used with a carrying amount of
$112.5 million
,
$99.4 million
and
$92.9 million
in
2017
,
2016
and
2015
, respectively, were assessed for indicators of impairment and written down to their fair value. This assessment resulted in the following impairment charges, by segment, which were included in selling and administrative expenses for the respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Impairment Charges
|
|
|
|
|
|
|
Famous Footwear
|
|
$
|
677
|
|
|
$
|
211
|
|
|
$
|
1,159
|
|
Brand Portfolio
|
|
3,098
|
|
|
1,375
|
|
|
1,602
|
|
Total impairment charges
|
|
$
|
3,775
|
|
|
$
|
1,586
|
|
|
$
|
2,761
|
|
During the fourth quarter of 2016, the Company recognized an impairment charge of
$7.0 million
(
$7.0 million
on an after-tax basis, or
$0.16
per diluted share) related to its cost method investment in a nonconsolidated affiliate. The impairment charge is included in restructuring and other special charges in the Company's consolidated statements of earnings. Refer to Note 4 to the consolidated financial statements for additional information.
The Company performed its annual impairment tests of indefinite-lived intangible assets, which involves estimating the fair value using significant unobservable inputs (Level 3). As a result of its annual impairment testing, the Company did not record any impairment charges during
2017
,
2016
or
2015
related to intangible assets.
During 2017, the Company performed its annual impairment test of goodwill by completing a quantitative assessment at the reporting unit level, which involved estimating the fair value of its reporting units using significant unobservable inputs (Level 3). During
2016
and
2015
, the Company elected to perform a qualitative assessment of goodwill. The impairment tests, performed as of the first day of the Company’s fourth fiscal quarter of
2017
,
2016
and
2015
, resulted in no impairment charges. See Note 1 and Note 10 to the consolidated financial statements for additional information related to the goodwill impairment test.
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2018
|
|
January 28, 2017
|
|
|
Carrying Value
|
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
|
Fair Value
|
|
($ thousands)
|
|
|
Borrowings under revolving credit agreement
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
110,000
|
|
|
|
$
|
110,000
|
|
Long-term debt
|
|
197,472
|
|
|
|
210,000
|
|
|
197,003
|
|
|
|
209,000
|
|
Total debt
|
|
$
|
197,472
|
|
|
|
$
|
210,000
|
|
|
$
|
307,003
|
|
|
|
$
|
319,000
|
|
The fair value of the borrowings under revolving credit agreement approximates its carrying value due to the short-term nature (Level 1), and the fair value of the Company's long-term debt was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).
15. SHAREHOLDERS' EQUITY
Stock Repurchase Program
On
August 25, 2011
, the Board of Directors approved a stock repurchase program (“2011 Program”) authorizing the repurchase of up to
2.5 million
shares of the Company’s outstanding common stock. The Company can use 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. Repurchases of common stock are limited under the Company’s debt agreements. During
2017
,
2016
and
2015
there were
225,000
,
900,000
and
151,500
shares, respectively, repurchased under the 2011 Program. Therefore, there were
1.2 million
shares remaining that are authorized to be repurchased under the 2011 Program as of
February 3, 2018
.
Repurchases Related to Employee Share-based Awards
During
2017
,
2016
and
2015
, employees tendered
141,713
,
205,569
and
222,110
shares, respectively, related to certain share-based awards. These shares were tendered in satisfaction of the exercise price of stock options and/or to satisfy tax withholding amounts for non-qualified stock options, restricted stock and stock performance awards. Accordingly, these share repurchases are not considered a part of the Company’s publicly announced stock repurchase programs.
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss, net of tax, by component for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Foreign Currency Translation
|
|
|
Pension and Other Postretirement Transactions
(1)
|
|
|
Derivative Transactions
(2)
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Balance January 31, 2015
|
$
|
(745
|
)
|
|
$
|
3,233
|
|
|
$
|
224
|
|
|
$
|
2,712
|
|
Other comprehensive (loss) income before reclassifications
|
(155
|
)
|
|
(7,559
|
)
|
|
74
|
|
|
(7,640
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(1,706
|
)
|
|
177
|
|
|
(1,529
|
)
|
Tax provision (benefit)
|
—
|
|
|
676
|
|
|
(83
|
)
|
|
593
|
|
Net reclassifications
|
—
|
|
|
(1,030
|
)
|
|
94
|
|
|
(936
|
)
|
Other comprehensive (loss) income
|
(155
|
)
|
|
(8,589
|
)
|
|
168
|
|
|
(8,576
|
)
|
Balance January 30, 2016
|
$
|
(900
|
)
|
|
$
|
(5,356
|
)
|
|
$
|
392
|
|
|
$
|
(5,864
|
)
|
Other comprehensive income (loss) before reclassifications
|
1,092
|
|
|
(23,888
|
)
|
|
(1,255
|
)
|
|
(24,051
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(1,395
|
)
|
|
506
|
|
|
(889
|
)
|
Tax provision (benefit)
|
—
|
|
|
555
|
|
|
(185
|
)
|
|
370
|
|
Net reclassifications
|
—
|
|
|
(840
|
)
|
|
321
|
|
|
(519
|
)
|
Other comprehensive income (loss)
|
1,092
|
|
|
(24,728
|
)
|
|
(934
|
)
|
|
(24,570
|
)
|
Balance January 28, 2017
|
$
|
192
|
|
|
$
|
(30,084
|
)
|
|
$
|
(542
|
)
|
|
$
|
(30,434
|
)
|
Other comprehensive income before reclassifications
|
1,043
|
|
|
18,627
|
|
|
1,337
|
|
|
21,007
|
|
Reclassifications:
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
225
|
|
|
(357
|
)
|
|
(132
|
)
|
Tax (benefit) provision
|
—
|
|
|
(58
|
)
|
|
121
|
|
|
63
|
|
Net reclassifications
|
—
|
|
|
167
|
|
|
(236
|
)
|
|
(69
|
)
|
Other comprehensive income
|
1,043
|
|
|
18,794
|
|
|
1,101
|
|
|
20,938
|
|
Reclassification of stranded tax effects
|
—
|
|
|
(5,882
|
)
|
|
208
|
|
|
(5,674
|
)
|
Balance February 3, 2018
|
$
|
1,235
|
|
|
$
|
(17,172
|
)
|
|
$
|
767
|
|
|
$
|
(15,170
|
)
|
(1) Amounts reclassified are included in selling and administrative expenses. Refer to Note 5 to the consolidated financial statements for additional information related to pension and other postretirement benefits.
|
(2) Amounts reclassified are included in net sales, costs of goods sold, selling and administrative expenses and interest expense. Refer to Note 13 and Note 14 to the consolidated financial statements for additional information related to derivative financial instruments.
|
16. SHARE-BASED COMPENSATION
The Company has share-based incentive compensation plans under which certain officers, employees and members of the Board of Directors are participants and may be granted restricted stock, stock performance awards, restricted stock units and stock options.
ASC 718,
Compensation – Stock Compensation
, and ASC 505,
Equity
, require companies to recognize compensation expense in an amount equal to the fair value of all share-based payments granted to employees over the requisite service period for each award. In certain limited circumstances, the Company’s incentive compensation plan provides for accelerated vesting of the awards, such as in the event of a change in control, qualified retirement, death or disability. The Company has a policy of issuing treasury shares in satisfaction of share-based awards.
Share-based compensation expense of
$11.3 million
,
$7.7 million
and
$7.5 million
was recognized in
2017
,
2016
and
2015
, respectively, as a component of selling and administrative expenses. The following table details the share-based compensation expense by plan for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Expense for share-based compensation plans, net of forfeitures:
|
|
|
|
|
|
|
Restricted stock
|
|
$
|
7,657
|
|
|
$
|
5,858
|
|
|
$
|
6,027
|
|
Stock performance awards
|
|
3,508
|
|
|
1,829
|
|
|
1,398
|
|
Restricted stock units
|
|
66
|
|
|
—
|
|
|
—
|
|
Stock options
|
|
67
|
|
|
38
|
|
|
66
|
|
Total share-based compensation expense
|
|
$
|
11,298
|
|
|
$
|
7,725
|
|
|
$
|
7,491
|
|
In addition to the share-based compensation expense above, the Company recognized cash-based expense related to performance share units and cash awards granted under the performance share plans. In
2017
,
2016
and
2015
, the Company recognized
$0.1 million
,
$2.9 million
and
$5.1 million
, respectively, in expense for cash-based awards under the performance share plans. During the first quarter of
2017
, the Company's remaining performance share awards granted in units vested and were settled in cash at fair value.
The Company issued
293,470
,
203,066
and
59,682
shares of common stock in
2017
,
2016
and
2015
, respectively, for restricted stock grants, stock performance awards issued to employees, stock options exercised and common and restricted stock grants issued to non-employee directors, net of forfeitures and shares withheld to satisfy the tax withholding requirement.
The Company recognized excess tax benefits related to restricted stock vestings and dividends, performance share award vestings and stock options exercised of
$1.3 million
,
$2.3 million
and
$2.7 million
in
2017
,
2016
and
2015
, respectively. In accordance with ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which the Company adopted during the first quarter of 2017, the Company recognized these excess tax benefits within the income tax provision in
2017
, as further discussed in Note 1 to the consolidated financial statements. The excess tax benefits recognized in
2016
and
2015
were reflected as an increase to additional paid-in capital.
Restricted Stock
Under the Company’s incentive compensation plans, restricted stock of the Company may be granted at no cost to certain officers, key employees and directors. Plan participants are entitled to cash dividends and voting rights for their respective shares. The restricted stock awards limit the sale or transfer of these shares during the requisite service period. Expense for restricted stock grants is recognized on a straight-line basis separately for each vesting portion of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock grants is the quoted market price for the Company’s common stock on the date of grant.
The following table summarizes restricted stock activity for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Number of Nonvested
Restricted Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Nonvested at January 31, 2015
|
|
1,562,470
|
|
|
$15.61
|
Granted
|
|
318,921
|
|
|
30.02
|
|
Vested
|
|
(492,092
|
)
|
|
14.10
|
|
Forfeited
|
|
(126,850
|
)
|
|
18.74
|
|
Nonvested at January 30, 2016
|
|
1,262,449
|
|
|
19.55
|
|
Granted
|
|
402,100
|
|
|
27.55
|
|
Vested
|
|
(428,750
|
)
|
|
9.29
|
|
Forfeited
|
|
(107,750
|
)
|
|
24.24
|
|
Nonvested at January 28, 2017
|
|
1,128,049
|
|
|
25.85
|
|
Granted
|
|
392,812
|
|
|
27.07
|
|
Vested
|
|
(267,585
|
)
|
|
17.55
|
|
Forfeited
|
|
(78,475
|
)
|
|
29.26
|
|
Nonvested at February 3, 2018
|
|
1,174,801
|
|
|
$27.92
|
Of the
392,812
restricted shares granted during
2017
,
4,492
shares have a cliff-vesting term of
one
year,
12,000
shares have a graded-vesting term of
four
years, and
376,320
shares have a cliff-vesting term of
four
years. Of the
402,100
restricted shares granted during
2016
,
45,000
shares have a graded-vesting term of
four
years and
357,100
shares have a cliff-vesting term of
four
years. Of the
318,921
restricted shares granted during
2015
,
306,421
have a cliff-vesting term of
four
years and
12,500
had a cliff-vesting term of
five
years.
The total grant date fair value of restricted stock awards vested during the years ended
February 3, 2018
,
January 28, 2017
and
January 30, 2016
, was
$4.7 million
,
$4.0 million
and
$6.9 million
, respectively. As of
February 3, 2018
, the total remaining unrecognized compensation cost related to nonvested restricted stock grants was
$15.1 million
, which will be amortized over the weighted-average remaining requisite service period of
2.5 years
.
Performance Share Awards
Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period at no cost to certain officers and key employees if certain financial goals are met. Under the plan, employees are granted performance share awards at a target number of shares or units, which vest over a
three
-year service period. At the end of the vesting period, the employee will have earned an amount of shares between
0%
and
200%
of the targeted award, depending on the achievement of specified financial goals for the service period. If the awards are granted in units, the employee will be given an amount of cash ranging from
0%
to
200%
of the equivalent market value of the targeted award.
Expense for performance share awards is recognized based upon the fair value of the awards on the date of grant and the anticipated number of shares or cash to be awarded on a straight-line basis for each vesting portion of the share award. The fair value of the performance share awards granted in units is the unadjusted quoted market price for the Company’s common stock on the date of grant, as further discussed in Note 14 to the consolidated financial statements. During the first quarter of
2017
, the Company's remaining performance share awards granted in units vested and were settled in cash at fair value.
The following table summarizes performance share award activity for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Nonvested Performance Share Awards
at Target Level
|
|
|
Number of
Nonvested
Performance Share Awards
at Maximum Level
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Nonvested at January 31, 2015
|
|
148,535
|
|
|
297,070
|
|
|
$23.39
|
Granted
|
|
177,921
|
|
|
355,842
|
|
|
30.12
|
|
Vested
|
|
(15,182
|
)
|
|
(30,364
|
)
|
|
24.71
|
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(3,750
|
)
|
|
(7,500
|
)
|
|
29.47
|
|
Nonvested at January 30, 2016
|
|
307,524
|
|
|
615,048
|
|
|
27.14
|
|
Granted
|
|
159,000
|
|
|
318,000
|
|
|
26.64
|
|
Vested
|
|
(56,175
|
)
|
|
(112,350
|
)
|
|
17.00
|
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(7,850
|
)
|
|
(15,700
|
)
|
|
27.14
|
|
Nonvested at January 28, 2017
|
|
402,499
|
|
|
804,998
|
|
|
28.36
|
|
Granted
|
|
169,500
|
|
|
339,000
|
|
|
26.90
|
Vested
|
|
(160,372
|
)
|
|
(320,744
|
)
|
|
29.16
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(12,000
|
)
|
|
(24,000
|
)
|
|
27.46
|
Nonvested at February 3, 2018
|
|
399,627
|
|
|
799,254
|
|
|
$27.45
|
As of
February 3, 2018
, the remaining unrecognized compensation cost related to nonvested performance share awards was
$4.5 million
, which will be recognized over the weighted-average remaining service period of
1.8 years
.
Stock Options
Stock options are granted to employees at exercise prices equal to the quoted market price of the Company’s stock at the date of grant. Stock options generally vest over
four years
and have a term of
10 years
. Compensation cost for all stock options is recognized over the requisite service period for each award. No dividends are paid on unexercised options. Expense for stock options is recognized on a straight-line basis separately for each vesting portion of the stock option award.
The Company granted
16,667
stock options during
2015
.
No
stock options were granted during
2017
or
2016
. The fair value of options granted was estimated using the Black-Scholes option-pricing model based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Dividend yield
|
|
|
|
|
|
1.0
|
%
|
Expected volatility
|
|
|
|
|
|
45.5
|
%
|
Risk-free interest rate
|
|
|
|
|
|
1.8
|
%
|
Expected term (in years)
|
|
|
|
|
|
7
|
|
Dividend yields are based on historical dividend yields. Expected volatilities are based on historical volatilities of the Company’s common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected term of the options. The expected term of options represents the weighted-average period of time that options granted are expected to be outstanding, giving consideration to vesting schedules and the Company’s historical exercise patterns.
Summarized information about stock options outstanding and exercisable at
February 3, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Exercise Price Range
|
|
Number of
Options
|
|
|
Weighted-
Average
Remaining
Life (Years)
|
|
Weighted-
Average
Exercise
Price
|
|
Number of
Options
|
|
|
Weighted-
Average
Remaining
Life (Years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
$3.33 - $5.99
|
|
17,000
|
|
|
1.1
|
|
$3.49
|
|
12,000
|
|
|
1.1
|
|
|
$3.56
|
$6.00 - $9.17
|
|
14,875
|
|
|
3.4
|
|
8.05
|
|
14,875
|
|
|
3.4
|
|
|
8.05
|
$9.18 - $14.60
|
|
16,000
|
|
|
3.1
|
|
11.22
|
|
16,000
|
|
|
3.1
|
|
|
11.22
|
$14.61 - $22.34
|
|
16,500
|
|
|
1.4
|
|
15.23
|
|
16,500
|
|
|
1.4
|
|
|
15.23
|
|
$22.35 - $29.18
|
|
16,667
|
|
|
7.0
|
|
29.18
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
81,042
|
|
|
3.2
|
|
$13.53
|
|
59,375
|
|
|
2.3
|
|
|
$9.99
|
The aggregate intrinsic value of stock options outstanding and currently exercisable at
February 3, 2018
was
$1.2 million
and
$1.1 million
, respectively. Intrinsic value for stock options is calculated based on the exercise price of the underlying awards as compared to the quoted price of the Company’s common stock as of the reporting date.
The following table summarizes stock option activity for
2017
under the current and prior plans:
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at January 28, 2017
|
|
150,540
|
|
|
$20.25
|
Exercised
|
|
(21,250
|
)
|
|
12.55
|
Forfeited
|
|
—
|
|
|
—
|
|
Canceled or expired
|
|
(48,248
|
)
|
|
34.94
|
|
Outstanding at February 3, 2018
|
|
81,042
|
|
|
$13.53
|
Exercisable at February 3, 2018
|
|
59,375
|
|
|
$9.99
|
The intrinsic value of stock options exercised was
$0.3 million
,
$1.4 million
and
$1.3 million
for
2017
,
2016
and
2015
, respectively. The amount of cash received from the exercise of stock options was an immaterial amount in
2017
,
$0.6 million
in
2016
and
$0.4 million
in
2015
. In addition,
9,622
,
39,402
and
32,139
shares were tendered by employees in satisfaction of the exercise price of stock options during
2017
,
2016
and
2015
, respectively.
The following table summarizes nonvested stock option activity for
2017
under the current and prior plans:
|
|
|
|
|
|
|
|
|
|
Number of
Nonvested
Options
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Nonvested at January 28, 2017
|
|
26,667
|
|
|
$8.42
|
Granted
|
|
—
|
|
|
—
|
|
Vested
|
|
(5,000
|
)
|
|
1.12
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Nonvested at February 3, 2018
|
|
21,667
|
|
|
$10.11
|
The weighted-average grant date fair value of stock options granted for 2015 was
$12.81
. The total grant date fair value of stock options vested during
2015
was
$0.1 million
and immaterial in
2017
and
2016
. As of
February 3, 2018
, the total remaining unrecognized compensation cost related to nonvested stock options was
$0.1 million
, which will be amortized over the weighted-average remaining requisite service period of
1.6 years
.
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units (“RSUs”) payable in cash or common stock at no cost to the non-employee director. The RSUs are subject to a vesting requirement (usually one year), earn dividend equivalent units and are payable in cash or common stock on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. Dividend equivalents are paid on outstanding RSUs at the same rate as dividends on the Company’s common stock, are automatically re-invested in additional RSUs and vest immediately as of the payment date for the dividend. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs, as remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value immediately. Gains and losses resulting from changes in the fair value of the RSUs payable in cash subsequent to the vesting period and through the settlement date are reported in the Company’s consolidated statements of earnings. During the fourth quarter of 2017, the Company converted
210,302
of its director RSUs payable in cash with a value of
$6.3 million
to RSUs payable in common stock. Refer to Note 5 and Note 14 to the consolidated financial statements for information regarding the deferred compensation plan for non-employee directors.
The following table summarizes restricted stock unit activity for the year ended
February 3, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Accrued
(1)
|
|
Nonvested RSUs
|
|
|
|
Number of
Vested RSUs
|
|
|
Number of
Nonvested RSUs
|
|
|
Total Number
of RSUs
(2)
|
|
|
Total Number
of RSUs
|
|
|
Weighted-Average
Grant Date
Fair Value
|
January 28, 2017
|
|
299,770
|
|
|
52,200
|
|
|
351,970
|
|
|
334,570
|
|
|
$21.74
|
Granted
(3)
|
|
2,980
|
|
|
45,371
|
|
|
48,351
|
|
|
33,378
|
|
|
27.84
|
Vested
|
|
46,851
|
|
|
(46,851
|
)
|
|
—
|
|
|
15,467
|
|
|
24.89
|
Settled
|
|
(10,356
|
)
|
|
—
|
|
|
(10,356
|
)
|
|
(10,356
|
)
|
|
26.68
|
February 3, 2018
|
|
339,245
|
|
|
50,720
|
|
|
389,965
|
|
|
373,059
|
|
|
$24.29
|
(1)
|
Accrued RSUs include all fully vested awards and a pro-rata portion of nonvested awards based on the elapsed portion of the vesting period.
|
(2)
|
Total number of RSUs as of February 3, 2018 includes 210,759 RSUs payable in shares and 179,206 RSUs payable in cash.
|
(3)
|
Granted RSUs include 3,431 RSUs resulting from dividend equivalents paid on outstanding RSUs, of which 2,980 related to outstanding vested RSUs and 451 to outstanding nonvested RSUs.
|
The following table summarizes RSUs granted, vested and settled during
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands, except per unit amounts)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Weighted-average grant date fair value of RSUs granted
(1)
|
|
$
|
27.93
|
|
|
$
|
21.95
|
|
|
$
|
31.54
|
|
Fair value of RSUs vested
|
|
$
|
1,349
|
|
|
$
|
1,086
|
|
|
$
|
1,049
|
|
RSUs settled
|
|
10,356
|
|
|
52,524
|
|
|
21,698
|
|
(1)
|
Includes dividend equivalents granted on outstanding RSUs, which vest immediately.
|
The following table details the RSU compensation expense and the related income tax benefit for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Compensation expense
|
|
$
|
1,645
|
|
|
$
|
2,459
|
|
|
$
|
704
|
|
Income tax benefit
|
|
(620
|
)
|
|
(956
|
)
|
|
(276
|
)
|
Compensation expense, net of income tax benefit
|
|
$
|
1,025
|
|
|
$
|
1,503
|
|
|
$
|
428
|
|
The aggregate fair value of RSUs outstanding and currently vested at
February 3, 2018
is
$11.2 million
and
$9.8 million
, respectively. The liabilities associated with the accrued RSUs totaled
$4.3 million
and
$9.4 million
as of
February 3, 2018
and
January 28, 2017
, respectively. As discussed above, director RSUs payable in cash totaling
$6.3 million
were converted to RSUs payable in common stock during 2017.
17. RELATED PARTY TRANSACTIONS
C. banner International Holdings Limited
The Company has a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) to market Naturalizer footwear in China. The Company is a
51%
owner of the joint venture (“B&H Footwear”), with CBI owning the other
49%
. The license enabling the joint venture to market the footwear expired in August 2017 and the parties are in the process of dissolving their joint venture arrangements. Prior to the expiration of the joint venture agreement, B&H Footwear sold Naturalizer footwear to a retail affiliate of CBI on a wholesale basis, which in turn sold the Naturalizer products through department store shops and free-standing stores in China. The Company, through its consolidated subsidiary, B&H Footwear, sold Naturalizer footwear on a wholesale basis to CBI totaling
$5.4 million
, and
$8.4 million
in
2016
and
2015
, respectively, with
no
corresponding sales during
2017
.
18. 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. In 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As the treatment of the on-site source areas progresses, the Company expects to convert the pump and treat system to a passive treatment barrier system. 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 continues to implement the expanded remedy workplan that was approved by the oversight authorities in 2015. Based on the progress of the direct remedial action of on-site conditions, the Company has submitted a request to the oversight authorities for permission to convert the perimeter pump and treat active remediation system to a passive one.
The cumulative expenditures for both on-site and off-site remediation through
February 3, 2018
were
$30.0 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
February 3, 2018
is
$9.4 million
, of which
$8.7 million
is recorded within other liabilities and
$0.7 million
is recorded within other accrued expenses. Of the total
$9.4 million
reserve,
$4.9 million
is for off-site remediation and
$4.5 million
is for on-site remediation. The liability for the on-site remediation was discounted at
4.8%
. On an undiscounted basis, the on-site remediation liability would be
$14.1 million
as of
February 3, 2018
. The Company expects to spend approximately
$0.2 million
in the next year,
$0.1 million
in each of the following four years and
$13.5 million
in the aggregate thereafter related to the on-site remediation.
Other
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.
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
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.
19. FINANCIAL INFORMATION FOR THE COMPANY AND ITS SUBSIDIARIES
The Company's 2023 Senior Notes are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under the Credit Agreement, as further discussed in Note 11 to the consolidated financial statements. The following table presents the condensed consolidating financial information for each of Caleres, 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. Guarantors are
100%
owned by the Parent. On December 13, 2016, Allen Edmonds was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC and Allen Edmonds are each co-borrowers and guarantors under the Credit Agreement.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
AS OF FEBRUARY 3, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
|
|
|
($ thousands)
|
Parent
|
|
|
Guarantors
|
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
26,089
|
|
|
$
|
—
|
|
|
$
|
37,958
|
|
|
$
|
—
|
|
|
$
|
64,047
|
|
Receivables, net
|
124,957
|
|
|
3,663
|
|
|
23,993
|
|
|
—
|
|
|
152,613
|
|
Inventories, net
|
146,068
|
|
|
394,438
|
|
|
28,873
|
|
|
—
|
|
|
569,379
|
|
Prepaid expenses and other current assets
|
26,284
|
|
|
30,456
|
|
|
8,394
|
|
|
(4,384
|
)
|
|
60,750
|
|
Intercompany receivable - current
|
521
|
|
|
74
|
|
|
9,250
|
|
|
(9,845
|
)
|
|
—
|
|
Total current assets
|
323,919
|
|
|
428,631
|
|
|
108,468
|
|
|
(14,229
|
)
|
|
846,789
|
|
Property and equipment, net
|
35,474
|
|
|
165,227
|
|
|
12,098
|
|
|
—
|
|
|
212,799
|
|
Goodwill and intangible assets, net
|
111,108
|
|
|
40,937
|
|
|
187,123
|
|
|
—
|
|
|
339,168
|
|
Other assets
|
76,317
|
|
|
13,610
|
|
|
732
|
|
|
—
|
|
|
90,659
|
|
Investment in subsidiaries
|
1,329,428
|
|
|
—
|
|
|
(23,565
|
)
|
|
(1,305,863
|
)
|
|
—
|
|
Intercompany receivable - noncurrent
|
774,588
|
|
|
520,362
|
|
|
704,810
|
|
|
(1,999,760
|
)
|
|
—
|
|
Total assets
|
$
|
2,650,834
|
|
|
$
|
1,168,767
|
|
|
$
|
989,666
|
|
|
$
|
(3,319,852
|
)
|
|
$
|
1,489,415
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
136,797
|
|
|
$
|
102,420
|
|
|
$
|
33,745
|
|
|
$
|
—
|
|
|
$
|
272,962
|
|
Other accrued expenses
|
65,817
|
|
|
74,006
|
|
|
21,758
|
|
|
(4,384
|
)
|
|
157,197
|
|
Intercompany payable - current
|
5,524
|
|
|
—
|
|
|
4,321
|
|
|
(9,845
|
)
|
|
—
|
|
Total current liabilities
|
208,138
|
|
|
176,426
|
|
|
59,824
|
|
|
(14,229
|
)
|
|
430,159
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
197,472
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
197,472
|
|
Other liabilities
|
101,784
|
|
|
35,574
|
|
|
5,464
|
|
|
—
|
|
|
142,822
|
|
Intercompany payable - noncurrent
|
1,425,951
|
|
|
98,610
|
|
|
475,199
|
|
|
(1,999,760
|
)
|
|
—
|
|
Total other liabilities
|
1,725,207
|
|
|
134,184
|
|
|
480,663
|
|
|
(1,999,760
|
)
|
|
340,294
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
717,489
|
|
|
858,157
|
|
|
447,706
|
|
|
(1,305,863
|
)
|
|
717,489
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
1,473
|
|
|
—
|
|
|
1,473
|
|
Total equity
|
717,489
|
|
|
858,157
|
|
|
449,179
|
|
|
(1,305,863
|
)
|
|
718,962
|
|
Total liabilities and equity
|
$
|
2,650,834
|
|
|
$
|
1,168,767
|
|
|
$
|
989,666
|
|
|
$
|
(3,319,852
|
)
|
|
$
|
1,489,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2018
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
$
|
837,849
|
|
|
$
|
1,935,265
|
|
|
$
|
211,815
|
|
|
$
|
(199,345
|
)
|
|
$
|
2,785,584
|
|
Cost of goods sold
|
580,038
|
|
|
1,090,354
|
|
|
109,104
|
|
|
(162,561
|
)
|
|
1,616,935
|
|
Gross profit
|
257,811
|
|
|
844,911
|
|
|
102,711
|
|
|
(36,784
|
)
|
|
1,168,649
|
|
Selling and administrative expenses
|
233,860
|
|
|
771,027
|
|
|
55,600
|
|
|
(36,784
|
)
|
|
1,023,703
|
|
Restructuring and other special charges, net
|
3,942
|
|
|
756
|
|
|
217
|
|
|
—
|
|
|
4,915
|
|
Operating earnings
|
20,009
|
|
|
73,128
|
|
|
46,894
|
|
|
—
|
|
|
140,031
|
|
Interest expense
|
(18,075
|
)
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
(18,089
|
)
|
Interest income
|
332
|
|
|
—
|
|
|
432
|
|
|
—
|
|
|
764
|
|
Intercompany interest income (expense)
|
8,354
|
|
|
(8,813
|
)
|
|
459
|
|
|
—
|
|
|
—
|
|
Earnings before income taxes
|
10,620
|
|
|
64,301
|
|
|
47,785
|
|
|
—
|
|
|
122,706
|
|
Income tax provision
|
(24,963
|
)
|
|
(175
|
)
|
|
(10,337
|
)
|
|
—
|
|
|
(35,475
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
101,543
|
|
|
—
|
|
|
(1,619
|
)
|
|
(99,924
|
)
|
|
—
|
|
Net earnings
|
87,200
|
|
|
64,126
|
|
|
35,829
|
|
|
(99,924
|
)
|
|
87,231
|
|
Less: Net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
87,200
|
|
|
$
|
64,126
|
|
|
$
|
35,798
|
|
|
$
|
(99,924
|
)
|
|
$
|
87,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2018
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net earnings
|
$
|
87,200
|
|
|
$
|
64,126
|
|
|
$
|
35,829
|
|
|
$
|
(99,924
|
)
|
|
$
|
87,231
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
1,116
|
|
|
—
|
|
|
1,116
|
|
Pension and other postretirement benefits adjustments
|
18,855
|
|
|
—
|
|
|
(61
|
)
|
|
—
|
|
|
18,794
|
|
Derivative financial instruments
|
1,539
|
|
|
14
|
|
|
(452
|
)
|
|
—
|
|
|
1,101
|
|
Other comprehensive income from investment in subsidiaries
|
544
|
|
|
—
|
|
|
—
|
|
|
(544
|
)
|
|
—
|
|
Other comprehensive income, net of tax
|
20,938
|
|
|
14
|
|
|
603
|
|
|
(544
|
)
|
|
21,011
|
|
Comprehensive income
|
108,138
|
|
|
64,140
|
|
|
36,432
|
|
|
(100,468
|
)
|
|
108,242
|
|
Comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
104
|
|
|
—
|
|
|
104
|
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
108,138
|
|
|
$
|
64,140
|
|
|
$
|
36,328
|
|
|
$
|
(100,468
|
)
|
|
$
|
108,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2018
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net cash provided by operating activities
|
$
|
40,601
|
|
|
$
|
90,745
|
|
|
$
|
60,029
|
|
|
$
|
—
|
|
|
$
|
191,375
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(9,522
|
)
|
|
(31,159
|
)
|
|
(4,039
|
)
|
|
—
|
|
|
(44,720
|
)
|
Capitalized software
|
(5,950
|
)
|
|
(483
|
)
|
|
(25
|
)
|
|
—
|
|
|
(6,458
|
)
|
Intercompany investing
|
(20,224
|
)
|
|
197,929
|
|
|
(177,705
|
)
|
|
—
|
|
|
—
|
|
Net cash (used for) provided by investing activities
|
(35,696
|
)
|
|
166,287
|
|
|
(181,769
|
)
|
|
—
|
|
|
(51,178
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
454,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
454,000
|
|
Repayments under revolving credit agreement
|
(564,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(564,000
|
)
|
Dividends paid
|
(12,027
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,027
|
)
|
Acquisition of treasury stock
|
(5,993
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,993
|
)
|
Issuance of common stock under share-based plans, net
|
(3,816
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,816
|
)
|
Intercompany financing
|
129,021
|
|
|
(266,061
|
)
|
|
137,040
|
|
|
—
|
|
|
—
|
|
Net cash (used for) provided by financing activities
|
(2,815
|
)
|
|
(266,061
|
)
|
|
137,040
|
|
|
—
|
|
|
(131,836
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
354
|
|
|
—
|
|
|
354
|
|
Increase (decrease) in cash and cash equivalents
|
2,090
|
|
|
(9,029
|
)
|
|
15,654
|
|
|
—
|
|
|
8,715
|
|
Cash and cash equivalents at beginning of year
|
23,999
|
|
|
9,029
|
|
|
22,304
|
|
|
—
|
|
|
55,332
|
|
Cash and cash equivalents at end of year
|
$
|
26,089
|
|
|
$
|
—
|
|
|
$
|
37,958
|
|
|
$
|
—
|
|
|
$
|
64,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
AS OF JANUARY 28, 2017
|
|
|
|
|
|
Non- Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
23,999
|
|
|
$
|
9,029
|
|
|
$
|
22,304
|
|
|
$
|
—
|
|
|
$
|
55,332
|
|
Receivables, net
|
118,746
|
|
|
5,414
|
|
|
28,961
|
|
|
—
|
|
|
153,121
|
|
Inventories, net
|
150,098
|
|
|
410,867
|
|
|
24,799
|
|
|
—
|
|
|
585,764
|
|
Prepaid expenses and other current assets
|
24,293
|
|
|
23,040
|
|
|
8,058
|
|
|
(5,863
|
)
|
|
49,528
|
|
Intercompany receivable - current
|
695
|
|
|
263
|
|
|
22,091
|
|
|
(23,049
|
)
|
|
—
|
|
Total current assets
|
317,831
|
|
|
448,613
|
|
|
106,213
|
|
|
(28,912
|
)
|
|
843,745
|
|
Property and equipment, net
|
31,424
|
|
|
176,358
|
|
|
11,414
|
|
|
—
|
|
|
219,196
|
|
Goodwill and intangible assets, net
|
113,333
|
|
|
219,337
|
|
|
11,088
|
|
|
—
|
|
|
343,758
|
|
Other assets
|
51,181
|
|
|
16,567
|
|
|
826
|
|
|
—
|
|
|
68,574
|
|
Investment in subsidiaries
|
1,343,954
|
|
|
—
|
|
|
(21,946
|
)
|
|
(1,322,008
|
)
|
|
—
|
|
Intercompany receivable - noncurrent
|
568,541
|
|
|
366,902
|
|
|
581,624
|
|
|
(1,517,067
|
)
|
|
—
|
|
Total assets
|
$
|
2,426,264
|
|
|
$
|
1,227,777
|
|
|
$
|
689,219
|
|
|
$
|
(2,867,987
|
)
|
|
$
|
1,475,273
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
$
|
110,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,000
|
|
Trade accounts payable
|
116,783
|
|
|
112,434
|
|
|
37,153
|
|
|
—
|
|
|
266,370
|
|
Other accrued expenses
|
74,941
|
|
|
65,228
|
|
|
16,919
|
|
|
(5,863
|
)
|
|
151,225
|
|
Intercompany payable - current
|
12,794
|
|
|
—
|
|
|
10,255
|
|
|
(23,049
|
)
|
|
—
|
|
Total current liabilities
|
314,518
|
|
|
177,662
|
|
|
64,327
|
|
|
(28,912
|
)
|
|
527,595
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
197,003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
197,003
|
|
Other liabilities
|
91,683
|
|
|
40,507
|
|
|
3,999
|
|
|
—
|
|
|
136,189
|
|
Intercompany payable - noncurrent
|
1,209,943
|
|
|
98,982
|
|
|
208,142
|
|
|
(1,517,067
|
)
|
|
—
|
|
Total other liabilities
|
1,498,629
|
|
|
139,489
|
|
|
212,141
|
|
|
(1,517,067
|
)
|
|
333,192
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
613,117
|
|
|
910,626
|
|
|
411,382
|
|
|
(1,322,008
|
)
|
|
613,117
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
1,369
|
|
|
—
|
|
|
1,369
|
|
Total equity
|
613,117
|
|
|
910,626
|
|
|
412,751
|
|
|
(1,322,008
|
)
|
|
614,486
|
|
Total liabilities and equity
|
$
|
2,426,264
|
|
|
$
|
1,227,777
|
|
|
$
|
689,219
|
|
|
$
|
(2,867,987
|
)
|
|
$
|
1,475,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
FOR THE FISCAL YEAR ENDED JANUARY 28, 2017
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net sales
|
$
|
825,654
|
|
|
$
|
1,692,093
|
|
|
$
|
227,557
|
|
|
$
|
(165,916
|
)
|
|
$
|
2,579,388
|
|
Cost of goods sold
|
583,131
|
|
|
938,169
|
|
|
129,410
|
|
|
(133,313
|
)
|
|
1,517,397
|
|
Gross profit
|
242,523
|
|
|
753,924
|
|
|
98,147
|
|
|
(32,603
|
)
|
|
1,061,991
|
|
Selling and administrative expenses
|
212,156
|
|
|
690,292
|
|
|
57,757
|
|
|
(32,603
|
)
|
|
927,602
|
|
Restructuring and other special charges, net
|
15,333
|
|
|
433
|
|
|
7,638
|
|
|
—
|
|
|
23,404
|
|
Operating earnings
|
15,034
|
|
|
63,199
|
|
|
32,752
|
|
|
—
|
|
|
110,985
|
|
Interest expense
|
(15,102
|
)
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
(15,111
|
)
|
Interest income
|
811
|
|
|
—
|
|
|
569
|
|
|
—
|
|
|
1,380
|
|
Intercompany interest income (expense)
|
8,888
|
|
|
(9,033
|
)
|
|
145
|
|
|
—
|
|
|
—
|
|
Earnings before income taxes
|
9,631
|
|
|
54,157
|
|
|
33,466
|
|
|
—
|
|
|
97,254
|
|
Income tax provision
|
(5,075
|
)
|
|
(20,084
|
)
|
|
(6,009
|
)
|
|
—
|
|
|
(31,168
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
61,102
|
|
|
—
|
|
|
(2,422
|
)
|
|
(58,680
|
)
|
|
—
|
|
Net earnings
|
65,658
|
|
|
34,073
|
|
|
25,035
|
|
|
(58,680
|
)
|
|
66,086
|
|
Less: Net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
428
|
|
|
—
|
|
|
428
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
65,658
|
|
|
$
|
34,073
|
|
|
$
|
24,607
|
|
|
$
|
(58,680
|
)
|
|
$
|
65,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE FISCAL YEAR ENDED JANUARY 28, 2017
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net earnings
|
$
|
65,658
|
|
|
$
|
34,073
|
|
|
$
|
25,035
|
|
|
$
|
(58,680
|
)
|
|
$
|
66,086
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
1,045
|
|
|
—
|
|
|
1,045
|
|
Pension and other postretirement benefits adjustments
|
(24,790
|
)
|
|
—
|
|
|
62
|
|
|
—
|
|
|
(24,728
|
)
|
Derivative financial instruments
|
181
|
|
|
—
|
|
|
(1,115
|
)
|
|
—
|
|
|
(934
|
)
|
Other comprehensive income from investment in subsidiaries
|
39
|
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
Other comprehensive loss, net of tax
|
(24,570
|
)
|
|
—
|
|
|
(8
|
)
|
|
(39
|
)
|
|
(24,617
|
)
|
Comprehensive income
|
41,088
|
|
|
34,073
|
|
|
25,027
|
|
|
(58,719
|
)
|
|
41,469
|
|
Comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
381
|
|
|
—
|
|
|
381
|
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
41,088
|
|
|
$
|
34,073
|
|
|
$
|
24,646
|
|
|
$
|
(58,719
|
)
|
|
$
|
41,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE FISCAL YEAR ENDED JANUARY 28, 2017
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net cash provided by operating activities
|
$
|
66,800
|
|
|
$
|
71,781
|
|
|
$
|
45,041
|
|
|
$
|
—
|
|
|
$
|
183,622
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(4,769
|
)
|
|
(41,606
|
)
|
|
(4,148
|
)
|
|
—
|
|
|
(50,523
|
)
|
Capitalized software
|
(5,521
|
)
|
|
(3,481
|
)
|
|
(37
|
)
|
|
—
|
|
|
(9,039
|
)
|
Acquisition cost, net of cash received
|
(259,932
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(259,932
|
)
|
Intercompany investing
|
(3,257
|
)
|
|
3,257
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used for investing activities
|
(273,479
|
)
|
|
(41,830
|
)
|
|
(4,185
|
)
|
|
—
|
|
|
(319,494
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
623,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
623,000
|
|
Repayments under revolving credit agreement
|
(513,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(513,000
|
)
|
Dividends paid
|
(12,104
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,104
|
)
|
Acquisition of treasury stock
|
(23,139
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,139
|
)
|
Issuance of common stock under share-based plans, net
|
(4,188
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,188
|
)
|
Excess tax benefit related to share-based plans
|
2,251
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,251
|
|
Intercompany financing
|
126,858
|
|
|
(20,922
|
)
|
|
(105,936
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used for) financing activities
|
199,678
|
|
|
(20,922
|
)
|
|
(105,936
|
)
|
|
—
|
|
|
72,820
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
233
|
|
|
—
|
|
|
233
|
|
(Decrease) increase in cash and cash equivalents
|
(7,001
|
)
|
|
9,029
|
|
|
(64,847
|
)
|
|
—
|
|
|
(62,819
|
)
|
Cash and cash equivalents at beginning of year
|
31,000
|
|
|
—
|
|
|
87,151
|
|
|
—
|
|
|
118,151
|
|
Cash and cash equivalents at end of year
|
$
|
23,999
|
|
|
$
|
9,029
|
|
|
$
|
22,304
|
|
|
—
|
|
|
$
|
55,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
FOR THE FISCAL YEAR ENDED JANUARY 30, 2016
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net sales
|
$
|
819,148
|
|
|
$
|
1,652,444
|
|
|
$
|
268,779
|
|
|
$
|
(162,941
|
)
|
|
$
|
2,577,430
|
|
Cost of goods sold
|
591,539
|
|
|
905,412
|
|
|
162,384
|
|
|
(129,708
|
)
|
|
1,529,627
|
|
Gross profit
|
227,609
|
|
|
747,032
|
|
|
106,395
|
|
|
(33,233
|
)
|
|
1,047,803
|
|
Selling and administrative expenses
|
235,210
|
|
|
649,020
|
|
|
61,699
|
|
|
(33,233
|
)
|
|
912,696
|
|
Operating (loss) earnings
|
(7,601
|
)
|
|
98,012
|
|
|
44,696
|
|
|
—
|
|
|
135,107
|
|
Interest expense
|
(16,588
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(16,589
|
)
|
Loss on early extinguishment of debt
|
(10,651
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,651
|
)
|
Interest income
|
695
|
|
|
—
|
|
|
204
|
|
|
—
|
|
|
899
|
|
Intercompany interest income (expense)
|
14,363
|
|
|
(14,581
|
)
|
|
218
|
|
|
—
|
|
|
—
|
|
(Loss) earnings before income taxes
|
(19,782
|
)
|
|
83,430
|
|
|
45,118
|
|
|
—
|
|
|
108,766
|
|
Income tax benefit (provision)
|
8,755
|
|
|
(29,475
|
)
|
|
(6,222
|
)
|
|
—
|
|
|
(26,942
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
92,506
|
|
|
—
|
|
|
(616
|
)
|
|
(91,890
|
)
|
|
—
|
|
Net earnings
|
81,479
|
|
|
53,955
|
|
|
38,280
|
|
|
(91,890
|
)
|
|
81,824
|
|
Less: Net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
345
|
|
|
—
|
|
|
345
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
81,479
|
|
|
$
|
53,955
|
|
|
$
|
37,935
|
|
|
$
|
(91,890
|
)
|
|
$
|
81,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE FISCAL YEAR ENDED JANUARY 30, 2016
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net earnings
|
$
|
81,479
|
|
|
$
|
53,955
|
|
|
$
|
38,280
|
|
|
$
|
(91,890
|
)
|
|
$
|
81,824
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(224
|
)
|
|
—
|
|
|
(224
|
)
|
Pension and other postretirement benefits adjustments
|
(8,838
|
)
|
|
—
|
|
|
249
|
|
|
—
|
|
|
(8,589
|
)
|
Derivative financial instruments
|
628
|
|
|
—
|
|
|
(460
|
)
|
|
—
|
|
|
168
|
|
Other comprehensive loss from investment in subsidiaries
|
(366
|
)
|
|
—
|
|
|
—
|
|
|
366
|
|
|
—
|
|
Other comprehensive loss, net of tax
|
(8,576
|
)
|
|
—
|
|
|
(435
|
)
|
|
366
|
|
|
(8,645
|
)
|
Comprehensive income
|
72,903
|
|
|
53,955
|
|
|
37,845
|
|
|
(91,524
|
)
|
|
73,179
|
|
Comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
276
|
|
|
—
|
|
|
276
|
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
72,903
|
|
|
$
|
53,955
|
|
|
$
|
37,569
|
|
|
$
|
(91,524
|
)
|
|
$
|
72,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE FISCAL YEAR ENDED JANUARY 30, 2016
|
|
|
|
|
|
Non-Guarantors
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
|
Eliminations
|
|
Total
|
Net cash (used for) provided by operating activities
|
$
|
(1,259
|
)
|
|
$
|
99,222
|
|
|
$
|
51,189
|
|
|
$
|
—
|
|
|
$
|
149,152
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(14,585
|
)
|
|
(56,382
|
)
|
|
(2,512
|
)
|
|
—
|
|
|
(73,479
|
)
|
Proceeds from disposal of property and equipment
|
7,111
|
|
|
—
|
|
|
322
|
|
|
—
|
|
|
7,433
|
|
Capitalized software
|
(5,197
|
)
|
|
(2,538
|
)
|
|
—
|
|
|
—
|
|
|
(7,735
|
)
|
Intercompany investing
|
(568
|
)
|
|
568
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used for investing activities
|
(13,239
|
)
|
|
(58,352
|
)
|
|
(2,190
|
)
|
|
—
|
|
|
(73,781
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
198,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
198,000
|
|
Repayments under revolving credit agreement
|
(198,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(198,000
|
)
|
Proceeds from issuance of 2023 senior notes
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
Redemption of 2019 senior notes
|
(200,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(200,000
|
)
|
Dividends paid
|
(12,253
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,253
|
)
|
Debt issuance costs
|
(3,650
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,650
|
)
|
Acquisition of treasury stock
|
(4,921
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,921
|
)
|
Issuance of common stock under share-based plans, net
|
(5,297
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,297
|
)
|
Excess tax benefit related to share-based plans
|
2,651
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,651
|
|
Intercompany financing
|
55,077
|
|
|
(40,870
|
)
|
|
(14,207
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used for) financing activities
|
31,607
|
|
|
(40,870
|
)
|
|
(14,207
|
)
|
|
—
|
|
|
(23,470
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(1,153
|
)
|
|
—
|
|
|
(1,153
|
)
|
Increase in cash and cash equivalents
|
17,109
|
|
|
—
|
|
|
33,639
|
|
|
—
|
|
|
50,748
|
|
Cash and cash equivalents at beginning of year
|
13,891
|
|
|
—
|
|
|
53,512
|
|
|
—
|
|
|
67,403
|
|
Cash and cash equivalents at end of year
|
$
|
31,000
|
|
|
$
|
—
|
|
|
$
|
87,151
|
|
|
$
|
—
|
|
|
$
|
118,151
|
|
20. QUARTERLY FINANCIAL DATA (Unaudited)
Quarterly financial results (unaudited) for 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
($ thousands, except per share amounts)
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(14 Weeks)
|
|
2017
|
|
|
|
|
|
|
|
Net sales
|
$
|
631,509
|
|
|
$
|
676,954
|
|
|
$
|
774,656
|
|
|
$
|
702,465
|
|
Gross profit
|
270,908
|
|
|
287,461
|
|
|
316,885
|
|
|
293,395
|
|
Net earnings
(1)
|
14,884
|
|
|
17,674
|
|
|
34,373
|
|
|
20,301
|
|
Net earnings attributable to Caleres, Inc.
(1)
|
14,902
|
|
|
17,595
|
|
|
34,387
|
|
|
20,316
|
|
Per share of common stock:
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders
(2)
|
0.35
|
|
|
0.41
|
|
|
0.80
|
|
|
0.47
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders
(2)
|
0.35
|
|
|
0.41
|
|
|
0.80
|
|
|
0.47
|
|
Dividends paid
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
Market value:
|
|
|
|
|
|
|
|
High
|
32.83
|
|
|
29.11
|
|
|
31.27
|
|
|
34.34
|
|
Low
|
24.86
|
|
|
24.45
|
|
|
22.39
|
|
|
26.54
|
|
(1) The first and second quarters of 2017 reflect the impact of amortization of the inventory fair value adjustment required for purchase accounting of
$1.9 million
and
$1.1 million
, respectively, on an after-tax basis, as further described in Note 2 to the consolidated financial statements and several restructuring and other charges totaling
$0.7 million
and
$1.9 million
, respectively, on an after-tax basis, as further described in Note 4 to the consolidated financial statements. The fourth quarter of 2017 reflects restructuring charges totaling
$0.6 million
, on an after-tax basis, as further described in Note 4 to the consolidated financial statements and the benefit of income tax reform of
$0.3 million
, as further described in Note 6 to the consolidated financial statements.
(2) EPS for the quarters may not sum to the annual amount as each period is computed on a discrete period basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
($ thousands, except per share amounts)
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 Weeks)
|
|
2016
|
|
|
|
|
|
|
|
Net sales
|
$
|
584,733
|
|
|
$
|
622,937
|
|
|
$
|
732,230
|
|
|
$
|
639,488
|
|
Gross profit
|
247,793
|
|
|
259,555
|
|
|
293,771
|
|
|
260,872
|
|
Net earnings (loss)
(1)
|
17,878
|
|
|
19,679
|
|
|
34,726
|
|
|
(6,196
|
)
|
Net earnings (loss) attributable to Caleres, Inc.
(1)
|
17,782
|
|
|
19,768
|
|
|
34,730
|
|
|
(6,622
|
)
|
Per share of common stock:
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Caleres, Inc. shareholders
(2)
|
0.41
|
|
|
0.46
|
|
|
0.81
|
|
|
(0.16
|
)
|
Diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders
(2)
|
0.41
|
|
|
0.46
|
|
|
0.81
|
|
|
(0.16
|
)
|
Dividends paid
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
Market value:
|
|
|
|
|
|
|
|
High
|
29.49
|
|
|
27.30
|
|
|
26.90
|
|
|
36.61
|
|
Low
|
23.89
|
|
|
21.27
|
|
|
23.12
|
|
|
24.14
|
|
(1) The fourth quarter of 2016 reflects the impact of several restructuring and other charges totaling
$20.2 million
on an after-tax basis, as further described in Note 4 to the consolidated financial statements.
(2) EPS for the quarters may not sum to the annual amount as each period is computed on a discrete period basis.