Quarterly Report (10-q)

Date : 12/11/2019 @ 10:07PM
Source : Edgar (US Regulatory)
Stock : Caleres Inc (CAL)
Quote : 3.58  -0.23 (-6.04%) @ 1:00AM

Quarterly Report (10-q)

0000014707 CALERES INC false --02-01 Q3 2019 July 6, 2018 Blowfish Malibu October 18, 2018 Vionic 4.1 3.5 0.08 6.0 5.8 1.2 16,667 0 4.1 3.5 0.08 0 0 0 0 0 4.6 0 0.1 0.1 0.1 Amounts reclassified are included in other income, net. Refer to Note 14 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits. Includes breakage revenue from unredeemed gift cards Collectively referred to as "e-commerce" below Amounts reclassified are included in net sales, costs of goods sold and selling and administrative expenses. Refer to Note 15 and Note 16 to the condensed consolidated financial statements for additional information related to derivative financial instruments. Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category Minimum lease payments have not been reduced by minimum sublease rental income of $0.2 million due in the future under noncancelable sublease agreements. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

     

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended November 2, 2019

 

 

 

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from  _____________  to  _____________

 

 

Commission file number: 1-2191

 

CALERES, INC.

(Exact name of registrant as specified in its charter)

 

 

New York

(State or other jurisdiction

of incorporation or organization)

43-0197190

(IRS Employer Identification Number)

 

 

8300 Maryland Avenue

St. Louis, Missouri

(Address of principal executive offices)

63105

(Zip Code)

(314) 854-4000

(Registrant's telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock - par value of $0.01 per share

CAL

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☑   No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

Yes  ☐     No ☑ 

 

As of November 29, 2019, 40,534,862 common shares were outstanding.

 

 

 

INDEX

 

 

PART I

 

Page

Item 1

Financial Statements

3

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4

Controls and Procedures

41

 

 

 

PART II

 

 

Item 1

Legal Proceedings

42

Item 1A

Risk Factors

42

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3

Defaults Upon Senior Securities

42

Item 4

Mine Safety Disclosures

42

Item 5

Other Information

42

Item 6

Exhibits

43

 

Signature

44

 

 

 

PART I

FINANCIAL INFORMATION

   

ITEM 1

FINANCIAL STATEMENTS

 

CALERES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

   

(Unaudited)

         

($ thousands)

 

November 2, 2019

   

November 3, 2018

   

February 2, 2019

 

Assets

                       

Current assets:

                       
Cash and cash equivalents   $ 52,502     $ 90,491     $ 30,200  
Receivables, net     156,253       192,246       191,722  
Inventories, net     644,646       698,265       683,171  
Prepaid expenses and other current assets     48,245       63,166       71,354  

Total current assets

    901,646       1,044,168       976,447  
                         
Other assets     92,214       92,279       81,440  
Goodwill     245,275       283,345       242,531  
Intangible assets, net     297,570       370,507       307,366  
Lease right-of-use assets     704,244              
Property and equipment     591,370       556,967       579,087  
Allowance for depreciation     (361,109 )     (338,864 )     (348,303 )

Property and equipment, net

    230,261       218,103       230,784  

Total assets

  $ 2,471,210     $ 2,008,402     $ 1,838,568  
                         

Liabilities and Equity

                       

Current liabilities:

                       
Borrowings under revolving credit agreement   $ 295,000     $ 350,000     $ 335,000  
Trade accounts payable     275,699       317,499       316,298  
Lease obligations     144,501              
Other accrued expenses     179,030       209,479       202,038  

Total current liabilities

    894,230       876,978       853,336  
                         

Other liabilities:

                       
Noncurrent lease obligations     629,731              
Long-term debt     198,276       197,817       197,932  

Deferred rent

          51,930       54,850  
Other liabilities     95,623       114,592       97,015  

Total other liabilities

    923,630       364,339       349,797  
                         

Equity:

                       
Common stock     406       432       419  
Additional paid-in capital     152,214       143,754       145,889  
Accumulated other comprehensive loss     (30,318 )     (16,624 )     (31,601 )
Retained earnings     528,538       638,191       519,346  

Total Caleres, Inc. shareholders’ equity

    650,840       765,753       634,053  
Noncontrolling interests     2,510       1,332       1,382  

Total equity

    653,350       767,085       635,435  

Total liabilities and equity

  $ 2,471,210     $ 2,008,402     $ 1,838,568  

 

See notes to condensed consolidated financial statements.

 

 

 

CALERES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

   

(Unaudited)

 
   

Thirteen Weeks Ended

   

Thirty-Nine Weeks Ended

 

($ thousands, except per share amounts)

 

November 2, 2019

   

November 3, 2018

   

November 2, 2019

   

November 3, 2018

 
Net sales   $ 792,375     $ 775,829     $ 2,222,614     $ 2,114,583  
Cost of goods sold     472,605       465,219       1,317,064       1,235,950  

Gross profit

    319,770       310,610       905,550       878,633  
Selling and administrative expenses     275,330       265,522       804,972       774,555  
Restructuring and other special charges, net     969       5,340       2,434       9,240  

Operating earnings

    43,471       39,748       98,144       94,838  
Interest expense, net     (10,559 )     (4,210 )     (25,288 )     (11,495 )
Other income, net     2,633       3,085       7,902       9,254  

Earnings before income taxes

    35,545       38,623       80,758       92,597  
Income tax provision     (7,784 )     (9,468 )     (18,685 )     (22,651 )

Net earnings

    27,761       29,155       62,073       69,946  
Net (loss) earnings attributable to noncontrolling interests     (226 )     2       (338 )     (65 )

Net earnings attributable to Caleres, Inc.

  $ 27,987     $ 29,153     $ 62,411     $ 70,011  
                                 
Basic earnings per common share attributable to Caleres, Inc. shareholders   $ 0.69     $ 0.68     $ 1.51     $ 1.62  
                                 
Diluted earnings per common share attributable to Caleres, Inc. shareholders   $ 0.69     $ 0.67     $ 1.51     $ 1.62  

 

See notes to condensed consolidated financial statements.

 

 

 

CALERES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   

(Unaudited)

 
   

Thirteen Weeks Ended

   

Thirty-Nine Weeks Ended

 

($ thousands)

 

November 2, 2019

   

November 3, 2018

   

November 2, 2019

   

November 3, 2018

 

Net earnings

  $ 27,761     $ 29,155     $ 62,073     $ 69,946  

Other comprehensive income (loss), net of tax:

                               
Foreign currency translation adjustment     582       14       (397 )     (1,045 )
Pension and other postretirement benefits adjustments     429       451       1,285       1,353  
Derivative financial instruments     63       (320 )     361       (1,762 )

Other comprehensive income (loss), net of tax

    1,074       145       1,249       (1,454 )

Comprehensive income

    28,835       29,300       63,322       68,492  
Comprehensive loss attributable to noncontrolling interests     (239 )     (9 )     (372 )     (141 )

Comprehensive income attributable to Caleres, Inc.

  $ 29,074     $ 29,309     $ 63,694     $ 68,633  

 

See notes to condensed consolidated financial statements.

 

 

 

CALERES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

(Unaudited)

 
   

Thirty-Nine Weeks Ended

 

($ thousands)

 

November 2, 2019

   

November 3, 2018

 

Operating Activities

               

Net earnings

  $ 62,073     $ 69,946  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               
Depreciation     34,312       33,189  
Amortization of capitalized software     4,910       8,282  
Amortization of intangible assets     9,790       3,880  
Amortization and accretion of debt issuance costs, debt discount and mandatory purchase obligation     5,389       1,610  
Share-based compensation expense     8,933       11,615  
Loss on disposal of property and equipment     874       1,772  
Impairment charges for property, equipment, and lease right-of-use assets     5,105       2,040  
Provision for doubtful accounts     728       426  
Deferred rent           (1,141 )

Changes in operating assets and liabilities, net of acquired amounts:

               
Receivables     34,740       (6,457 )
Inventories     37,482       (57,138 )
Prepaid expenses and other current and noncurrent assets     (2,944 )     (9,788 )
Trade accounts payable     (37,537 )     17,113  
Accrued expenses and other liabilities     (18,032 )     21,135  
Other, net     (86 )     (2,074 )

Net cash provided by operating activities

    145,737       94,410  
                 

Investing Activities

               
Purchases of property and equipment     (37,354 )     (35,244 )
Disposals of property and equipment     636        
Capitalized software     (4,893 )     (3,505 )
Acquisition of Blowfish Malibu, net of cash received           (17,284 )

Acquisition of Vionic, net of cash received

          (344,942 )

Net cash used for investing activities

    (41,611 )     (400,975 )
                 

Financing Activities

               
Borrowings under revolving credit agreement     237,000       360,000  
Repayments under revolving credit agreement     (277,000 )     (10,000 )
Dividends paid     (8,631 )     (9,059 )
Acquisition of treasury stock     (31,168 )     (3,288 )
Issuance of common stock under share-based plans, net     (2,605 )     (4,318 )
Contributions by noncontrolling interests     1,500        
Other     (1,022 )     (114 )

Net cash (used for) provided by financing activities

    (81,926 )     333,221  
Effect of exchange rate changes on cash and cash equivalents     102       (212 )

Increase in cash and cash equivalents

    22,302       26,444  

Cash and cash equivalents at beginning of period

    30,200       64,047  

Cash and cash equivalents at end of period

  $ 52,502     $ 90,491  
 

 

See notes to condensed consolidated financial statements.

 

 

 

CALERES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                           

Accumulated

                                 
                           

Other

           

Total Caleres, Inc.

   

Non-

         

(Unaudited)

 

Common Stock

   

Additional

   

Comprehensive

   

Retained

   

Shareholders’

   

controlling

         

($ thousands, except number of shares and per share amounts)

 

Shares

   

Dollars

   

Paid-In Capital

   

(Loss) Income

   

Earnings

   

Equity

   

Interests

   

Total Equity

 

BALANCE AUGUST 3, 2019

    40,720,927     $ 407     $ 149,881     $ (31,405 )   $ 504,546     $ 623,429     $ 1,249     $ 624,678  
Net earnings (loss)                                     27,987       27,987       (226 )     27,761  
Foreign currency translation adjustment                             595               595       (13 )     582  
Unrealized gain on derivative financial instruments, net of tax of $4                             63               63               63  
Pension and other postretirement benefits adjustments, net of tax of $149                             429               429               429  
Comprehensive income (loss)                             1,087               29,074       (239 )     28,835  
Contributions by noncontrolling interests                                                     1,500       1,500  
Dividends ($0.07 per share)                                     (2,823 )     (2,823 )             (2,823 )
Acquisition of treasury stock     (58,263 )     (1 )                     (1,172 )     (1,173 )             (1,173 )
Issuance of common stock under share-based plans, net     (69,377 )     (0 )     (58 )                     (58 )             (58 )
Share-based compensation expense                     2,391                       2,391               2,391  

BALANCE NOVEMBER 2, 2019

    40,593,287     $ 406     $ 152,214     $ (30,318 )   $ 528,538     $ 650,840     $ 2,510     $ 653,350  
                                                                 

BALANCE AUGUST 4, 2018

    43,205,220     $ 432     $ 140,146     $ (16,769 )   $ 612,044     $ 735,853     $ 1,341     $ 737,194  
Net earnings                                     29,153       29,153       2       29,155  
Foreign currency translation adjustment                             14               14       (11 )     3  
Unrealized loss on derivative financial instruments, net of tax of $82                             (320 )             (320 )             (320 )
Pension and other postretirement benefits adjustments, net of tax of $157                             451               451               451  
Comprehensive income (loss)                             145               29,298       (9 )     29,289  
Dividends ($0.07 per share)                                     (3,006 )     (3,006 )             (3,006 )
Issuance of common stock under share-based plans, net     17,225       0       47                       47               47  
Share-based compensation expense                     3,561                       3,561               3,561  

BALANCE NOVEMBER 3, 2018

    43,222,445     $ 432     $ 143,754     $ (16,624 )   $ 638,191     $ 765,753     $ 1,332     $ 767,085  

 

                           

Accumulated

                                 
                           

Other

           

Total Caleres, Inc.

   

Non-

         

(Unaudited)

 

Common Stock

   

Additional

   

Comprehensive

   

Retained

   

Shareholders’

   

controlling

         

($ thousands, except number of shares and per share amounts)

 

Shares

   

Dollars

   

Paid-In Capital

   

(Loss) Income

   

Earnings

   

Equity

   

Interests

   

Total Equity

 

BALANCE FEBRUARY 2, 2019

    41,886,562     $ 419     $ 145,889     $ (31,601 )   $ 519,346     $ 634,053     $ 1,382     $ 635,435  
Net earnings (loss)                                     62,411       62,411       (338 )     62,073  
Foreign currency translation adjustment                             (363 )             (363 )     (34 )     (397 )
Unrealized gain on derivative financial instruments, net of tax of $83                             361               361               361  
Pension and other postretirement benefits adjustments, net of tax of $448                             1,285               1,285               1,285  
Comprehensive income (loss)                             1,283               63,694       (372 )     63,322  
Contributions by noncontrolling interests                                                     1,500       1,500  
Dividends ($0.21 per share)                                     (8,631 )     (8,631 )             (8,631 )
Acquisition of treasury stock     (1,588,741 )     (16 )                     (31,152 )     (31,168 )             (31,168 )
Issuance of common stock under share-based plans, net     295,466       3       (2,608 )                     (2,605 )             (2,605 )
Cumulative-effect adjustment from adoption of ASC 842                                     (13,436 )     (13,436 )             (13,436 )
Share-based compensation expense                     8,933                       8,933               8,933  

BALANCE NOVEMBER 2, 2019

    40,593,287     $ 406     $ 152,214     $ (30,318 )   $ 528,538     $ 650,840     $ 2,510     $ 653,350  
                                                                 

BALANCE FEBRUARY 3, 2018

    43,031,689     $ 430     $ 136,460     $ (15,170 )   $ 595,769     $ 717,489     $ 1,473     $ 718,962  

Net earnings (loss)

                                    70,011       70,011       (65 )     69,946  

Foreign currency translation adjustment

                            (1,045 )             (1,045 )     (76 )     (1,121 )

Unrealized loss on derivative financial instruments, net of tax of $436

                            (1,762 )             (1,762 )             (1,762 )

Pension and other postretirement benefits adjustments, net of tax of $470

                            1,353               1,353               1,353  
Comprehensive (loss) income                             (1,454 )             68,557       (141 )     68,416  

Dividends ($0.21 per share)

                                    (9,059 )     (9,059 )             (9,059 )
Acquisition of treasury stock     (100,000 )     (1 )                     (3,287 )     (3,288 )             (3,288 )
Issuance of common stock under share-based plans, net     290,756       3       (4,321 )                     (4,318 )             (4,318 )

Cumulative-effect adjustment from adoption of ASU 2016-16

                                    (10,468 )     (10,468 )             (10,468 )

Cumulative-effect adjustment from adoption of ASU 2014-09 (Topic 606)

                                    (4,775 )     (4,775 )             (4,775 )

Share-based compensation expense

                    11,615                       11,615               11,615  

BALANCE NOVEMBER 3, 2018

    43,222,445     $ 432     $ 143,754     $ (16,624 )   $ 638,191     $ 765,753     $ 1,332     $ 767,085  

 

 

CALERES, INC. 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. ("the Company").  These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States.  The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.

 

The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales.  Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole. 

 

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.

 

For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended February 2, 2019.

 

 

Note 2

Impact of New Accounting Pronouncements

 

Impact of Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet.  The FASB subsequently issued ASUs with improvements to the guidance, including ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with an additional transition method to adopt the new standard.  The Company adopted Accounting Standards Codification ("ASC") Topic 842 ("ASC 842") in the first quarter of 2019 using the modified retrospective approach and the optional transition method permitted by ASU 2018-11.  Upon adoption, the Company recorded an operating lease right-of-use asset of $729.2 million and lease liabilities of $791.7 million as of February 3, 2019.  In addition, a cumulative-effect adjustment to retained earnings of $13.4 million, net of $4.7 million in deferred taxes, was recorded upon adoption.  Prior period financial information in the consolidated financial statements has not been adjusted and is presented under the guidance in ASC 840, Leases.  The Company elected the package of practical expedients and the expedient to group lease and non-lease components as permitted within the ASU.  The hindsight practical expedient was not elected.  Refer to Note 10 to the condensed consolidated financial statements for additional information regarding ASC 842. 

 

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, that amended certain disclosure requirements that were redundant or outdated.  The rule expanded the disclosure requirements for the analysis of shareholders' equity for interim financial statements.  The Company adopted the rule during the fourth quarter of 2018 and applied the revised interim disclosure requirements beginning in the Form 10-Q for the first quarter of 2019.  In July 2019, the FASB issued ASU 2019-07, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates.  ASU 2019-07 codifies SEC Release No. 33-10532 and was effective upon issuance.  The remaining elements of this ASU did not have a material impact on the Company's consolidated financial statements.  

 

Impact of Prospective Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  The ASU replaces today's "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable.  The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The ASU's provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which it is adopted.  As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU in the first quarter of 2020 will not have a material impact on the consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.  ASU 2018-13 modifies disclosure requirements on fair value measurements, removing and modifying certain disclosures, while adding other disclosures.  The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The adoption of ASU 2018-13 is not expected to have a material impact on the Company's financial statement disclosures.

 

In August 2018, the FASB issued ASU 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20), Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans.  The guidance changes the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans, eliminating the requirements for certain disclosures that are no longer considered cost beneficial and requiring new disclosures that the FASB considers pertinent.  The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.  The adoption of ASU 2018-14 is not expected to have a material impact on the Company's financial statement disclosures.

 

8

 

 

Note 3

Acquisitions

 

Acquisition of Blowfish, LLC

On July 6, 2018, the Company entered into a Membership Interest Purchase Agreement ("Purchase Agreement") with Blowfish, LLC ("Blowfish", or "Blowfish Malibu"), pursuant to which the Company acquired a controlling interest in Blowfish.  The noncontrolling interest is subject to a mandatory purchase obligation after a three-year period based upon an earnings multiple formula, as specified in the Purchase Agreement.  The aggregate purchase price is estimated to be $32.7 million, including approximately $13.7 million assigned to the mandatory purchase obligation, which will be paid upon settlement in 2021.  The remaining $19.0 million (or $16.8 million, net of $2.2 million of cash received) was funded with cash.  The estimate of the mandatory purchase obligation, which is recorded within other liabilities on the condensed consolidated balance sheets, was initially valued at $9.0 million on a discounted basis and is subject to remeasurement based on the earnings formula specified in the Purchase Agreement.  Accretion and remeasurement adjustments on the mandatory purchase obligation are being recorded as interest expense.  During the thirteen and thirty-nine weeks ended November 2, 2019, the Company recorded interest expense of $3.9 million and $4.4 million, respectively, for accretion and remeasurement adjustments.  The operating results of Blowfish Malibu since July 6, 2018 have been included in the Company's condensed consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profit for sales to the Famous Footwear segment reflected in the Eliminations and Other category.

 

Blowfish Malibu, which was founded in 2005, designs and sells women's and children's footwear that captures the fresh youthful spirit and casual living that is distinctively Southern California.  The footwear is marketed under the "Blowfish" and "Blowfish Malibu" tradenames.  The acquisition allows for continued expansion of the Company's overall business and provides additional exposure to the growing sneaker and casual lifestyle segment of the market.

 

The Company’s purchase price allocation contains 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 (Level 3 fair value measurements).  Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies.  The purchase price allocation was completed during the first quarter of 2019.

 

During the thirteen weeks ended November 2, 2019, Blowfish Malibu contributed net sales of $13.5 million to the Brand Portfolio segment ($11.7 million on a consolidated basis, net of eliminations), and net income of $0.9 million on a consolidated basis. During the thirty-nine weeks ended November 2, 2019, Blowfish Malibu contributed net sales of $48.6 million to the Brand Portfolio segment ($42.1 million on a consolidated basis, net of eliminations), and net income of $4.7 million on a consolidated basis.  During the thirteen weeks ended November 3, 2018, Blowfish Malibu contributed net sales of $7.0 million to the Brand Portfolio ($6.4 million on a consolidated basis, net of eliminations), and a net loss of $0.5 million on a consolidated basis.  During the thirty-nine weeks ended November 3, 2018, Blowfish Malibu contributed net sales of $10.1 million ($8.9 million on a consolidated basis, net of eliminations), and a net loss of $0.9 million.  The net income or loss for the respective periods includes amortization expense on the acquired intangible assets.  

 

Acquisition of Vionic

On October 18, 2018, the Company entered into an Equity and Asset Purchase Agreement (the "Agreement") with the equity holders of Vionic Group LLC and Vionic International LLC, and VCG Holdings Ltd., a Cayman Islands corporation (collectively, "Vionic"), pursuant to which the Company acquired all of the outstanding equity interests of Vionic Group LLC and Vionic International LLC and certain related intellectual property from VCG Holdings Ltd for $360.0 million plus adjustments for cash and indebtedness, as defined in the Agreement.  The aggregate purchase price was $360.7 million (or $352.7 million, net of $8.0 million of cash received). The purchase was funded with borrowings from the Company's revolving credit agreement.  The operating results of Vionic since October 18, 2018 have been included in the Company's condensed consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profit for sales to the Famous Footwear segment reflected in the Eliminations and Other category.

 

Vionic, which was founded in 1979, brings together style and science, combining innovative biomechanics with the most coveted trends.  As pioneers in foot health with a global team of experts behind the dual gender brand, Vionic brings a fresh perspective to stylish, supportive footwear, offering a vast selection of active, casual and dress styles, sandals and slippers.  The acquisition of Vionic allows the Company to continue to expand its portfolio of brands and gives it additional access to the growing contemporary comfort footwear category.

 

The Brand Portfolio segment recognized $5.8 million ($4.3 million on an after-tax basis, or $0.10 per diluted share) in incremental cost of goods sold in the thirty-nine weeks ended November 2, 2019 related to the amortization of the inventory fair value adjustment required for purchase accounting.   The fair value adjustment was fully amortized during the first quarter of 2019.

 

The Company incurred integration-related costs of $1.0 million ($0.7 million on an after-tax basis or $0.02 per diluted share) in the thirteen weeks ended November 2, 2019, which were recorded as a component of restructuring and other special charges, net within the Eliminations and Other category.  In the thirty-nine weeks ended November 2, 2019, the Company incurred integration-related costs of $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share), which were recorded as a component of restructuring and other special charges, net.  Of the $1.9 million, $1.8 million is presented within the Eliminations and Other category and $0.1 million is presented in the Brand Portfolio segment.  During the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred acquisition and integration-related costs primarily for professional fees associated with the acquisition, totaling $4.1 million ($3.5 million on an after-tax basis, or $0.08 per diluted share), which is reflected within the Eliminations and Other category and is presented as restructuring and other special charges, net.

 

In the thirteen weeks ended November 2, 2019, Vionic contributed net sales of $38.8 million to the Brand Portfolio segment ($38.8 million on a consolidated basis, net of eliminations), and a net loss of $0.6 million.  In the thirty-nine weeks ended November 2, 2019, Vionic contributed net sales of $140.7 million to the Brand Portfolio segment ($138.8 million on a consolidated basis, net of eliminations), and net income of $1.3 million.  During the thirteen and thirty-nine weeks ended November 3, 2018, Vionic contributed net sales of $6.0 million to the Brand Portfolio segment ($5.8 million on a consolidated basis, net of eliminations), and a net loss of $1.2 million.  The net income or loss for the respective periods includes amortization expense on the acquired intangible assets but excludes the incremental interest expense associated with the transaction. 

 

9

 

Purchase Price Allocation

 

 

 

 

The assets and liabilities of Vionic 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 has allocated the purchase price as of the acquisition date, October 18, 2018, as follows:

 

($ thousands)

 

October 18, 2018

 

ASSETS

       

Current assets:

       

Cash and cash equivalents

  $ 8,024  

Receivables

    32,319  

Inventories

    58,332  

Prepaid expense and other current assets

    3,618  

Total current assets

    102,293  

Goodwill

    151,281  

Intangible assets

    144,700  

Property and equipment

    6,864  

Total assets

  $ 405,138  
         

LIABILITIES AND EQUITY

       

Current liabilities:

       

Trade accounts payable

  $ 19,679  

Other accrued expenses

    21,228  

Total current liabilities

    40,907  

Other liabilities

    3,541  

Total liabilities

    44,448  

Net assets

  $ 360,690  

 

The Company’s purchase price allocation 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 (Level 3 fair value measurements).  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 preliminary fair value estimates for inventory and intangible assets other than goodwill.  The Company used all available information to make its best estimate of fair values at the acquisition date.  As of November 2, 2019, the purchase price allocation is complete.

 

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, which is deductible for tax purposes, is primarily attributable to synergies and an assembled workforce.  Refer to Note 9 to the condensed consolidated financial statements for additional information regarding goodwill and intangible assets.

 

Joint Venture With Brand Investment Holding 

During the second quarter of 2019, the Company began operating a joint venture with Brand Investment Holding, a member of the Gemkell Group, to distribute Naturalizer and Sam Edelman branded footwear to greater China, including Hong Kong, Macau and Taiwan.  The Company owns a 50% interest in the joint venture, which is consolidated within the Company’s financial statements.  To date, net sales and operating results have been immaterial.  During the third quarter of 2019, the joint venture was funded with $3.0 million in capital contributions, including $1.5 million from the Company and $1.5 million from Brand Investment Holding. 

 

 

Note 4

Revenues

 

Accounting Policy

Revenue is recognized when obligations under the terms of a contract with the consumer are satisfied.  This generally occurs at the time of transfer of control of merchandise.  The Company considers several control indicators in its assessment of the timing of the transfer of control, including significant risks and rewards of ownership, physical possession and the Company's right to receive payment.  Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring merchandise. The Company excludes sales and similar taxes collected from customers from the measurement of the transaction price for its retail sales.

 

10

 

Disaggregation of Revenues

The following table disaggregates revenue by segment and major source for the periods ended November 2, 2019 and November 3, 2018:

 

   

Thirteen Weeks Ended November 2, 2019

   

($ thousands)

 

Famous Footwear

   

Brand Portfolio

   

Eliminations and Other

   

Total

   
                                   

Retail stores

  $ 401,943     $ 40,621     $     $ 442,564    
Landed wholesale-e-commerce/drop ship (1)           85,957             85,957    

Landed wholesale - other

          177,146       (14,071 )     163,075    

First-cost wholesale

          16,124             16,124    
First-cost wholesale - e-commerce (1)           354             354    

E-commerce - Company websites (1)

    44,489       36,692             81,181    

Licensing and royalty

          2,908             2,908    

Other (2)

    151       61             212    

Net sales

  $ 446,583     $ 359,863     $ (14,071 )   $ 792,375    

 

   

Thirteen Weeks Ended November 3, 2018

 

($ thousands)

 

Famous Footwear

   

Brand Portfolio

   

Eliminations and Other

   

Total

 
                                 
Retail stores   $ 408,248     $ 43,186     $     $ 451,434  
Landed wholesale-e-commerce/drop ship (1)           66,698             66,698  
Landed wholesale - other           175,509       (15,968 )     159,541  
First-cost wholesale           21,345             21,345  
First-cost wholesale - e-commerce (1)           422             422  
E-commerce - Company websites (1)     40,383       32,000             72,383  
Licensing and royalty           3,810             3,810  

Other (2)

    134       62             196  

Net sales

  $ 448,765     $ 343,032     $ (15,968 )   $ 775,829  

 

   

Thirty-Nine Weeks Ended November 2, 2019

 

($ thousands)

 

Famous Footwear

   

Brand Portfolio

   

Eliminations and Other

   

Total

 
                                 

Retail stores

  $ 1,108,200     $ 115,819     $     $ 1,224,019  
Landed wholesale-e-commerce/drop ship (1)           212,927             212,927  

Landed wholesale - other

          549,321       (56,463 )     492,858  

First-cost wholesale

          66,826             66,826  
First-cost wholesale - e-commerce (1)           1,528             1,528  

E-commerce - Company websites (1)

    109,954       102,637             212,591  

Licensing and royalty

          11,234             11,234  

Other (2)

    435       196             631  

Net sales

  $ 1,218,589     $ 1,060,488     $ (56,463 )   $ 2,222,614  

 

   

Thirty-Nine Weeks Ended November 3, 2018

 

($ thousands)

 

Famous Footwear

   

Brand Portfolio

   

Eliminations and Other

   

Total

 
                                 
Retail stores   $ 1,147,512     $ 129,557     $     $ 1,277,069  
Landed wholesale-e-commerce/drop ship (1)           160,617             160,617  
Landed wholesale - other           479,173       (58,615 )     420,558  
First-cost wholesale           61,910             61,910  
First-cost wholesale - e-commerce (1)           583             583  
E-commerce - Company websites (1)     93,729       87,390             181,119  
Licensing and royalty           12,104             12,104  
Other (2)     407       216             623  

Net sales

  $ 1,241,648     $ 931,550     $ (58,615 )   $ 2,114,583  

(1) Collectively referred to as "e-commerce" below

(2Includes breakage revenue from unredeemed gift cards

 

11

 

Retail stores

The majority of the Company's revenue is generated from retail sales where control is transferred and revenue is recognized at the point of sale.  Retail sales are recorded net of estimated returns and exclude sales tax.  The Company carries a returns reserve and a corresponding return asset for expected returns of merchandise.

 

Retail sales to members of the Company's loyalty programs, including the Famously You Rewards program, include two performance obligations: the sale of merchandise and the delivery of points that may be redeemed for future purchases.  The transaction price is allocated to the separate performance obligations based on the relative stand-alone selling price.  The stand-alone selling price for the points is estimated using the retail value of the merchandise earned, adjusted for estimated breakage based upon historical redemption patterns.  The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.

 

Landed wholesale

Landed sales are wholesale sales in which the merchandise is shipped directly to the customer from the Company’s warehouses. Many landed customers arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment.

 

First-cost wholesale

First-cost sales are wholesale sales in which the Company purchases merchandise from an international factory that manufactures the product and subsequently sells to a customer at an overseas port.  Revenue is recognized at the time the merchandise is delivered to the customer’s designated freight forwarder and control is transferred to the customer.

 

E-commerce

The Company also generates revenue from sales on websites maintained by the Company that are shipped from the Company's distribution centers or retail stores directly to the consumer, picked up directly by the consumer from the Company's stores and e-commerce sales from the Company's wholesale customers' websites that are fulfilled on a drop-ship or first-cost basis (collectively referred to as "e-commerce").  The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer.

 

Licensing and royalty

The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names.  These license agreements provide the licensee access to the Company's symbolic intellectual property, and revenue is therefore recognized over the license term.  For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee's sales occur.  For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee.  Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.

 

Contract Balances

Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts.  Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream.  Reserves for projected returns are based on historical patterns and current expectations.

 

Information about significant contract balances from contracts with customers is as follows:

 

($ thousands)

 

November 2, 2019

   

November 3, 2018

   

February 2, 2019

 
Customer allowances and discounts   $ 25,762     $ 23,835     $ 25,090  
Loyalty programs liability     17,274       16,299       14,637  
Returns reserve     15,040       15,373       13,841  
Gift card liability     4,794       4,169       5,426  

 

Changes in contract balances with customers generally reflect differences in relative sales volume for the period presented.  In addition, during the thirty-nine weeks ended November 2, 2019, the loyalty programs liability increased $24.2 million due to points and material rights accrued for purchases and decreased $21.6 million due to expirations and redemptions.  During the thirty-nine weeks ended November 3, 2018, the loyalty programs liability increased $13.8 million due to purchases and $6.4 million due to the adoption of Topic 606 and decreased $12.0 million due to expirations and redemptions. 

 

12

 

 

Note 5

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 for the periods ended November 2, 2019 and November 3, 2018:

 

   

Thirteen Weeks Ended

   

Thirty-Nine Weeks Ended

 

($ thousands, except per share amounts)

 

November 2, 2019

   

November 3, 2018

   

November 2, 2019

   

November 3, 2018

 

NUMERATOR

                               

Net earnings

  $ 27,761     $ 29,155     $ 62,073     $ 69,946  

Net loss (earnings) attributable to noncontrolling interests

    226       (2 )     338       65  
Net earnings allocated to participating securities     (946 )     (800 )     (2,042 )     (1,950 )

Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities

  $ 27,041     $ 28,353     $ 60,369     $ 68,061  
                                 

DENOMINATOR

                               
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders     39,258       41,999       39,983       41,958  
Dilutive effect of share-based awards     55       107       57       116  

Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders

    39,313       42,106       40,040       42,074  
                                 

Basic earnings per common share attributable to Caleres, Inc. shareholders

  $ 0.69     $ 0.68     $ 1.51     $ 1.62  
                                 

Diluted earnings per common share attributable to Caleres, Inc. shareholders

  $ 0.69     $ 0.67     $ 1.51     $ 1.62  

 

Options to purchase 16,667 shares of common stock for the thirteen and thirty-nine weeks ended November 2, 2019 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive. There were no options to purchase shares excluded from the denominator for the thirteen and thirty-nine weeks ended November 3, 2018.

 

During the thirteen weeks ended November 2, 2019 and November 3, 2018, the Company repurchased 58,263 and zero shares, respectively, under the 2011 and 2018 publicly announced share repurchase programs, each of which permits repurchases of up to 2.5 million shares. The Company repurchased 1,588,741 and 100,000 shares during the thirty-nine weeks ended November 2, 2019 and November 3, 2018, respectively.  As of November 2, 2019, the Company has repurchased a total of 4.3 million shares under the publicly announced share repurchase programs at an aggregate purchase price of $109.0 million. 

 

 

Note 6

Restructuring and Other Initiatives

 

Vionic Acquisition and Integration-Related Costs

During the thirteen weeks ended November 2, 2019, the Company incurred integration-related costs associated with the acquisition of Vionic, primarily for severance, totaling $1.0 million ($0.7 million on an after-tax basis, or $0.02 per diluted share). The costs are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings within the Eliminations and Other category.  During the thirty-nine weeks ended November 2, 2019, the Company incurred integration-related costs, primarily for severance, totaling $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share).  Of the $1.9 million in costs, which are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings, $1.8 million is reflected within the Eliminations and Other category and $0.1 million is included in the Brand Portfolio segment. During the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred acquisition and integration-related costs associated with Vionic, primarily for professional fees, totaling $4.1 million ($3.5 million on an after-tax basis, or $0.08 per diluted share), which are reflected within the Eliminations and Other category and is presented as restructuring and other special charges, net in the condensed consolidated statements of earnings.  As of November 2, 2019 and  November 3, 2018 restructuring reserves of $1.1 million and $1.8 million, respectively, were included in other accrued expenses on the condensed consolidated balance sheets.  Refer to further discussion of the acquisition in Note 3 to the condensed consolidated financial statements.

 

Blowfish Malibu Acquisition and Integration-Related Costs

The Company incurred acquisition costs associated with the acquisition of Blowfish Malibu of $0.1 million ($0.1 million on an after-tax basis) and $0.3 million ($0.2 million on an after-tax basis, or $0.01 per diluted share) during the thirteen and thirty-nine weeks ended November 3, 2018, which are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings and reflected within the Eliminations and Other category.  There were no acquisition or integration-related costs associated with Blowfish during the thirteen or thirty-nine weeks ended November 2, 2019.  Refer to further discussion of the acquisition of Blowfish Malibu in Note 3 to the condensed consolidated financial statements.

 

Carlos Brand Exit

The Company's license agreement to sell Carlos by Carlos Santana footwear expired in December 2018.  In connection with the decision to exit the Carlos brand, the Company incurred restructuring-related costs of $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) during the thirty-nine weeks ended November 2, 2019.  Of these charges included in the Brand Portfolio segment, $1.3 million ($1.0 million on an after-tax basis or $0.02 per diluted share) primarily represents incremental inventory markdowns required to reduce the value of inventory to net realizable value and is presented in cost of goods sold on the statements of earnings and the remaining $0.6 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) for severance and other related costs is presented in restructuring and other special charges.  There were no corresponding costs in the thirteen weeks ended November 2, 2019 or the thirty-nine weeks ended November 3, 2018.

 

13

 

Integration and Reorganization of Men's Brands

During the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred integration and reorganization costs, primarily for severance and professional fees, related to the men's business totaling $1.2 million ($0.9 million on an after-tax basis, or $0.02 per diluted share) and $4.8 million ($3.6 million on an after-tax basis, or $0.08 per diluted share), respectively.  Of the $1.2 million in costs presented as restructuring and other special charges, net in the condensed consolidated statements of earnings for the thirteen weeks ended November 3, 2018, $1.1 million was reflected within the Brand Portfolio segment and $0.1 million was reflected within the Eliminations and Other category.  Of the $4.8 million in costs for the thirty-nine weeks ended November 3, 2018, $4.4 million was reflected within the Brand Portfolio segment and $0.4 million was reflected within the Eliminations and Other category.  There were no integration and reorganization costs related to the men's business in the thirteen and thirty-nine weeks ended November 2, 2019

 

 

Note 7

Business Segment Information

 

During the first quarter of 2019, the Company changed its segment presentation to disclose net sales of the Brand Portfolio segment inclusive of both external and intersegment sales, with the elimination of intersegment sales and profit from Brand Portfolio to Famous Footwear reflected within the Eliminations and Other category.  This presentation reflects the independent business models of both Brand Portfolio and Famous Footwear, as well as growth in intersegment activity driven by recent acquisitions.  Following is a summary of certain key financial measures for the Company’s business segments for the periods ended November 2, 2019 and November 3, 2018:

 

($ thousands)

 

Famous Footwear

   

Brand Portfolio

   

Eliminations and Other

   

Total

 

Thirteen Weeks Ended November 2, 2019

                               
Net sales   $ 446,583     $ 359,863     $ (14,071 )   $ 792,375  
Intersegment sales (1)           14,071             14,071  
Operating earnings (loss)     27,681       19,398       (3,608 )     43,471  
Segment assets     973,272       1,360,445       137,493       2,471,210  
                                 

Thirteen Weeks Ended November 3, 2018

                               

Net sales

  $ 448,765     $ 343,032     $ (15,968 )   $ 775,829  

Intersegment sales (1)

          15,968             15,968  

Operating earnings (loss)

    24,414       25,114       (9,780 )     39,748  

Segment assets

    548,609       1,272,576       187,217       2,008,402  
                                 

Thirty-Nine Weeks Ended November 2, 2019

                               
Net sales   $ 1,218,589     $ 1,060,488     $ (56,463 )   $ 2,222,614  
Intersegment sales (1)           56,463             56,463  
Operating earnings (loss)     70,036       46,225       (18,117 )     98,144  
                                 

Thirty-Nine Weeks Ended November 3, 2018

                               

Net sales

  $ 1,241,648     $ 931,550     $ (58,615 )   $ 2,114,583  

Intersegment sales (1)

          58,615             58,615  

Operating earnings (loss)

    79,511       52,650       (37,323 )     94,838  

 

(1) Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category

 

The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.

 

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

 

   

Thirteen Weeks Ended

   

Thirty-Nine Weeks Ended

 

($ thousands)

 

November 2, 2019

   

November 3, 2018

   

November 2, 2019

   

November 3, 2018

 
Operating earnings   $ 43,471     $ 39,748     $ 98,144     $ 94,838  
Interest expense, net     (10,559 )     (4,210 )     (25,288 )     (11,495 )
Other income, net     2,633       3,085       7,902       9,254  

Earnings before income taxes

  $ 35,545     $ 38,623     $