Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation, our principal executive officer and principal financial officer have concluded that the Company’s internal control over financial reporting was effective as of February 1, 2020. The effectiveness of our internal control over financial reporting as of February 1, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included herein.
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 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 athletic, casual and dress footwear products to women, men and children. The footwear is sold at a variety of price points through multiple distribution channels both domestically and internationally. The Company currently operates 1,177 retail shoe stores in the United States, Canada, China, Guam and Italy, under the Famous Footwear, Naturalizer, Sam Edelman 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 2019, approximately 61% of the Company’s net sales were at retail, compared to 65% in 2018 and 69% in 2017. Refer to Note 8 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 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. In addition, the Company entered into a joint venture with Brand Investment Holding Limited ("Brand Investment Holding"), a member of the Gemkell Group, during 2019. The Company and Brand Investment Holding are each 50% owners of the joint venture, which is named CLT Brand Solutions ("CLT"). The Company consolidates B&H Footwear and CLT into its consolidated financial statements. Net earnings (loss) attributable to noncontrolling interests represents the share of net earnings or losses that are attributable to CBI and Brand Investment Holding equity. Transactions between the Company and the joint ventures have been eliminated in the consolidated financial statements. During 2019, CLT was funded with $5.0 million in capital contributions, including $2.5 million from the Company and $2.5 million from Brand Investment Holding. Net sales and operating results were immaterial in 2019.
Accounting Period
The Company’s fiscal year is the 52- or 53-week period ending the Saturday nearest to January 31. Fiscal years 2019 and 2018, which included 52 weeks, ended on February 1, 2020 and February 2, 2019, respectively. Fiscal year 2017, which included 53 weeks, ended on February 3, 2018.
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 $0.8 million in 2019, $0.5 million in 2018 and $1.3 million in 2017.
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 $62.7 million in 2019, $54.2 million in 2018 and $51.1 million in 2017.
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 $12.0 million in 2019, $5.5 million in 2018 and $4.8 million in 2017.
Inventories
All inventories are valued at the lower of cost and net realizable value with approximately 87% 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 $3.8 million and $3.3 million higher at February 1, 2020 and February 2, 2019, respectively. Refer to Note 9 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 $106.0 million, $106.9 million and $89.7 million in 2019, 2018 and 2017, 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, $22.1 million and $23.1 million in 2019, 2018 and 2017, 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 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. For the majority of the Brand Portfolio operations, markdown reserves 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 $16.2 million and $16.4 million of computer software costs as of February 1, 2020 and February 2, 2019, respectively, which are net of accumulated amortization of $126.1 million and $131.8 million as of the end of the respective periods. In addition, Other assets on the consolidated balance sheets include $8.0 million and $0.5 million of implementation costs for software as a service as of February 1, 2020 and February 2, 2019, respectively, which are net of accumulated amortization of $0.3 million and $0.1 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 $0.6 million and $0.2 million in 2019 and 2018, respectively, related to the new company-operated Brand Portfolio warehouse facilities in California. There was no corresponding capitalized 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, as well as accretion and fair value adjustments on the mandatory purchase obligation from the acquisition of Blowfish Malibu, as further described in Note 2 to the consolidated financial statements. Interest expense also includes fees paid under the short-term revolving credit agreement for the unused portion of its line of credit, and the amortization of deferred debt issuance costs and debt discount.
Goodwill and Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. In accordance with Accounting Standards Codification (“ASC”), Intangibles-Goodwill and Other (ASC Topic 350) Testing Goodwill for Impairment, the Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value when it is unlikely that a reporting unit is impaired. If a quantitative test is deemed necessary, 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 both a market approach and discounted cash flow analysis. The market approach method includes the use of multiples of comparable publicly-traded companies. The discounted cash flow approach estimates the fair value of the reporting unit using projected 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. During 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.
The Company performs its goodwill impairment assessment as of the first day of the fourth quarter of each fiscal year unless events indicate an interim test is required. In 2019, the Company elected to perform the quantitative assessment for all reporting units. Based on the results of the goodwill impairment quantitative assessment, the Company determined that the fair values of the reporting units exceeded the carrying values. Changes in any of the assumptions used to determine the fair value of the reporting units, including the impact of external factors such as interest rates, or the impact of the coronavirus outbreak and the resulting impact on our retail stores and stock price, could result in the calculated fair value falling below the carrying value in future assessments. During 2018, the Company recorded a non-cash impairment charge of $38.0 million for the impairment of goodwill of the Allen Edmonds reporting unit. Refer to Note 11 to the consolidated financial statements for further discussion of goodwill and intangible assets.
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. In 2018, the Company recorded a non-cash impairment charge of $60.0 million for the impairment the Allen Edmonds indefinite-lived tradename. Refer to Note 11 to the consolidated financial statements for further discussion. 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.
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 1, 2020, the Company believes it has provided adequate reserves for its self-insurance exposure. As of February 1, 2020 and February 2, 2019, self-insurance reserves were $10.0 million and $11.6 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, 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. 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. The Company applies the guidance using the portfolio approach in ASC 606, Revenue from Contracts with Customers, because this methodology would not differ materially from applying the guidance to the individual contracts within the portfolio. The Company excludes sales and similar taxes collected from customers from the measurement of the transaction price for its retail sales.
Gift Cards
The Company sells gift cards to its customers 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 (loss) 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 gift card breakage of $1.1 million, $0.9 million and $1.7 million in 2019, 2018 and 2017, respectively.
Loyalty Program
The Company maintains a loyalty program 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 loyalty 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 78% of net sales in the Famous Footwear segment were made to its loyalty program members in 2019, compared to 76% in 2018. As of February 1, 2020 and February 2, 2019, the Company had a loyalty program liability of $16.4 million and $14.6 million, respectively, which is included in other accrued expenses on the consolidated balance sheets.
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 and, beginning in 2019, the lease right-of-use asset, 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 $5.9 million in 2019, $3.7 million in 2018 and $3.8 million in 2017. Impairment charges in 2019 were higher as a result of the adoption of ASC 842, Leases, in the first quarter of 2019, as further discussed below and in Note 13 to the consolidated financial statements. In addition, our impairment charges may be impacted in 2020 as a result of the recent coronavirus (“COVID-19”) pandemic.
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 $100.9 million, $84.8 million and $83.6 million in 2019, 2018 and 2017, respectively. These costs were offset by co-op advertising allowances recovered by the Company’s retail business of $7.8 million, $7.6 million and $4.8 million in 2019, 2018 and 2017, respectively. Total co-op advertising costs reflected as a reduction of net sales were $13.3 million in 2019, $9.4 million in 2018 and $10.0 million in 2017. Total advertising costs attributable to future periods that are deferred and recognized as a component of prepaid expenses and other current assets were $2.8 million and $3.7 million at February 1, 2020 and February 2, 2019, 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 (loss). As further discussed in Note 7 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 included, but were 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 all of its retail locations, a manufacturing facility 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. As further discussed below and in Note 13 to the consolidated financial statements, during the first quarter of 2019, the Company adopted ASC 842 using the modified retrospective transition method. In accordance with ASC 842, lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company's leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on the information available at the commencement date, including implied traded debt yield and seniority adjustments, to determine the present value of future payments. Lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
Contingent Rentals
Many of the leases covering retail stores require contingent rental payments in addition to the minimum monthly rental charge based on retail sales volume. Subsequent to the adoption of ASC 842 in the first quarter of 2019, the Company excludes from lease payments any variable payments that are not based on an index or market. If payment for a lease is fully contingent on sales, such as a percentage of sales gross rent lease, none of the lease payments are included in the lease right-of-use asset or the lease liability. In accordance with ASC 840, the Company recorded expense for contingent rentals during the period in which the retail sales volume exceeded 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. In accordance with ASC 842, the allowances are recorded within the lease right-of-use asset and amortized to income over the lease term as a reduction of rent expense. Prior to 2019, in accordance with ASC 840, the allowances were recorded as a deferred rent obligation and amortized to income over the lease term as a reduction of rent expense. The allowances under ASC 840 were 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 the lease right-of-use asset, or under the guidance in ASC 840, 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 (loss).
Pre-opening Costs
Pre-opening costs associated with opening retail stores, including payroll, supplies and facility costs, are expensed as incurred.
Earnings (Loss) Per Common Share Attributable to Caleres, Inc. Shareholders
The Company uses the two-class method to calculate basic and diluted earnings (loss) 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 (loss) per common share attributable to Caleres, Inc. shareholders is computed by dividing the net earnings (loss) 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 (loss) 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 4 to the consolidated financial statements for additional information related to the calculation of earnings (loss) per common share attributable to Caleres, Inc. shareholders.
Comprehensive Income (Loss)
Comprehensive income (loss) 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 (loss) 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 (loss).
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 6 and Note 16 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 14, Note 15 and Note 16 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 the outcome of such proceedings and litigation currently pending 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. 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. Expense for graded-vesting grants is recognized ratably over the respective vesting periods and expense for cliff-vesting grants is recognized on a straight-line basis over the vesting period, which is generally four years. 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. The Company accounts for forfeitures of share-based grants as they occur. 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 17 to the consolidated financial statements.
Consolidated Statements of Cash Flows Supplemental Disclosures
The Company made federal, state and foreign tax payments, net of refunds, of $10.2 million, $21.3 million and $18.7 million in 2019, 2018 and 2017, respectively. Refer to Note 7 to the consolidated financial statements for further information regarding income taxes.
Cash payments of interest for the Company's borrowings under the revolving credit agreement and long-term debt during 2019, 2018 and 2017 were $26.8 million, $17.4 million and $16.5 million, respectively. Refer to Note 12 to the consolidated financial statements for further discussion regarding the Company's financing arrangements.
Subsequent Event
In March 2020, the World Health Organization announced that COVID-19 is a global pandemic. Effective March 19, 2020, the Company announced the temporary closure of all retail stores throughout the United States and Canada for a minimum period of two weeks. While the Company’s e-commerce businesses, including Famous Footwear and all brand sites, continue to serve customers during this crisis, the Company has experienced a loss in sales and earnings as a result of the significant decline in customer traffic. In addition, many of the Company's wholesale partners have also closed their retail stores, have sought to cancel orders, and are aggressively managing their inventories. Although the store closures are expected to be temporary, the Company cannot estimate the duration of the store closures, the impact to consumer sentiment, or the impact to the Company's wholesale customers.
The Company is taking steps to manage its resources conservatively by reducing and/or deferring capital expenditures, inventory purchases and operating expenses to mitigate the adverse impact of the pandemic. These steps include, but are not limited to, the layoff of all hourly store employees at the Company's retail stores; associate furloughs for a significant portion of the workforce and salary reductions for all remaining associates during the temporary store closures, including associates at distribution centers and corporate offices; minimizing costs associated with the closed retail facilities; reducing marketing expenses; and reducing variable expenses during the store closure period. The Company also plans to reduce capital expenditures and defer Famous Footwear store remodels and planned store openings. In addition, as a precautionary measure to increase its cash position and preserve financial flexibility given the uncertainty in the United States and global markets resulting from COVID-19, the Company has increased the borrowings on its revolving credit facility from $275.0 million at February 1, 2020 to $440.0 million at the date of this filing. Borrowings under the revolving credit facility will bear interest at LIBOR plus a spread of between 1.25% and 1.5%. Proceeds from the revolving credit facility may be used for working capital needs or general business purposes.
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, which represented a reduction of the initial right-of-use asset for certain stores where the initial right-of-use asset was determined to exceed fair value. Fair value of the right-of-use asset was determined using a discounted cash flow analysis, considering sublease discounts, market rent per square foot, marketing time and market discount rates. 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. The hindsight practical expedient was not elected. Refer to Note 13 to the 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, which 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 June 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, with early adoption permitted beginning after December 15, 2018. The ASUs provisions will be applied as a cumulative-effect adjustment to retained earnings as of February 1, 2020 when the ASU 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 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 in the first quarter of 2020 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.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to intraperiod tax allocation, simplifies certain elements of accounting for basis differences and deferred tax liabilities during a business combination, and standardizes the classification of franchise taxes. 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 2019-12 is not expected to have a material impact on the Company's financial statements.
2. ACQUISITIONS
Acquisition of Blowfish, LLC
On July 6, 2018, the Company entered into a Membership Interest Purchase Agreement ("Purchase Agreement") with Blowfish, LLC ("Blowfish Malibu"), pursuant to which the Company acquired a controlling interest in Blowfish Malibu. 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 was estimated to be $28.0 million, including approximately $9.0 million initially 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 initial $9.0 million estimate of the mandatory purchase obligation, which is recorded within other liabilities on the consolidated balance sheets, was valued 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 and totaled $6.0 million in 2019. The mandatory purchase obligation, recorded within other liabilities on the consolidated balance sheets, was valued at $15.4 million as of February 1, 2020. The operating results of Blowfish Malibu since July 6, 2018 have been included in the Company's 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.
During 2019, Blowfish Malibu contributed $55.8 million of net sales and reported net income of $4.8 million. During the period from acquisition through February 2, 2019, Blowfish Malibu contributed $15.2 million of net sales and reported a net loss of $1.4 million. The loss reflects $1.7 million of incremental cost of goods sold ($1.3 million on an after-tax basis, or $0.03 per diluted share) related to the amortization of the inventory fair value adjustment required for purchase accounting. 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 consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profits 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) and $8.9 million ($6.6 million on an after-tax basis, or $0.15 per diluted share) in incremental cost of goods sold in 2019 and 2018, respectively, related to the amortization of the inventory fair value adjustment required for purchase accounting. In addition, the Company incurred acquisition and integration-related costs of $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) and $4.5 million ($3.3 million on an after-tax basis, or $0.08 per diluted share) in 2019 and 2018, respectively. Of the $1.9 million of costs incurred in 2019, $1.8 million is presented within the Eliminations and Other category and $0.1 million is presented in the Brand Portfolio segment and recorded as a component of restructuring and other special charges, net. All of the 2018 costs are reflected within the Eliminations and Other category. Refer to Note 5 to the consolidated financial statements for additional information related to these costs.
During 2019, Vionic contributed $177.4 million of net sales and reported a net loss of $3.6 million. During the period from the acquisition date through February 2, 2019, Vionic contributed $45.3 million of net sales and reported a net loss of approximately $8.3 million, primarily associated with the incremental cost of goods sold of $8.9 million related to the amortization of the inventory fair value adjustment required for purchase accounting. The net loss for the respective periods includes amortization expense on the acquired intangible assets but excludes the incremental interest expense associated with the transaction.
3. REVENUES
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for 2019 and 2018:
|
|
2019
|
|
|
|
|
|
($ thousands)
|
|
Famous Footwear
|
|
|
Brand Portfolio
|
|
|
Eliminations and Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores
|
|
$
|
1,427,473
|
|
|
$
|
154,549
|
|
|
$
|
—
|
|
|
$
|
1,582,022
|
|
Landed wholesale-e-commerce/drop ship (1)
|
|
|
—
|
|
|
|
283,785
|
|
|
|
—
|
|
|
|
283,785
|
|
Landed wholesale - other
|
|
|
—
|
|
|
|
708,262
|
|
|
|
(72,955
|
)
|
|
|
635,307
|
|
First-cost wholesale
|
|
|
—
|
|
|
|
96,021
|
|
|
|
—
|
|
|
|
96,021
|
|
First-cost wholesale - e-commerce (1)
|
|
|
—
|
|
|
|
2,204
|
|
|
|
—
|
|
|
|
2,204
|
|
E-commerce - Company websites (1)
|
|
|
159,724
|
|
|
|
145,897
|
|
|
|
—
|
|
|
|
305,621
|
|
Licensing and royalty
|
|
|
—
|
|
|
|
15,469
|
|
|
|
—
|
|
|
|
15,469
|
|
Other (2)
|
|
|
860
|
|
|
|
273
|
|
|
|
—
|
|
|
|
1,133
|
|
Net sales
|
|
$
|
1,588,057
|
|
|
$
|
1,406,460
|
|
|
$
|
(72,955
|
)
|
|
$
|
2,921,562
|
|
|
|
2018
|
|
|
|
|
|
($ thousands)
|
|
Famous Footwear
|
|
|
Brand Portfolio
|
|
|
Eliminations and Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores
|
|
$
|
1,469,857
|
|
|
$
|
166,903
|
|
|
$
|
—
|
|
|
$
|
1,636,760
|
|
Landed wholesale-e-commerce/drop ship (1)
|
|
|
—
|
|
|
|
217,155
|
|
|
|
—
|
|
|
|
217,155
|
|
Landed wholesale - other
|
|
|
—
|
|
|
|
690,988
|
|
|
|
(85,513
|
)
|
|
|
605,475
|
|
First-cost wholesale
|
|
|
—
|
|
|
|
94,734
|
|
|
|
—
|
|
|
|
94,734
|
|
First-cost wholesale - e-commerce (1)
|
|
|
—
|
|
|
|
1,086
|
|
|
|
—
|
|
|
|
1,086
|
|
E-commerce - Company websites (1)
|
|
|
136,327
|
|
|
|
125,877
|
|
|
|
—
|
|
|
|
262,204
|
|
Licensing and royalty
|
|
|
—
|
|
|
|
16,501
|
|
|
|
—
|
|
|
|
16,501
|
|
Other (2)
|
|
|
624
|
|
|
|
307
|
|
|
|
—
|
|
|
|
931
|
|
Net sales
|
|
$
|
1,606,808
|
|
|
$
|
1,313,551
|
|
|
$
|
(85,513
|
)
|
|
$
|
2,834,846
|
|
(1) Collectively referred to as "e-commerce" below
|
(2) Includes breakage revenue from unredeemed gift cards
|
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 at Famous Footwear. 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 Company disregards the effect of the time value of money between payment for and receipt of goods when the sale does not include a financing element. 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 our wholesale customers' websites that are fulfilled on a drop-ship and 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)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Customer allowances and discounts
|
|
$
|
26,200
|
|
|
$
|
25,090
|
|
Loyalty programs liability
|
|
|
16,405
|
|
|
|
14,637
|
|
Returns reserve
|
|
|
14,033
|
|
|
|
13,841
|
|
Gift card liability
|
|
|
5,742
|
|
|
|
5,426
|
|
Changes in contract balances with customers generally reflect differences in relative sales volume for the period presented. In addition, during 2019, the loyalty programs liability increased $27.8 million due to points and material rights accrued for purchases and decreased $26.0 million due to expirations and redemptions. During 2018, the loyalty programs liability increased $14.2 million due to purchases and $6.4 million due to the adoption of ASC Topic 606 and decreased $14.1 million due to expirations and redemptions.
4. EARNINGS (LOSS) 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 (loss) per common share attributable to Caleres, Inc. shareholders:
(in $ thousands, except per share amounts)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMERATOR
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
62,082
|
|
|
$
|
(5,481
|
)
|
|
$
|
87,231
|
|
Net loss (earnings) attributable to noncontrolling interests
|
|
|
737
|
|
|
|
40
|
|
|
|
(31
|
)
|
Net earnings (loss) attributable to Caleres, Inc.
|
|
$
|
62,819
|
|
|
$
|
(5,441
|
)
|
|
$
|
87,200
|
|
Net earnings allocated to participating securities
|
|
|
(1,988
|
)
|
|
|
—
|
|
|
|
(2,384
|
)
|
Net earnings (loss) attributable to Caleres, Inc. after allocation of earnings to participating securities
|
|
$
|
60,831
|
|
|
$
|
(5,441
|
)
|
|
$
|
84,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per common share attributable to Caleres, Inc. shareholders
|
|
|
39,796
|
|
|
|
41,756
|
|
|
|
41,801
|
|
Dilutive effect of share-based awards
|
|
|
57
|
|
|
|
—
|
|
|
|
179
|
|
Denominator for diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders
|
|
|
39,853
|
|
|
|
41,756
|
|
|
|
41,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Caleres, Inc. shareholders
|
|
$
|
1.53
|
|
|
$
|
(0.13
|
)
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders
|
|
$
|
1.53
|
|
|
$
|
(0.13
|
)
|
|
$
|
2.02
|
|
Options to purchase 16,667 shares of common stock in 2019 and 2017 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be antidilutive. There were no options to purchase shares excluded from the denominator in 2018. Due to the Company's net loss attributable to Caleres, Inc. in 2018, the denominator for diluted loss per common share attributed to Caleres, Inc. shareholders is the same as the denominator for basic loss per common share attributable to Caleres, Inc. shareholders.
The Company repurchased 1,704,240, 1,465,649 and 225,000 shares at a cost of $33.4 million, $43.8 million and $6.0 million during the years ended February 1, 2020, February 2, 2019 and February 3, 2018, respectively, under the 2011 and 2018 publicly announced share repurchase programs. The repurchase programs permit repurchases of up to 2.5 million shares in each program, as further discussed in Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
5. RESTRUCTURING AND OTHER INITIATIVES
Expense Containment Initiatives
During the fourth quarter of 2019, the Company announced expense containment initiatives, including a Voluntary Early Retirement Program ("VERP") and other restructuring actions. The total costs to implement these initiatives, which were recorded in the fourth quarter of 2019, were $15.0 million ($11.2 million on an after-tax basis, or $0.27 per diluted share). These costs included employee-related costs for severance, including health care benefits and enhanced pension benefits. Of the $15.0 million in charges, $12.3 million is presented as restructuring and other special charges, net and $2.7 million is reflected as other income, net in the consolidated statement of earnings (loss). Of the $12.3 million reflected as restructuring and other special charges, $5.0 million is reflected in the Brand Portfolio segment, $3.8 million is reflected within the Eliminations and Other category and $3.5 million is reflected in the Famous Footwear segment. The $2.7 million presented in other income within the Eliminations and Other category is a one-time pension settlement charge and special termination benefit costs associated with the VERP, as further discussed in Note 6 to the consolidated financial statements. As of February 1, 2020, restructuring reserves of $8.0 million were included in other accrued expenses on the consolidated balance sheets.
Acquisition and Integration-Related Costs
Vionic
On October 18, 2018, the Company acquired all of the outstanding equity interests of Vionic Group LLC and Vionic International LLC. The Company incurred acquisition and integration-related costs associated with the acquisition totaling $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) and $4.5 million ($3.3 million on an after-tax basis, or $0.08 per diluted share) during 2019 and 2018, respectively. Of the $1.9 million in charges in 2019 presented as restructuring and other special charges, net in the consolidated statements of earnings (loss), which were primarily for severance and professional fees, $1.8 million is reflected within the Eliminations and Other category and $0.1 million is reflected in the Brand Portfolio segment. All of the 2018 charges, which were primarily for professional fees, are reflected within the Eliminations and Other category. As of February 1, 2020 and February 2, 2019, restructuring reserves of $0.2 million and $0.5 million, respectively, were included in other accrued expenses on the consolidated balance sheets. Refer to further discussion of the acquisition in Note 2 to the consolidated financial statements.
Blowfish Malibu
On July 6, 2018, the Company acquired a controlling interest in Blowfish Malibu, as further discussed in Note 2 to the consolidated financial statements. The Company incurred acquisition and integration-related costs associated with the acquisition of Blowfish Malibu of $0.3 million ($0.3 million on an after-tax basis, or $0.01 per diluted share) during 2018, which are presented as restructuring and other special charges, net in the consolidated statements of earnings (loss) and reflected within the Eliminations and Other category. Restructuring reserves of $0.1 million, which were included in other accrued expenses on the consolidated balance sheets as of February 2, 2019, were settled during 2019.
Brand Exits
During 2019, the Company incurred costs of $3.5 million ($2.6 million on an after-tax basis, or $0.06 per diluted share) related to the decision to exit the Carlos brand and reposition the Via Spiga brand. Of these charges within the Brand Portfolio segment, $3.0 million relates to 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 (loss), while the remaining $0.5 million is for severance and other related costs and presented in restructuring and other special charges.
During 2018, the Company incurred costs of $2.4 million ($1.8 million on an after-tax basis, or $0.04 per diluted share) related to the decision to exit the Diane von Furstenberg ("DVF") and George Brown Bilt ("GBB") brands. Of these charges within the Brand Portfolio segment, $1.8 million 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 (loss), while the remaining $0.6 million is for severance and other related costs and presented in restructuring and other special charges.
Integration and Reorganization of Men's Brands
During 2018 and 2017, the Company incurred integration and reorganization costs related to the 2016 acquisition of Allen Edmonds, primarily for professional fees and severance, totaling $5.8 million ($4.3 million on an after-tax basis, or $0.10 per diluted share) and $4.0 million ($2.6 million on an after-tax basis, or $0.06 per diluted share), respectively, related to the men's business. These charges are presented in restructuring and other special charges in the consolidated statements of earnings (loss). Of the $5.8 million of costs in 2018, $5.4 million is included in the Brand Portfolio segment and $0.4 million is reflected within the Eliminations and Other category. Of the $4.0 million of the costs in 2017, $2.5 million is reflected within the Eliminations and Other category and $1.5 million is included in the Brand Portfolio segment. As of February 1, 2020 and February 2, 2019, restructuring reserves of $0.2 million and $1.7 million, respectively, were included in other accrued expenses on the consolidated balance sheets.
Logistics Transition
During the fourth quarter of 2018, the Company incurred costs of $4.5 million ($3.3 million on an after-tax basis, or $0.08 per diluted share) associated with the transition from a third-party operated warehouse in Chino, California to new company-operated Brand Portfolio warehouse facilities in California, as well as the transition of the Allen Edmonds distribution center in Port Washington, Wisconsin to the Company's existing retail distribution center in Lebanon, Tennessee. These charges are presented as restructuring and other special charges within the Brand Portfolio segment.
Retail Operations Restructuring
During 2018 and 2017, the Company incurred costs, primarily for severance expense, of $0.4 million ($0.3 million on an after-tax basis, or $0.01 per diluted share) and $0.9 million ($0.6 million on an after-tax basis, or $0.02 per diluted share), respectively, related to restructuring of its retail operations, which are presented in restructuring and other special charges in the consolidated statements of earnings (loss). All of the costs for 2018 are presented within the Famous Footwear segment. Of the $0.9 million in charges for 2017, $0.6 million is reflected within the Famous Footwear segment, $0.2 million is reflected within the Eliminations and Other category and $0.1 million is included in the Brand Portfolio segment.
6. RETIREMENT AND OTHER BENEFIT PLANS
The Company sponsors pension plans in both the United States and Canada. 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 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. During 2017, the Company announced changes to the domestic qualified pension plan that became effective in January 2019. Except for grandfathered employees and certain hourly associates in the Company's retail divisions, final average compensation, taxable covered compensation and credit service for purposes of determining accrued pension benefits were frozen as of December 31, 2018.
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 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 $20,000 for qualifying retired employees.
Benefit Obligations
The following table sets forth changes in benefit obligations, including all domestic and Canadian plans:
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Benefit obligation at beginning of year
|
|
$
|
342,192
|
|
|
$
|
356,469
|
|
|
$
|
1,461
|
|
|
$
|
1,594
|
|
Service cost
|
|
|
7,219
|
|
|
|
8,995
|
|
|
|
—
|
|
|
|
—
|
|
Interest cost
|
|
|
14,811
|
|
|
|
14,236
|
|
|
|
60
|
|
|
|
59
|
|
Plan participants’ contribution
|
|
|
9
|
|
|
|
10
|
|
|
|
6
|
|
|
|
6
|
|
Plan amendments
|
|
|
93
|
|
|
|
254
|
|
|
|
—
|
|
|
|
—
|
|
Actuarial loss (gain)
|
|
|
58,278
|
|
|
|
(21,541
|
)
|
|
|
(39
|
)
|
|
|
(22
|
)
|
Benefits paid
|
|
|
(14,399
|
)
|
|
|
(14,352
|
)
|
|
|
(117
|
)
|
|
|
(176
|
)
|
Settlements
|
|
|
(20,263
|
)
|
|
|
(3,656
|
)
|
|
|
—
|
|
|
|
—
|
|
Contractual termination benefits
|
|
|
482
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Curtailments
|
|
|
(90
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign exchange rate changes
|
|
|
(44
|
)
|
|
|
(230
|
)
|
|
|
—
|
|
|
|
—
|
|
Acquisitions
|
|
|
—
|
|
|
|
2,007
|
|
|
|
—
|
|
|
|
—
|
|
Benefit obligation at end of year
|
|
$
|
388,288
|
|
|
$
|
342,192
|
|
|
$
|
1,371
|
|
|
$
|
1,461
|
|
The accumulated benefit obligation for the United States pension plans was $379.9 million and $335.1 million as of February 1, 2020 and February 2, 2019, respectively. The accumulated benefit obligation for the Canadian pension plans was $4.3 million and $3.8 million as of February 1, 2020 and February 2, 2019, respectively.
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
Weighted–average assumptions used to determine benefit obligations, end of year
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Discount rate
|
|
|
3.25
|
%
|
|
|
4.35
|
%
|
|
|
3.25
|
%
|
|
|
4.35
|
%
|
Rate of compensation increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
As of February 1, 2020, the Company is using the PRI-2012 Bottom Quartile mortality table, projected using generational scale MP-2019, an updated base mortality table issued by the Society of Actuaries in 2019, grading to 0.75% by 2035, to estimate the plan liabilities. Actuarial gains, related to the change in mortality projection scales, reduced the projected benefit obligation by approximately $2.3 million as of February 1, 2020.
During the fourth quarter of 2019, in conjunction with the Company's expense containment initiatives, a Voluntary Early Retirement Program ("VERP") was offered to pension participants who met certain criteria. A lump sum option was also offered to certain former employees during the fourth quarter of 2019. The VERP and terminated vested lump sums resulted in $19.9 million of lump sum payments, and a settlement charge and curtailment that decreased the net periodic benefit income for 2019 by $2.7 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 2019 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 1, 2020 or February 2, 2019.
Assets of the Canadian pension plans, which total approximately $4.5 million at February 1, 2020, were invested 55% in equity funds, 42% in bond funds and 3% in money market funds. The Canadian pension plans did not include any Company stock as of February 1, 2020 or February 2, 2019.
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 15 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. Certain U.S. government securities are not traded on an exchange and are based on observable inputs that can be corroborated. Therefore, these investments are classified within Level 2 of the fair value hierarchy. Certain preferred securities were offered in a private placement. The fair value of these investments is based on unobservable prices and therefore, they are classified within Level 3 of the fair value hierarchy.
|
|
•
|
The alternative investment fund, with a fair value of $16.3 million and $13.2 million as of February 1, 2020 and February 2, 2019, respectively, is an investment in a pool of long-duration domestic investment grade assets. This investment is measured using net asset value per share, and therefore, is not classified within the fair value hierarchy.
|
|
•
|
The unallocated insurance contract is measured at net asset value per share, and therefore, is not classified within the fair value hierarchy.
|
The fair values of the Company’s pension plan assets at February 1, 2020 by asset category are as follows:
|
|
|
|
|
|
Fair Value Measurements at February 1, 2020
|
|
($ thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,588
|
|
|
$
|
31,588
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government securities
|
|
|
94,285
|
|
|
|
18,388
|
|
|
|
75,897
|
|
|
|
—
|
|
Mutual fund
|
|
|
32,551
|
|
|
|
32,551
|
|
|
|
—
|
|
|
|
—
|
|
Exchange-traded funds
|
|
|
71,505
|
|
|
|
71,505
|
|
|
|
—
|
|
|
|
—
|
|
Corporate stocks - common and partnerships
|
|
|
177,743
|
|
|
|
177,718
|
|
|
|
—
|
|
|
|
25
|
|
Preferred securities
|
|
|
852
|
|
|
|
—
|
|
|
|
—
|
|
|
|
852
|
|
S&P 500 Index options
|
|
|
3,252
|
|
|
|
3,252
|
|
|
|
—
|
|
|
|
—
|
|
Total investments in the fair value hierarchy
|
|
$
|
411,776
|
|
|
$
|
335,002
|
|
|
$
|
75,897
|
|
|
$
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investment fund
|
|
|
16,335
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unallocated insurance contract
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total investments measured at net asset value
|
|
|
16,410
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
428,186
|
|
|
$
|
335,002
|
|
|
$
|
75,897
|
|
|
$
|
877
|
|
The fair values of the Company’s pension plan assets at February 2, 2019 by asset category are as follows:
|
|
|
|
|
|
Fair Value Measurements at February 2, 2019
|
|
($ thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,312
|
|
|
$
|
17,312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government securities
|
|
|
87,455
|
|
|
|
14,155
|
|
|
|
73,300
|
|
|
|
—
|
|
Mutual fund
|
|
|
31,966
|
|
|
|
31,966
|
|
|
|
—
|
|
|
|
—
|
|
Real estate investment trusts
|
|
|
232
|
|
|
|
232
|
|
|
|
—
|
|
|
|
—
|
|
Exchange-traded funds
|
|
|
65,464
|
|
|
|
65,464
|
|
|
|
—
|
|
|
|
—
|
|
Corporate stocks - common
|
|
|
169,721
|
|
|
|
169,721
|
|
|
|
—
|
|
|
|
—
|
|
Preferred securities
|
|
|
639
|
|
|
|
404
|
|
|
|
—
|
|
|
|
235
|
|
S&P 500 Index options
|
|
|
(4,572
|
)
|
|
|
(4,572
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
368,217
|
|
|
$
|
294,682
|
|
|
$
|
73,300
|
|
|
$
|
235
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative investment fund
|
|
|
13,160
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unallocated insurance contract
|
|
|
73
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total investments measured at net asset value
|
|
|
13,233
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
381,450
|
|
|
$
|
294,682
|
|
|
$
|
73,300
|
|
|
$
|
235
|
|
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)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Fair value of plan assets at beginning of year
|
|
$
|
381,450
|
|
|
$
|
407,081
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
|
81,282
|
|
|
|
(13,677
|
)
|
|
|
—
|
|
|
|
—
|
|
Employer contributions
|
|
|
151
|
|
|
|
3,847
|
|
|
|
111
|
|
|
|
170
|
|
Plan participants’ contributions
|
|
|
9
|
|
|
|
10
|
|
|
|
6
|
|
|
|
6
|
|
Benefits paid
|
|
|
(14,399
|
)
|
|
|
(14,352
|
)
|
|
|
(117
|
)
|
|
|
(176
|
)
|
Settlements
|
|
|
(20,263
|
)
|
|
|
(3,656
|
)
|
|
|
—
|
|
|
|
—
|
|
Foreign exchange rate changes
|
|
|
(44
|
)
|
|
|
(243
|
)
|
|
|
—
|
|
|
|
—
|
|
Acquisitions
|
|
|
—
|
|
|
|
2,440
|
|
|
|
—
|
|
|
|
—
|
|
Fair value of plan assets at end of year
|
|
$
|
428,186
|
|
|
$
|
381,450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded Status
The over-funded status as of February 1, 2020 and February 2, 2019 for pension benefits was $39.9 million and $39.3 million, respectively. The under-funded status as of February 1, 2020 and February 2, 2019 for other postretirement benefits was $1.4 million and $1.5 million, respectively.
Amounts recognized in the consolidated balance sheets consist of:
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Prepaid pension costs (noncurrent assets)
|
|
$
|
50,660
|
|
|
$
|
47,826
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit liabilities (current liability)
|
|
|
(2,405
|
)
|
|
|
(1,663
|
)
|
|
|
(200
|
)
|
|
|
(242
|
)
|
Accrued benefit liabilities (noncurrent liability)
|
|
|
(8,361
|
)
|
|
|
(6,905
|
)
|
|
|
(1,171
|
)
|
|
|
(1,219
|
)
|
Net amount recognized at end of year
|
|
$
|
39,894
|
|
|
$
|
39,258
|
|
|
$
|
(1,371
|
)
|
|
$
|
(1,461
|
)
|
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)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
End of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
10,766
|
|
|
$
|
8,565
|
|
|
$
|
10,766
|
|
|
$
|
8,565
|
|
Accumulated benefit obligation
|
|
|
9,516
|
|
|
|
7,291
|
|
|
|
9,516
|
|
|
|
7,291
|
|
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 1, 2020 and February 2, 2019, and the expected amortization of the February 1, 2020 amounts as components of net periodic benefit income for fiscal year 2020, are as follows:
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Components of accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
33,771
|
|
|
$
|
34,879
|
|
|
$
|
(507
|
)
|
|
$
|
(558
|
)
|
Net prior service credit
|
|
|
(2,093
|
)
|
|
|
(3,266
|
)
|
|
|
—
|
|
|
|
—
|
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
31,678
|
|
|
$
|
31,613
|
|
|
$
|
(507
|
)
|
|
$
|
(558
|
)
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
($ thousands)
|
|
2020
|
|
|
2020
|
|
Expected amortization, net of tax:
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss (gain)
|
|
$
|
4,198
|
|
|
$
|
(110
|
)
|
Amortization of net prior service credit
|
|
|
(1,414
|
)
|
|
|
—
|
|
Expected amortization, net of tax
|
|
$
|
2,784
|
|
|
$
|
(110
|
)
|
Net Periodic Benefit Income
Net periodic benefit income for 2019, 2018 and 2017 for all domestic and Canadian plans included the following components:
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Service cost
|
|
$
|
7,219
|
|
|
$
|
8,995
|
|
|
$
|
9,705
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
|
14,811
|
|
|
|
14,236
|
|
|
|
14,948
|
|
|
|
60
|
|
|
|
59
|
|
|
|
68
|
|
Expected return on assets
|
|
|
(27,735
|
)
|
|
|
(29,091
|
)
|
|
|
(27,589
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
3,904
|
|
|
|
4,122
|
|
|
|
4,315
|
|
|
|
(107
|
)
|
|
|
(125
|
)
|
|
|
(145
|
)
|
Prior service credit
|
|
|
(1,486
|
)
|
|
|
(1,567
|
)
|
|
|
(1,780
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Settlement cost
|
|
|
2,236
|
|
|
|
324
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cost of contractual termination benefits
|
|
|
482
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Curtailments
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,165
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total net periodic benefit income
|
|
$
|
(569
|
)
|
|
$
|
(2,981
|
)
|
|
$
|
(2,566
|
)
|
|
$
|
(47
|
)
|
|
$
|
(66
|
)
|
|
$
|
(77
|
)
|
The non-service cost components of net periodic benefit income are included in other income, net in the consolidated statements of earnings (loss). Service cost is included in selling and administrative expenses.
Weighted-average assumptions used to determine net periodic benefit income:
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Discount rate
|
|
|
4.35
|
%
|
|
|
4.00
|
%
|
|
|
4.40
|
%
|
|
|
4.35
|
%
|
|
|
4.00
|
%
|
|
|
4.40
|
%
|
Rate of compensation increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected return on plan assets
|
|
|
7.75
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 expected contributions to plan trusts
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
92
|
|
|
$
|
—
|
|
2020 expected contributions to plan participants
|
|
|
|
—
|
|
|
|
2,444
|
|
|
|
2,444
|
|
|
|
203
|
|
2020 refund of assets (e.g. surplus) to employer
|
|
|
|
134
|
|
|
|
—
|
|
|
|
134
|
|
|
|
—
|
|
Expected Benefit Payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
$
|
14,885
|
|
|
$
|
2,443
|
|
|
$
|
17,328
|
|
|
$
|
203
|
|
2021
|
|
|
|
16,151
|
|
|
|
1,909
|
|
|
|
18,060
|
|
|
|
176
|
|
2022
|
|
|
|
15,100
|
|
|
|
1,576
|
|
|
|
16,676
|
|
|
|
151
|
|
2023
|
|
|
|
15,657
|
|
|
|
2,207
|
|
|
|
17,864
|
|
|
|
130
|
|
2024
|
|
|
|
16,219
|
|
|
|
261
|
|
|
|
16,480
|
|
|
|
110
|
|
2025-2029
|
|
|
|
90,117
|
|
|
|
2,097
|
|
|
|
92,214
|
|
|
|
333
|
|
Defined Contribution Plans
The Company’s domestic defined contribution 401(k) plan covers salaried and certain hourly employees. In January 2018, the Company announced certain changes to the Plan that became effective on January 1, 2019. Prior to these changes, the Company's contributions represented a partial matching of employee contributions, generally up to a maximum of 3.5% of the employee’s salary and bonus. Currently, for eligible salaried employees, the Company makes a core contribution of 1.5% and a matching contribution of up to 50% of the first 6% of the employees' contributions. In addition, the Company has the discretion to contribute up to an additional 2% profit-sharing benefit based on the Company’s performance. The Company’s expense for this plan was $5.4 million in 2019, $4.4 million in 2018, and $3.9 million in 2017.
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 $0.2 million in both 2019 and 2018, and $0.3 million in 2017.
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 $8.0 million and $7.3 million as of February 1, 2020 and February 2, 2019, respectively, are presented in employee compensation and benefits in the accompanying consolidated balance sheets. The assets held by the trust of $8.0 million as of February 1, 2020 and $7.3 million as of February 2, 2019 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 (loss).
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 $1.5 million as of February 1, 2020 and $2.4 million as of February 2, 2019 are based on 71,108 and 70,123 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 (loss).
7. 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 ("IRC"). Changes included, but were 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 Act includes the Global Intangibles Low-Taxed Income ("GILTI") provision, a new minimum tax on global intangible low-taxed income, the Base Erosion Anti-Avoidance ("BEAT"), a new tax for certain payments to foreign related parties and the Foreign-Derived Intangible Income ("FDII") provision, a tax incentive to earn income from the sale, lease or license of goods and services abroad. The Company has elected to account for the GILTI provision as a period cost in the year the taxes are incurred. During 2019 and 2018, the Company recorded an income tax provision of $0.7 million and $0.6 million, respectively, related to the GILTI, BEAT and FDII provisions of the Act.
The components of earnings (loss) before income taxes consisted of domestic earnings before income taxes of $37.3 million, $40.0 million and $78.2 million in 2019, 2018 and 2017, respectively. The Company's foreign earnings before incomes taxes were $41.3 million and $44.5 million in 2019 and 2017, respectively, and foreign loss before income taxes was $45.8 million in 2018, reflecting the impairment of the tradename and goodwill for the Allen Edmonds business.
The components of income tax provision (benefit) on earnings (loss) were as follows:
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
4,003
|
|
|
$
|
1,953
|
|
|
$
|
31,102
|
|
Deferred
|
|
|
5,390
|
|
|
|
4,451
|
|
|
|
(10,358
|
)
|
Total federal income tax provision (benefit)
|
|
|
9,393
|
|
|
|
6,404
|
|
|
|
20,744
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
290
|
|
|
|
(718
|
)
|
|
|
7,691
|
|
Deferred
|
|
|
2,403
|
|
|
|
1,284
|
|
|
|
913
|
|
Total state income tax provision (benefit)
|
|
|
2,693
|
|
|
|
566
|
|
|
|
8,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
4,425
|
|
|
|
(7,243
|
)
|
|
|
6,127
|
|
Total income tax provision (benefit)
|
|
$
|
16,511
|
|
|
$
|
(273
|
)
|
|
$
|
35,475
|
|
The differences between the income tax provision (benefit) reflected in the consolidated financial statements and the amounts calculated at the federal statutory income tax rate were as follows:
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income taxes at statutory rate (1)
|
|
$
|
16,505
|
|
|
$
|
(1,208
|
)
|
|
$
|
41,376
|
|
State income taxes, net of federal tax benefit
|
|
|
2,218
|
|
|
|
2,519
|
|
|
|
3,579
|
|
Foreign earnings taxed at lower rates
|
|
|
(3,199
|
)
|
|
|
(4,210
|
)
|
|
|
(8,072
|
)
|
Share-based compensation
|
|
|
86
|
|
|
|
(347
|
)
|
|
|
(1,265
|
)
|
Income tax reform, net benefit
|
|
|
—
|
|
|
|
(3,891
|
)
|
|
|
(294
|
)
|
GILTI, BEAT and FDII provisions
|
|
|
668
|
|
|
|
613
|
|
|
|
—
|
|
Non-deductibility of goodwill impairment
|
|
|
—
|
|
|
|
7,989
|
|
|
|
—
|
|
Impairment of foreign tradename taxed at higher rate
|
|
|
—
|
|
|
|
(2,400
|
)
|
|
|
—
|
|
Valuation allowance release on state loss carryforwards
|
|
|
—
|
|
|
|
—
|
|
|
|
(100
|
)
|
Non-deductibility of acquisition costs
|
|
|
—
|
|
|
|
46
|
|
|
|
—
|
|
Other
|
|
|
233
|
|
|
|
616
|
|
|
|
251
|
|
Total income tax provision (benefit)
|
|
$
|
16,511
|
|
|
$
|
(273
|
)
|
|
$
|
35,475
|
|
(1) The federal statutory tax rate was 21.0% in 2019 and 2018, and 33.7% in 2017.
|
|
In 2019, the Company's effective tax rate was impacted by discrete tax benefits totaling $1.4 million, primarily reflecting adjustments to changes in tax rates in state and other international jurisdictions. In 2018, the Company's effective tax rate was impacted by several factors, including the non-deductibility of our goodwill impairment charge of $38.0 million, as further discussed in Note 11 to the consolidated financial statements. In addition, discrete tax benefits totaling $5.9 million were recognized in 2018, primarily reflecting adjustments associated with the Act and related actions for state and other international jurisdictions (in aggregate, "income tax reform"). If the impairment charges had not been recognized in 2018 and the discrete tax benefits had not been recognized in 2019 and 2018, the Company's effective tax rates would have been 22.7% and 22.3%, respectively. The tax rates in 2019 and 2018 are lower than in prior periods due to the lower tax rates associated with income tax reform effective beginning in 2018.
The other category of income tax provision (benefit) 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. In 2019, the other category includes the effect of non-deductible expenses, net of the discrete benefits. In 2018, the other category includes a $2.1 million provision related to the 162(m) provisions related to the non-deductibility of certain executive compensation, partially offset by a $1.3 million benefit related to the Company's return-to-provision settlement for the 2017 tax year.
Significant components of the Company’s deferred income tax assets and liabilities were as follows:
($ thousands)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Employee benefits, compensation and insurance
|
|
$
|
12,812
|
|
|
$
|
14,599
|
|
Accrued expenses
|
|
|
18,762
|
|
|
|
14,936
|
|
Postretirement and postemployment benefit plans
|
|
|
314
|
|
|
|
327
|
|
Deferred rent
|
|
|
—
|
|
|
|
6,524
|
|
Lease obligations
|
|
|
200,408
|
|
|
|
—
|
|
Accounts receivable reserves
|
|
|
3,109
|
|
|
|
7,350
|
|
Net operating loss (“NOL”) carryforward/carryback
|
|
|
6,671
|
|
|
|
6,714
|
|
Capital loss carryforward
|
|
|
14
|
|
|
|
14
|
|
Inventory capitalization and inventory reserves
|
|
|
4,123
|
|
|
|
3,339
|
|
Impairment of investment in nonconsolidated affiliate
|
|
|
1,470
|
|
|
|
1,470
|
|
Other
|
|
|
1,349
|
|
|
|
1,831
|
|
Total deferred tax assets, before valuation allowance
|
|
|
249,032
|
|
|
|
57,104
|
|
Valuation allowance
|
|
|
(4,809
|
)
|
|
|
(4,199
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
$
|
244,223
|
|
|
$
|
52,905
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Lease right-of-use assets
|
|
$
|
(187,978
|
)
|
|
$
|
—
|
|
Retirement plans
|
|
|
(10,466
|
)
|
|
|
(10,212
|
)
|
LIFO inventory valuation
|
|
|
(44,774
|
)
|
|
|
(42,427
|
)
|
Capitalized software
|
|
|
(4,420
|
)
|
|
|
(3,879
|
)
|
Depreciation
|
|
|
(8,416
|
)
|
|
|
(10,662
|
)
|
Intangible assets
|
|
|
(29,636
|
)
|
|
|
(24,763
|
)
|
Other
|
|
|
(3,811
|
)
|
|
|
(1,115
|
)
|
Total deferred tax liabilities
|
|
|
(289,501
|
)
|
|
|
(93,058
|
)
|
Net deferred tax liability
|
|
$
|
(45,278
|
)
|
|
$
|
(40,153
|
)
|
As of February 1, 2020, the Company had various state and international net operating loss carryforwards totaling $6.7 million, with expiration dates between 2020 and 2039. The Company has recorded a valuation allowance of $3.3 million on these state and international net operating loss carryforwards. The remaining net operating loss will be carried forward to future tax years. The Company also has a valuation allowance of $1.5 million related to the impairment of an investment in a nonconsolidated affiliate in 2016.
As of February 1, 2020, 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 1, 2020, 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. As of February 1, 2020 and February 2, 2019, the Company had unrecognized tax benefits of $1.9 million and $2.5 million, respectively, associated with international jurisdictions.
For federal purposes, the Company’s tax years 2016 to 2018 (fiscal years ending January 28, 2017, February 3, 2018 and February 2, 2019) remain open to examination, but are not currently being examined. The Company also files tax returns in various foreign jurisdictions and numerous states for which various tax years are subject to examination and currently involved in audits. While the Company is involved in examinations in certain jurisdictions, it does not expect any significant changes in its liability for uncertain tax positions during the next 12 months.
8. BUSINESS SEGMENT INFORMATION
The Company's reportable segments are Famous Footwear and Brand Portfolio. The Famous Footwear segment is comprised of Famous Footwear, Famous.com and Famous.ca. Famous Footwear operated 949 stores at the end of 2019, primarily selling branded footwear for the entire family.
The Brand Portfolio segment is comprised of wholesale operations selling the Company's branded footwear, and the 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 141 branded retail stores in the United States, 79 branded retail stores in Canada, six branded retail stores in China, one branded retail store in Guam, and one branded retail store in Italy at the end of 2019. 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. Prior period information has been recast to conform to the current presentation.
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) represents gross profit, less selling and administrative expenses, impairment of goodwill and intangible assets 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 and intersegment earnings related to inventory on hand at the purchasing segment are eliminated against the earnings.
Corporate assets, administrative expenses and other costs and recoveries that are not allocated to the operating units, as well as the elimination of intersegment sales and profit, are reported in the Eliminations and Other category.
Following is a summary of certain key financial measures for the respective periods:
($ thousands)
|
|
Famous Footwear
|
|
|
Brand Portfolio
|
|
|
Eliminations and Other
|
|
|
Total
|
|
Fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales
|
|
$
|
1,588,057
|
|
|
$
|
1,406,460
|
|
|
$
|
(72,955
|
)
|
|
$
|
2,921,562
|
|
Intersegment sales
|
|
|
—
|
|
|
|
(72,955
|
)
|
|
|
—
|
|
|
|
(72,955
|
)
|
Depreciation and amortization
|
|
|
26,706
|
|
|
|
29,875
|
|
|
|
8,981
|
|
|
|
65,562
|
|
Operating earnings (loss)
|
|
|
76,896
|
|
|
|
58,153
|
|
|
|
(31,236
|
)
|
|
|
103,813
|
|
Segment assets
|
|
|
891,042
|
|
|
|
1,383,500
|
|
|
|
157,165
|
|
|
|
2,431,707
|
|
Purchases of property and equipment
|
|
|
16,129
|
|
|
|
21,973
|
|
|
|
6,431
|
|
|
|
44,533
|
|
Capitalized software
|
|
|
16
|
|
|
|
1,544
|
|
|
|
4,059
|
|
|
|
5,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales
|
|
$
|
1,606,808
|
|
|
$
|
1,313,551
|
|
|
$
|
(85,513
|
)
|
|
$
|
2,834,846
|
|
Intersegment sales
|
|
|
—
|
|
|
|
(85,513
|
)
|
|
|
—
|
|
|
|
85,513
|
|
Depreciation and amortization
|
|
|
28,816
|
|
|
|
20,768
|
|
|
|
13,113
|
|
|
|
62,697
|
|
Operating earnings (loss)
|
|
|
85,268
|
|
|
|
(40,799
|
)
|
|
|
(44,068
|
)
|
|
|
401
|
|
Segment assets
|
|
|
502,507
|
|
|
|
1,211,008
|
|
|
|
125,053
|
|
|
|
1,838,568
|
|
Purchases of property and equipment
|
|
|
17,552
|
|
|
|
41,993
|
|
|
|
2,938
|
|
|
|
62,483
|
|
Capitalized software
|
|
|
351
|
|
|
|
814
|
|
|
|
3,251
|
|
|
|
4,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales
|
|
$
|
1,637,627
|
|
|
$
|
1,233,081
|
|
|
$
|
(85,124
|
)
|
|
$
|
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
|
|
|
|
80,160
|
|
|
|
(44,707
|
)
|
|
|
127,683
|
|
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
|
|
Following is a reconciliation of operating earnings to (loss) earnings before income taxes:
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Operating earnings
|
|
$
|
103,813
|
|
|
$
|
401
|
|
|
$
|
127,683
|
|
Interest expense, net
|
|
|
(33,123
|
)
|
|
|
(18,277
|
)
|
|
|
(17,325
|
)
|
Loss on early extinguishment of debt
|
|
|
—
|
|
|
|
(186
|
)
|
|
|
—
|
|
Other income, net
|
|
|
7,903
|
|
|
|
12,308
|
|
|
|
12,348
|
|
Earnings (loss) before income taxes
|
|
$
|
78,593
|
|
|
$
|
(5,754
|
)
|
|
$
|
122,706
|
|
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 consist of wholesale and retail operations primarily in the Far East, Canada and Italy. The Far East operations primarily 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, including lease right-of-use assets and property and equipment, by geographic area were as follows:
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,734,912
|
|
|
$
|
2,656,928
|
|
|
$
|
2,603,725
|
|
Far East
|
|
|
98,045
|
|
|
|
93,883
|
|
|
|
98,287
|
|
Canada
|
|
|
80,247
|
|
|
|
63,354
|
|
|
|
75,764
|
|
Latin America and other
|
|
|
8,358
|
|
|
|
20,681
|
|
|
|
7,808
|
|
Total net sales
|
|
$
|
2,921,562
|
|
|
$
|
2,834,846
|
|
|
$
|
2,785,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
881,338
|
|
|
$
|
219,975
|
|
|
$
|
200,686
|
|
Canada
|
|
|
35,317
|
|
|
|
9,381
|
|
|
|
10,559
|
|
Far East
|
|
|
3,527
|
|
|
|
1,348
|
|
|
|
1,456
|
|
Other
|
|
|
258
|
|
|
|
80
|
|
|
|
98
|
|
Total long-lived assets
|
|
$
|
920,440
|
|
|
$
|
230,784
|
|
|
$
|
212,799
|
|
(1) Long-lived assets includes $695,594 of lease right-of-use assets in 2019, with no corresponding amounts in 2018 or 2017, as those periods precede the adoption of ASC 842.
9. INVENTORIES
The Company's net inventory balance was comprised of the following:
($ thousands)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Raw materials
|
|
$
|
18,455
|
|
|
$
|
19,128
|
|
Work-in-process
|
|
|
454
|
|
|
|
745
|
|
Finished goods
|
|
|
599,497
|
|
|
|
663,298
|
|
Inventories, net
|
|
$
|
618,406
|
|
|
$
|
683,171
|
|
As of February 1, 2020 and February 2, 2019, the Company's inventory balance included $2.5 million and $1.5 million, respectively, of product subject to a consignment arrangement with wholesale customers.
10. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
($ thousands)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Land and buildings
|
|
$
|
52,638
|
|
|
$
|
58,337
|
|
Leasehold improvements
|
|
|
241,209
|
|
|
|
233,604
|
|
Technology equipment
|
|
|
56,480
|
|
|
|
49,120
|
|
Machinery and equipment
|
|
|
98,715
|
|
|
|
69,628
|
|
Furniture and fixtures
|
|
|
140,233
|
|
|
|
134,259
|
|
Construction in progress
|
|
|
4,704
|
|
|
|
34,139
|
|
Property and equipment
|
|
|
593,979
|
|
|
|
579,087
|
|
Allowances for depreciation
|
|
|
(369,133
|
)
|
|
|
(348,303
|
)
|
Property and equipment, net
|
|
$
|
224,846
|
|
|
$
|
230,784
|
|
Useful lives of property and equipment are as follows:
|
|
Years
|
|
Buildings
|
|
|
5 - 30
|
|
Leasehold improvements
|
|
|
5 - 20
|
|
Technology equipment
|
|
|
2 - 7
|
|
Machinery and equipment
|
|
|
4 - 20
|
|
Furniture and fixtures
|
|
|
3 - 10
|
|
The Company recorded charges for impairment within selling and administrative expenses of $5.9 million, $3.7 million and $3.8 million in 2019, 2018 and 2017, respectively, primarily for operating lease right-of-use assets, 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. Refer to Note 15 to the consolidated financial statements for further discussion of these impairment charges.
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 $0.6 million and $0.2 million in 2019 and 2018, respectively, related to the new company-operated Brand Portfolio warehouse facilities in California, with no corresponding interest capitalized in 2017.
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets were as follows:
($ thousands)
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
Intangible Assets
|
|
|
|
|
|
|
|
|
Famous Footwear
|
|
$
|
2,800
|
|
|
$
|
2,800
|
|
Brand Portfolio
|
|
|
388,288
|
|
|
|
388,288
|
|
Total intangible assets
|
|
|
391,088
|
|
|
|
391,088
|
|
Accumulated amortization
|
|
|
(96,784
|
)
|
|
|
(83,722
|
)
|
Total intangible assets, net
|
|
|
294,304
|
|
|
|
307,366
|
|
Goodwill
|
|
|
|
|
|
|
|
|
Brand Portfolio
|
|
|
245,275
|
|
|
|
242,531
|
|
Total goodwill
|
|
|
245,275
|
|
|
|
242,531
|
|
Goodwill and intangible assets, net
|
|
$
|
539,579
|
|
|
$
|
549,897
|
|
As further described in Note 2 to the consolidated financial statements, the Company acquired Vionic on October 18, 2018. The allocation of the purchase price resulted in incremental intangible assets of $144.7 million, consisting of trademarks and customer relationships of $112.4 million and $32.3 million, respectively, and incremental goodwill of $151.3 million. The trademark is being amortized on a straight-line basis over its useful life of 20 years. The customer relationship intangible is being amortized on an accelerated basis over its estimated useful life of approximately 16 years. In addition, the Company acquired Blowfish Malibu on July 6, 2018. The allocation of the purchase price resulted in incremental intangible assets of $17.6 million, consisting of trademarks and customer relationships of $11.1 million and $6.5 million, respectively, and incremental goodwill of $5.0 million. The trademark is being amortized on a straight-line basis over its useful life of 20 years and the customer relationship intangible is being amortized on an accelerated basis over its estimated useful life of approximately 15 years.
The Company's intangible assets as of February 1, 2020 and February 2, 2019 were as follows:
($ thousands)
|
|
February 1, 2020
|
|
|
|
Estimated Useful Lives (In Years)
|
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
|
15 - 40
|
|
|
$
|
288,788
|
|
|
$
|
91,827
|
|
|
$
|
196,961
|
|
Trademarks
|
|
Indefinite
|
|
|
|
58,100
|
|
|
|
—
|
|
|
|
58,100
|
|
Customer relationships
|
|
|
15 - 16
|
|
|
|
44,200
|
|
|
|
4,957
|
|
|
|
39,243
|
|
|
|
|
|
|
|
$
|
391,088
|
|
|
$
|
96,784
|
|
|
$
|
294,304
|
|
|
|
|
|
|
|
February 2, 2019
|
|
|
|
Estimated Useful Lives (In Years)
|
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Impairment
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
|
15 - 40
|
|
|
$
|
288,788
|
|
|
$
|
81,961
|
|
|
$
|
—
|
|
|
$
|
206,827
|
|
Trademarks
|
|
Indefinite
|
|
|
|
118,100
|
|
|
|
—
|
|
|
|
60,000
|
|
|
|
58,100
|
|
Customer relationships
|
|
|
15 - 16
|
|
|
|
44,200
|
|
|
|
1,761
|
|
|
|
—
|
|
|
|
42,439
|
|
|
|
|
|
|
|
$
|
451,088
|
|
|
$
|
83,722
|
|
|
$
|
60,000
|
|
|
$
|
307,366
|
|
Amortization expense related to intangible assets was $13.1 million in 2019, $7.0 million in 2018 and $4.1 million in 2017. The Company estimates $12.8 million of amortization expense related to intangible assets in 2020, $12.7 million in 2021, $12.5 million in 2022, $12.2 million in 2023 and $11.4 million in 2024.
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 its annual goodwill impairment testing, the Company did not record any impairment charges during 2019 or 2017. The Company recorded $38.0 million in impairment charges during 2018 associated with the Allen Edmonds reporting unit, which were reflected within the Brand Portfolio segment.
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events or circumstances indicate an interim test is required. The indefinite-lived intangible asset impairment reviews resulted in no impairment charges in 2019 or 2017. The indefinite-lived intangible asset test performed as of the first day of the fourth quarter of 2018 resulted in $60.0 million in impairment charges associated with the Allen Edmonds trademark, which were reflected within the Brand Portfolio segment.
12. LONG-TERM AND SHORT-TERM FINANCING ARRANGEMENTS
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. On December 18, 2014, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement ("the Former 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 Former Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC. Allen Edmonds and Vionic were joined to the Agreement as guarantors on December 13, 2016 and October 31, 2018, respectively. After giving effect to the joinders, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic are each co-borrowers and guarantors under the Former Credit Agreement. On January 18, 2019, the Loan Parties entered into a Third Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") to extend the maturity date to January 18, 2024 and change the borrowing capacity under the Former Credit Agreement from an aggregate amount of up to $600.0 million to an aggregate amount of up to $500.0 million, with the option to increase by up to $250.0 million. The Credit Amendment also reduces upfront and unused borrowing fees, provides for less restrictive covenants and offers more flexibility.
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 the greater of 10.0% of the lesser of the Loan Cap and $40.0 million for three consecutive business days or an event of default occurs, the collateral agent 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 similar obligations, certain events of bankruptcy and insolvency, judgment defaults and the failure of any guaranty or security document supporting the agreement to be in full force and effect. In addition, if the excess availability falls below the greater of (i) 10.0% of the lesser of the Loan Cap and (ii) $40.0 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 1, 2020.
The maximum amount of borrowings under the Credit Agreement at the end of any month was $407.5 million and $350.0 million in 2019 and 2018, respectively. As discussed further in Note 2 to the consolidated financial statements, the Company utilized the Credit Agreement in October 2018 to fund the Vionic acquisition. The average daily borrowings during the year were $352.4 million and $103.2 million in 2019 and 2018, respectively, and the weighted-average interest rates approximated 4.1% and 3.9% in 2019 and 2018, respectively. At February 1, 2020, the Company had $275.0 million borrowings outstanding and $10.9 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $214.1 million at February 1, 2020.
$200 Million Senior Notes
On July 27, 2015, the Company issued $200.0 million aggregate principal amount of 6.25% Senior Notes due 2023 (the "Senior Notes"). The 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 Senior Notes is payable on February 15 and August 15 of each year. The Senior Notes will mature on August 15, 2023. The Company may redeem all or a part of the 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 Senior Notes indenture), if redeemed during the 12-month period beginning on August 15 of the years indicated below:
Year
|
|
Percentage
|
|
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 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 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 1, 2020, the Company was in compliance with all covenants and restrictions relating to the Senior Notes.
13. LEASES
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company's leases that are classified as operating leases have lease terms and renewal options as follows:
|
|
Lease Term (years)
|
|
Renewal Options
|
Retail stores
|
|
|
5 - 10
|
|
Approximately 42% have options of varying periods
|
Manufacturing facility
|
|
|
8
|
|
None
|
Office facilities and distribution centers
|
|
|
10 - 15
|
|
5 - 20 years
|
Equipment
|
|
|
1 - 6
|
|
None
|
As further discussed in Note 1 to the consolidated financial statements, during the first quarter of 2019, the Company adopted ASC 842 using the modified retrospective transition method. Prior period financial information in the consolidated financial statements has not been adjusted and is presented in compliance with ASC 840. The Company elected the package of practical expedients and the expedient to account for lease and non-lease components as a single component for the entire population of operating lease assets. The Company did not elect the hindsight practical expedient to reevaluate the lease term of existing contracts.
Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company's leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
The following is a summary of lease assets and liabilities on the consolidated balance sheet at February 1, 2020:
($ thousands)
|
|
February 1, 2020
|
|
Lease Classification
|
|
|
|
|
Lease right-of-use assets
|
|
$
|
695,594
|
|
Current lease obligations
|
|
|
(127,869
|
)
|
Noncurrent lease obligations
|
|
|
(629,032
|
)
|
Net balance sheet impact
|
|
$
|
(61,307
|
)
|
The weighted-average lease term and discount rate as of February 1, 2020 were as follows:
|
|
February 1, 2020
|
|
Weighted-average remaining lease term (in years)
|
|
|
7.2
|
|
Weighted-average discount rate
|
|
|
4.3
|
%
|
During 2019, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $164.0 million on the consolidated balance sheets. As of February 1, 2020, the Company has entered into lease commitments for eight retail locations for which the leases have not yet commenced. The Company anticipates that the leases for seven of the new retail locations will begin in the next fiscal year and one will begin in fiscal year 2021. Upon commencement, right-of-use assets and lease liabilities of approximately $9.6 million will be recorded on the consolidated balance sheets.
The components of lease expense for 2019 were as follows:
($ thousands)
|
|
2019
|
|
Operating lease expense
|
|
$
|
186,185
|
|
Variable lease expense
|
|
|
45,455
|
|
Short-term lease expense
|
|
|
3,339
|
|
Sublease income
|
|
|
(269
|
)
|
Total lease expense
|
|
$
|
234,710
|
|
The aggregate future annual lease obligations at February 1, 2020 were as follows:
($ thousands)
|
|
|
|
|
2020
|
|
$
|
156,877
|
|
2021
|
|
|
151,257
|
|
2022
|
|
|
124,369
|
|
2023
|
|
|
104,582
|
|
2024
|
|
|
85,249
|
|
Thereafter
|
|
|
270,434
|
|
Total minimum operating lease payments (1)
|
|
$
|
892,768
|
|
Less imputed interest
|
|
|
(135,867
|
)
|
Present value of lease obligations
|
|
$
|
756,901
|
|
(1) Minimum operating lease payments have not been reduced by minimum sublease rental income of $0.2 million due in the future under sublease agreements.
Supplemental cash flow information related to leases is as follows:
($ thousands)
|
|
2019
|
|
Cash paid for lease liabilities
|
|
$
|
196,033
|
|
Cash received from sublease income
|
|
|
269
|
|
As previously reported in the Company's Annual Report on Form 10-K for the year ended February 2, 2019, and in accordance with the guidance in ASC 840, a summary of rent expense for operating leases for 2018 and 2017 is as follows:
($ thousands)
|
|
2018
|
|
|
2017
|
|
Minimum rent
|
|
$
|
171,410
|
|
|
$
|
171,980
|
|
Contingent rent
|
|
|
671
|
|
|
|
513
|
|
Sublease income
|
|
|
(428
|
)
|
|
|
(1,705
|
)
|
Total
|
|
$
|
171,653
|
|
|
$
|
170,788
|
|
Also as previously reported in the Company's Annual Report on Form 10-K for the year ended February 2, 2019, in accordance with the guidance in ASC 840, future minimum lease payments under noncancelable operating leases with an initial term of one year or more at February 2, 2019 were as follows:
($ thousands)
|
|
|
|
|
2019
|
|
$
|
173,891
|
|
2020
|
|
|
151,157
|
|
2021
|
|
|
125,629
|
|
2022
|
|
|
102,488
|
|
2023
|
|
|
84,036
|
|
Thereafter
|
|
|
212,774
|
|
Total minimum operating lease payments (1)
|
|
$
|
849,975
|
|
(1) Minimum operating lease payments have not been reduced by minimum sublease rental income of $0.5 million due in the future under sublease agreements.
14. 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 64 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 May 2020. 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’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 loss ("OCL") and reclassified to earnings in the period that the hedged transaction is recognized in earnings.
As of February 1, 2020 and February 2, 2019, the Company had forward contracts maturing at various dates through May 2020 and January 2020, 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 1, 2020
|
|
|
February 2, 2019
|
|
Financial Instruments
|
|
|
|
|
|
|
|
|
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
|
|
$
|
3,963
|
|
|
$
|
15,196
|
|
Euro
|
|
|
1,251
|
|
|
|
13,383
|
|
Chinese yuan
|
|
|
2,355
|
|
|
|
4,507
|
|
New Taiwanese dollars
|
|
|
—
|
|
|
|
461
|
|
Other currencies
|
|
|
69
|
|
|
|
382
|
|
Total financial instruments
|
|
$
|
7,638
|
|
|
$
|
33,929
|
|
The classification and fair values of derivative instruments designated as hedging instruments included within the consolidated balance sheets as of February 1, 2020 and February 2, 2019 are as follows:
($ in thousands)
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Foreign exchange forwards contracts:
|
|
|
|
|
|
|
|
|
|
|
February 1, 2020
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
Other accrued expenses
|
|
$
|
103
|
|
February 2, 2019
|
Prepaid expenses and other current assets
|
|
$
|
159
|
|
Other accrued expenses
|
|
$
|
745
|
|
During 2019 and 2018, the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of earnings (loss) was as follows:
|
|
2019
|
|
|
2018
|
|
Foreign exchange forward contracts: Income Statement Classification Gains (Losses)- Realized
|
|
Gain (Loss) Recognized in OCI on Derivatives
|
|
|
Gain (Loss) Reclassified from Accumulated OCL into Earnings
|
|
|
Loss Recognized in OCI on Derivatives
|
|
|
Loss Reclassified from Accumulated OCL into Earnings
|
|
Net sales
|
|
$
|
16
|
|
|
$
|
9
|
|
|
$
|
(55
|
)
|
|
$
|
(6
|
)
|
Cost of goods sold
|
|
|
439
|
|
|
|
(38
|
)
|
|
|
(1,004
|
)
|
|
|
(58
|
)
|
Selling and administrative expenses
|
|
|
(68
|
)
|
|
|
(227
|
)
|
|
|
(822
|
)
|
|
|
(90
|
)
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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 15 to the consolidated financial statements.
15. 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. The Company also 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 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 (loss). 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, cash-equivalent restricted stock units (“RSUs”) of the Company were previously granted at no cost to non-employee directors. These cash-equivalent RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units and are settled in cash 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 cash-equivalent RSU payable 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). Additional information related to RSUs for non-employee directors is disclosed in Note 17 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 14 to the consolidated financial statements.
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the noncontrolling interest in conjunction with the acquisition of Blowfish Malibu in July 2018. The fair value of the mandatory purchase obligation is based on the earnings formula specified in the Purchase Agreement (Level 3). Accretion of the mandatory purchase obligation and any fair value adjustments are recorded as interest expense. The Company recorded accretion and fair value adjustments of $6.0 million during 2019. From the acquisition date of July 6, 2018 through February 2, 2019, an immaterial amount of accretion was recorded on the mandatory purchase obligation. The earnings projections and discount rate utilized in the initial estimate of the fair value of the mandatory purchase obligation required management judgment and are the assumptions to which the fair value calculation were the most sensitive. Refer to further discussion of the mandatory purchase obligation in Note 2 to the consolidated financial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at February 1, 2020 and February 2, 2019. The Company did not have any transfers between Level 1, Level 2 or Level 3 during 2019 or 2018.
|
|
|
|
|
|
Fair Value Measurements
|
|
($ thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
|
$
|
18,001
|
|
|
$
|
18,001
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
|
|
8,004
|
|
|
|
8,004
|
|
|
|
—
|
|
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
|
|
(8,004
|
)
|
|
|
(8,004
|
)
|
|
|
—
|
|
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
|
|
(1,536
|
)
|
|
|
(1,536
|
)
|
|
|
—
|
|
|
|
—
|
|
Restricted stock units for non-employee directors
|
|
|
(2,572
|
)
|
|
|
(2,572
|
)
|
|
|
—
|
|
|
|
—
|
|
Derivative financial instruments, net
|
|
|
(103
|
)
|
|
|
—
|
|
|
|
(103
|
)
|
|
|
—
|
|
Mandatory purchase obligation - Blowfish Malibu
|
|
|
(15,200
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 2, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
|
$
|
4,582
|
|
|
$
|
4,582
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
|
|
7,270
|
|
|
|
7,270
|
|
|
|
—
|
|
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
|
|
(7,270
|
)
|
|
|
(7,270
|
)
|
|
|
—
|
|
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
|
|
(2,364
|
)
|
|
|
(2,364
|
)
|
|
|
—
|
|
|
|
—
|
|
Restricted stock units for non-employee directors
|
|
|
(4,419
|
)
|
|
|
(4,419
|
)
|
|
|
—
|
|
|
|
—
|
|
Derivative financial instruments, net
|
|
|
(586
|
)
|
|
|
—
|
|
|
|
(586
|
)
|
|
|
—
|
|
Mandatory purchase obligation - Blowfish Malibu
|
|
|
(9,245
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,245
|
)
|
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 $780.2 million, $99.0 million and $112.5 million in 2019, 2018 and 2017, respectively, were assessed for indicators of impairment and written down to their fair value. This assessment resulted in the following impairment charges, primarily for operating lease right-of-use assets, leasehold improvements, and furniture and fixtures in the Company's retail stores, which were included in selling and administrative expenses for the respective periods. Adoption of ASC 842 has resulted in higher impairment charges for underperforming retail stores as a direct result of including the right-of-use asset in the asset group that is evaluated for impairment.
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Long-Lived Asset Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Famous Footwear
|
|
$
|
1,980
|
|
|
$
|
800
|
|
|
$
|
677
|
|
Brand Portfolio
|
|
|
3,887
|
|
|
|
2,865
|
|
|
|
3,098
|
|
Total long-lived asset impairment charges
|
|
$
|
5,867
|
|
|
$
|
3,665
|
|
|
$
|
3,775
|
|
The Company performed its annual impairment review 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 in 2019 or 2017. The Company recorded $60.0 million in impairment charges in 2018 related to the Allen Edmonds trademark, as further discussed in Note 11 to the consolidated financial statements.
During 2019, the Company performed its annual impairment test of goodwill by completing an assessment at the reporting unit level, which involved estimating the fair value of its reporting units using significant unobservable inputs (Level 3). The quantitative assessments performed in 2019 and 2017 resulted no impairment charges. The quantitative and qualitative assessments performed in 2018 resulted in impairment charges of $38.0 million. Refer to Note 1 and Note 11 to the consolidated financial statements for additional information related to the goodwill impairment tests.
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:
|
|
February 1, 2020
|
|
|
February 2, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
Carrying Value (1)
|
|
|
Fair Value
|
|
|
Carrying Value (1)
|
|
|
Fair Value
|
|
Borrowings under revolving credit agreement
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
|
$
|
335,000
|
|
|
$
|
335,000
|
|
Long-term debt
|
|
|
200,000
|
|
|
|
205,000
|
|
|
|
200,000
|
|
|
|
205,500
|
|
Total debt
|
|
$
|
475,000
|
|
|
$
|
480,000
|
|
|
$
|
535,000
|
|
|
$
|
540,500
|
|
(1)Excludes unamortized debt issuance costs and debt discount
The fair value of the borrowings under revolving credit agreement approximates its carrying value due to its short-term nature (Level 1). 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).
16. SHAREHOLDERS' EQUITY
Stock Repurchase Program
On August 25, 2011, December 14, 2018 and September 2, 2019, the Board of Directors approved stock repurchase programs (“2011 Program”, "2018 Program" and "2019 Program", respectively) authorizing the repurchase of the Company’s outstanding common stock of up to 2.5 million shares of the 2011 Program and 2018 Program and 5.0 million shares in the 2019 Program. The Company can use the repurchase programs to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase programs do not have an expiration date. Repurchases of common stock are limited under the Company’s debt agreements. In total, 2.5 million shares have been repurchased under the 2011 Program and there are no additional shares authorized to be repurchased. During 2019, the Company repurchased 1,704,240 shares under the 2018 Program and there are 553,611 shares remaining that are authorized to be repurchased as of February 1, 2020. There have been no shares repurchased under the 2019 Program.
Repurchases Related to Employee Share-based Awards
During 2019, 2018 and 2017, employees tendered 100,728, 145,357 and 141,713 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 2019, 2018 and 2017:
($ thousands)
|
|
Foreign Currency Translation
|
|
|
Pension and Other Postretirement Transactions (1)
|
|
|
Derivative Transactions (2)
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
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
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(1,173
|
)
|
|
|
(15,927
|
)
|
|
|
(1,497
|
)
|
|
|
(18,597
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
2,754
|
|
|
|
154
|
|
|
|
2,908
|
|
Tax benefit
|
|
|
—
|
|
|
|
(710
|
)
|
|
|
(32
|
)
|
|
|
(742
|
)
|
Net reclassifications
|
|
|
—
|
|
|
|
2,044
|
|
|
|
122
|
|
|
|
2,166
|
|
Other comprehensive income
|
|
|
(1,173
|
)
|
|
|
(13,883
|
)
|
|
|
(1,375
|
)
|
|
|
(16,431
|
)
|
Balance February 2, 2019
|
|
$
|
62
|
|
|
$
|
(31,055
|
)
|
|
$
|
(608
|
)
|
|
$
|
(31,601
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(642
|
)
|
|
|
(3,523
|
)
|
|
|
315
|
|
|
|
(3,850
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
—
|
|
|
|
4,590
|
|
|
|
256
|
|
|
|
4,846
|
|
Tax benefit
|
|
|
—
|
|
|
|
(1,183
|
)
|
|
|
(55
|
)
|
|
|
(1,238
|
)
|
Net reclassifications
|
|
|
—
|
|
|
|
3,407
|
|
|
|
201
|
|
|
|
3,608
|
|
Other comprehensive loss
|
|
|
(642
|
)
|
|
|
(116
|
)
|
|
|
516
|
|
|
|
(242
|
)
|
Balance February 1, 2020
|
|
$
|
(580
|
)
|
|
$
|
(31,171
|
)
|
|
$
|
(92
|
)
|
|
$
|
(31,843
|
)
|
(1) Amounts reclassified are included in other income, net. Refer to Note 6 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 and selling and administrative expenses. Refer to Note 14 and Note 15 to the consolidated financial statements for additional information related to derivative financial instruments.
|
17. 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 $10.2 million, $13.8 million and $11.3 million was recognized in 2019, 2018 and 2017, respectively, as a component of selling and administrative expenses. The following table details the share-based compensation expense by plan for 2019, 2018 and 2017:
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Expense for share-based compensation plans, net of forfeitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
$
|
9,597
|
|
|
$
|
10,925
|
|
|
$
|
7,657
|
|
Stock performance awards
|
|
|
(502
|
)
|
|
|
1,741
|
|
|
|
3,508
|
|
Restricted stock units
|
|
|
1,129
|
|
|
|
1,091
|
|
|
|
66
|
|
Stock options
|
|
|
22
|
|
|
|
48
|
|
|
|
67
|
|
Total share-based compensation expense
|
|
$
|
10,246
|
|
|
$
|
13,805
|
|
|
$
|
11,298
|
|
The Company issued 214,435, 350,522 and 293,470 shares of common stock in 2019, 2018 and 2017, 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 an excess tax provision of $0.1 million in 2019 related to restricted stock vestings and dividends, performance share award vestings and stock options exercised. Excess tax benefits of $0.3 million and $1.3 million were recognized in 2018 and 2017, respectively. The excess tax provision or benefit for the respective periods were recorded in income tax (provision) benefit.
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 2019, 2018 and 2017:
|
|
Number of Nonvested Restricted Shares
|
|
|
Weighted-Average Grant Date Fair Value
|
|
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
|
|
Granted
|
|
|
427,083
|
|
|
|
31.88
|
|
Vested
|
|
|
(291,061
|
)
|
|
|
28.18
|
|
Forfeited
|
|
|
(61,600
|
)
|
|
|
28.77
|
|
Nonvested at February 2, 2019
|
|
|
1,249,223
|
|
|
|
29.17
|
|
Granted
|
|
|
463,234
|
|
|
|
22.93
|
|
Vested
|
|
|
(222,562
|
)
|
|
|
30.26
|
|
Forfeited
|
|
|
(218,100
|
)
|
|
|
28.83
|
|
Nonvested at February 1, 2020
|
|
|
1,271,795
|
|
|
$
|
26.77
|
|
Of the 463,234 restricted shares granted during 2019, 12,914 shares have a cliff-vesting term of one year and 450,320 shares have a graded-vesting term of three years. Of the 427,083 restricted shares granted during 2018, 3,642 shares have a cliff-vesting term of one year, 413,941 shares have a graded-vesting term of three years, and 9,500 shares have a cliff-vesting term of four years. 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.
The total grant date fair value of restricted stock awards vested during the years ended February 1, 2020, February 2, 2019 and February 3, 2018, was $6.7 million, $8.2 million and $4.7 million, respectively. As of February 1, 2020, the total remaining unrecognized compensation cost related to nonvested restricted stock grants was $11.1 million, which will be amortized over the weighted-average remaining requisite service period of 1.4 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 following table summarizes performance share award activity for 2019, 2018 and 2017:
|
|
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 28, 2017
|
|
|
402,499
|
|
|
|
804,998
|
|
|
|
28.36
|
|
Granted
|
|
|
169,500
|
|
|
|
339,000
|
|
|
|
26.90
|
|
Vested
|
|
|
(160,372
|
)
|
|
|
(320,744
|
)
|
|
|
29.16
|
|
Forfeited
|
|
|
(12,000
|
)
|
|
|
(24,000
|
)
|
|
|
27.46
|
|
Nonvested at February 3, 2018
|
|
|
399,627
|
|
|
|
799,254
|
|
|
|
27.45
|
|
Granted
|
|
|
155,000
|
|
|
|
310,000
|
|
|
|
31.84
|
|
Vested
|
|
|
(80,627
|
)
|
|
|
(161,254
|
)
|
|
|
30.12
|
|
Forfeited
|
|
|
(16,167
|
)
|
|
|
(32,334
|
)
|
|
|
26.83
|
|
Nonvested at February 2, 2019
|
|
|
457,833
|
|
|
|
915,666
|
|
|
|
28.49
|
|
Granted
|
|
|
180,000
|
|
|
|
360,000
|
|
|
|
23.42
|
|
Vested
|
|
|
(149,833
|
)
|
|
|
(299,666
|
)
|
|
|
26.64
|
|
Forfeited
|
|
|
(12,000
|
)
|
|
|
(24,000
|
)
|
|
|
28.33
|
|
Nonvested at February 1, 2020
|
|
|
476,000
|
|
|
|
952,000
|
|
|
$
|
27.16
|
|
As of February 1, 2020, there is an immaterial amount of remaining unrecognized compensation cost related to nonvested performance share awards.
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 no stock options during 2019, 2018 and 2017.
The following table summarizes stock option activity for 2019:
|
|
Number of Options
|
|
|
Weighted-Average Exercise Price
|
|
Outstanding at February 2, 2019
|
|
|
42,667
|
|
|
$
|
18.01
|
|
Exercised
|
|
|
(5,000
|
)
|
|
|
9.63
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Canceled or expired
|
|
|
(2,000
|
)
|
|
|
8.85
|
|
Outstanding at February 1, 2020
|
|
|
35,667
|
|
|
$
|
19.70
|
|
Exercisable at February 1, 2020
|
|
|
27,333
|
|
|
$
|
16.81
|
|
As of February 1, 2020, there are 8,334 of nonvested options with a weighted-average grant date fair value of $12.81 per share.
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. The RSUs payable in cash are 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 (loss). 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 6 and Note 15 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 1, 2020:
|
|
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
|
|
February 2, 2019
|
|
|
381,479
|
|
|
|
38,578
|
|
|
|
420,057
|
|
|
|
407,198
|
|
|
$
|
28.70
|
|
Granted (3)
|
|
|
4,686
|
|
|
|
71,815
|
|
|
|
76,501
|
|
|
|
52,825
|
|
|
|
19.39
|
|
Vested
|
|
|
33,566
|
|
|
|
(33,566
|
)
|
|
|
—
|
|
|
|
10,926
|
|
|
|
34.05
|
|
Settled
|
|
|
(4,574
|
)
|
|
|
—
|
|
|
|
(4,574
|
)
|
|
|
(4,574
|
)
|
|
|
19.02
|
|
February 1, 2020
|
|
|
415,157
|
|
|
|
76,827
|
|
|
|
491,984
|
|
|
|
466,375
|
|
|
$
|
17.66
|
|
(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 1, 2020 includes 272,836 RSUs payable in shares and 219,148 RSUs payable in cash.
|
(3)
|
Granted RSUs include 5,474 RSUs resulting from dividend equivalents paid on outstanding RSUs, of which 4,686 related to outstanding vested RSUs and 788 to outstanding nonvested RSUs.
|
The following table summarizes RSUs granted, vested and settled during 2019, 2018 and 2017:
($ thousands, except per unit amounts)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Weighted-average grant date fair value of RSUs granted (1)
|
|
$
|
19.59
|
|
|
$
|
34.23
|
|
|
$
|
27.93
|
|
Fair value of RSUs vested
|
|
$
|
589
|
|
|
$
|
1,340
|
|
|
$
|
1,349
|
|
RSUs settled
|
|
|
4,574
|
|
|
|
5,914
|
|
|
|
10,356
|
|
(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 2019, 2018 and 2017:
($ thousands)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Compensation (income) expense
|
|
$
|
(1,756
|
)
|
|
$
|
287
|
|
|
$
|
1,645
|
|
Income tax provision (benefit)
|
|
|
452
|
|
|
|
(74
|
)
|
|
|
(620
|
)
|
Compensation (income) expense, net of income tax provision (benefit)
|
|
$
|
(1,304
|
)
|
|
$
|
213
|
|
|
$
|
1,025
|
|
The aggregate fair value of RSUs outstanding and currently vested at February 1, 2020 is $8.6 million and $7.3 million, respectively. The liabilities associated with the accrued RSUs totaled $2.6 million and $4.4 million as of February 1, 2020 and February 2, 2019, respectively.
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. During the fourth quarter of 2019, a final response was received from the oversight authorities, which will allow the Company to move forward with implementation of the revised plan.
The cumulative expenditures for both on-site and off-site remediation through February 1, 2020 were $31.2 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 1, 2020 is $9.6 million, of which $8.8 million is recorded within other liabilities and $0.8 million is recorded within other accrued expenses. Of the total $9.6 million reserve, $5.0 million is for off-site remediation and $4.6 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 $13.8 million as of February 1, 2020. The Company expects to spend approximately $0.5 million in the next year, $0.1 million in each of the following four years and $12.9 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 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 12 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 and on October 31, 2018, Vionic was joined to the Credit Agreement as a guarantor. After giving effect to the joinders, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic 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 1, 2020
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,219
|
|
|
$
|
3,878
|
|
|
$
|
22,121
|
|
|
$
|
—
|
|
|
$
|
45,218
|
|
Receivables, net
|
|
|
100,997
|
|
|
|
32,168
|
|
|
|
29,016
|
|
|
|
—
|
|
|
|
162,181
|
|
Inventories, net
|
|
|
142,370
|
|
|
|
435,794
|
|
|
|
40,242
|
|
|
|
—
|
|
|
|
618,406
|
|
Prepaid expenses and other current assets
|
|
|
35,576
|
|
|
|
13,603
|
|
|
|
7,315
|
|
|
|
—
|
|
|
|
56,494
|
|
Intercompany receivable - current
|
|
|
260
|
|
|
|
30
|
|
|
|
9,072
|
|
|
|
(9,362
|
)
|
|
|
—
|
|
Total current assets
|
|
|
298,422
|
|
|
|
485,473
|
|
|
|
107,766
|
|
|
|
(9,362
|
)
|
|
|
882,299
|
|
Property and equipment, net
|
|
|
76,587
|
|
|
|
138,461
|
|
|
|
9,798
|
|
|
|
—
|
|
|
|
224,846
|
|
Goodwill and intangible assets, net
|
|
|
106,660
|
|
|
|
326,565
|
|
|
|
106,354
|
|
|
|
—
|
|
|
|
539,579
|
|
Other assets
|
|
|
77,444
|
|
|
|
10,953
|
|
|
|
992
|
|
|
|
—
|
|
|
|
89,389
|
|
Lease right-of-use assets
|
|
|
137,374
|
|
|
|
528,393
|
|
|
|
29,827
|
|
|
|
—
|
|
|
|
695,594
|
|
Investment in subsidiaries
|
|
|
1,572,577
|
|
|
|
—
|
|
|
|
(26,123
|
)
|
|
|
(1,546,454
|
)
|
|
|
—
|
|
Intercompany receivable - noncurrent
|
|
|
606,648
|
|
|
|
663,640
|
|
|
|
809,060
|
|
|
|
(2,079,348
|
)
|
|
|
—
|
|
Total assets
|
|
$
|
2,875,712
|
|
|
$
|
2,153,485
|
|
|
$
|
1,037,674
|
|
|
$
|
(3,635,164
|
)
|
|
$
|
2,431,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
$
|
275,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
275,000
|
|
Trade accounts payable
|
|
|
113,484
|
|
|
|
112,108
|
|
|
|
41,426
|
|
|
|
—
|
|
|
|
267,018
|
|
Lease obligations
|
|
|
4,679
|
|
|
|
116,738
|
|
|
|
6,452
|
|
|
|
—
|
|
|
|
127,869
|
|
Other accrued expenses
|
|
|
86,661
|
|
|
|
73,122
|
|
|
|
21,280
|
|
|
|
—
|
|
|
|
181,063
|
|
Intercompany payable - current
|
|
|
5,349
|
|
|
|
—
|
|
|
|
4,013
|
|
|
|
(9,362
|
)
|
|
|
—
|
|
Total current liabilities
|
|
|
485,173
|
|
|
|
301,968
|
|
|
|
73,171
|
|
|
|
(9,362
|
)
|
|
|
850,950
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent lease obligations
|
|
|
145,845
|
|
|
|
454,343
|
|
|
|
28,844
|
|
|
|
—
|
|
|
|
629,032
|
|
Long-term debt
|
|
|
198,391
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
198,391
|
|
Other liabilities
|
|
|
101,386
|
|
|
|
1,878
|
|
|
|
940
|
|
|
|
—
|
|
|
|
104,204
|
|
Intercompany payable - noncurrent
|
|
|
1,298,967
|
|
|
|
115,005
|
|
|
|
665,376
|
|
|
|
(2,079,348
|
)
|
|
|
—
|
|
Total other liabilities
|
|
|
1,744,589
|
|
|
|
571,226
|
|
|
|
695,160
|
|
|
|
(2,079,348
|
)
|
|
|
931,627
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
|
|
645,950
|
|
|
|
1,280,291
|
|
|
|
266,163
|
|
|
|
(1,546,454
|
)
|
|
|
645,950
|
|
Noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
3,180
|
|
|
|
—
|
|
|
|
3,180
|
|
Total equity
|
|
|
645,950
|
|
|
|
1,280,291
|
|
|
|
269,343
|
|
|
|
(1,546,454
|
)
|
|
|
649,130
|
|
Total liabilities and equity
|
|
$
|
2,875,712
|
|
|
$
|
2,153,485
|
|
|
$
|
1,037,674
|
|
|
$
|
(3,635,164
|
)
|
|
$
|
2,431,707
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
FOR THE FISCAL YEAR ENDED February 1, 2020
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
823,620
|
|
|
$
|
2,072,226
|
|
|
$
|
264,815
|
|
|
$
|
(239,099
|
)
|
|
$
|
2,921,562
|
|
Cost of goods sold
|
|
|
570,273
|
|
|
|
1,226,445
|
|
|
|
141,226
|
|
|
|
(200,742
|
)
|
|
|
1,737,202
|
|
Gross profit
|
|
|
253,347
|
|
|
|
845,781
|
|
|
|
123,589
|
|
|
|
(38,357
|
)
|
|
|
1,184,360
|
|
Selling and administrative expenses
|
|
|
239,973
|
|
|
|
794,046
|
|
|
|
70,098
|
|
|
|
(38,357
|
)
|
|
|
1,065,760
|
|
Restructuring and other special charges, net
|
|
|
11,270
|
|
|
|
3,517
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,787
|
|
Operating earnings
|
|
|
2,104
|
|
|
|
48,218
|
|
|
|
53,491
|
|
|
|
—
|
|
|
|
103,813
|
|
Interest (expense) income
|
|
|
(33,126
|
)
|
|
|
(104
|
)
|
|
|
107
|
|
|
|
—
|
|
|
|
(33,123
|
)
|
Other income (expense)
|
|
|
7,934
|
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
7,903
|
|
Intercompany interest income (expense)
|
|
|
10,799
|
|
|
|
(10,891
|
)
|
|
|
92
|
|
|
|
—
|
|
|
|
—
|
|
(Loss) earnings before income taxes
|
|
|
(12,289
|
)
|
|
|
37,223
|
|
|
|
53,659
|
|
|
|
—
|
|
|
|
78,593
|
|
Income tax benefit (provision)
|
|
|
1,029
|
|
|
|
(9,476
|
)
|
|
|
(8,064
|
)
|
|
|
—
|
|
|
|
(16,511
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
|
|
74,079
|
|
|
|
—
|
|
|
|
(1,283
|
)
|
|
|
(72,796
|
)
|
|
|
—
|
|
Net earnings
|
|
|
62,819
|
|
|
|
27,747
|
|
|
|
44,312
|
|
|
|
(72,796
|
)
|
|
|
62,082
|
|
Less: Net loss attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(737
|
)
|
|
|
—
|
|
|
|
(737
|
)
|
Net earnings attributable to Caleres, Inc.
|
|
$
|
62,819
|
|
|
$
|
27,747
|
|
|
$
|
45,049
|
|
|
$
|
(72,796
|
)
|
|
$
|
62,819
|
|
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE FISCAL YEAR ENDED February 1, 2020
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net earnings
|
|
$
|
62,819
|
|
|
$
|
27,747
|
|
|
$
|
44,312
|
|
|
$
|
(72,796
|
)
|
|
$
|
62,082
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(607
|
)
|
|
|
—
|
|
|
|
(607
|
)
|
Pension and other postretirement benefits adjustments
|
|
|
76
|
|
|
|
(131
|
)
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
(116
|
)
|
Derivative financial instruments
|
|
|
588
|
|
|
|
7
|
|
|
|
(79
|
)
|
|
|
—
|
|
|
|
516
|
|
Other comprehensive loss from investment in subsidiaries
|
|
|
(906
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
906
|
|
|
|
—
|
|
Other comprehensive loss, net of tax
|
|
|
(242
|
)
|
|
|
(124
|
)
|
|
|
(747
|
)
|
|
|
906
|
|
|
|
(207
|
)
|
Comprehensive income
|
|
|
62,577
|
|
|
|
27,623
|
|
|
|
43,565
|
|
|
|
(71,890
|
)
|
|
|
61,875
|
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(702
|
)
|
|
|
—
|
|
|
|
(702
|
)
|
Comprehensive income attributable to Caleres, Inc.
|
|
$
|
62,577
|
|
|
$
|
27,623
|
|
|
$
|
44,267
|
|
|
$
|
(71,890
|
)
|
|
$
|
62,577
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE FISCAL YEAR ENDED February 1, 2020
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net cash provided by operating activities
|
|
$
|
26,546
|
|
|
$
|
90,612
|
|
|
$
|
53,628
|
|
|
$
|
—
|
|
|
$
|
170,786
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(23,695
|
)
|
|
|
(18,336
|
)
|
|
|
(2,502
|
)
|
|
|
—
|
|
|
|
(44,533
|
)
|
Disposals of property and equipment
|
|
|
636
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
636
|
|
Capitalized software
|
|
|
(5,363
|
)
|
|
|
(256
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,619
|
)
|
Intercompany investing
|
|
|
(421
|
)
|
|
|
421
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net cash used for investing activities
|
|
|
(28,843
|
)
|
|
|
(18,171
|
)
|
|
|
(2,502
|
)
|
|
|
—
|
|
|
|
(49,516
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
|
288,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
288,500
|
|
Repayments under revolving credit agreement
|
|
|
(348,500
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(348,500
|
)
|
Dividends paid
|
|
|
(11,422
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,422
|
)
|
Acquisition of treasury stock
|
|
|
(33,424
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(33,424
|
)
|
Issuance of common stock under share-based plans, net
|
|
|
(2,644
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,644
|
)
|
Contributions by noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
2,500
|
|
|
|
—
|
|
|
|
2,500
|
|
Other
|
|
|
(85
|
)
|
|
|
(1,257
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,342
|
)
|
Intercompany financing
|
|
|
129,089
|
|
|
|
(76,454
|
)
|
|
|
(52,635
|
)
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by (used for) financing activities
|
|
|
21,514
|
|
|
|
(77,711
|
)
|
|
|
(50,135
|
)
|
|
|
—
|
|
|
|
(106,332
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
80
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
19,217
|
|
|
|
(5,270
|
)
|
|
|
1,071
|
|
|
|
—
|
|
|
|
15,018
|
|
Cash and cash equivalents at beginning of year
|
|
$
|
2
|
|
|
$
|
9,148
|
|
|
$
|
21,050
|
|
|
$
|
—
|
|
|
|
30,200
|
|
Cash and cash equivalents at end of year
|
|
$
|
19,219
|
|
|
$
|
3,878
|
|
|
$
|
22,121
|
|
|
$
|
—
|
|
|
$
|
45,218
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
AS OF February 2, 2019
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non- Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2
|
|
|
$
|
9,148
|
|
|
$
|
21,050
|
|
|
$
|
—
|
|
|
$
|
30,200
|
|
Receivables, net
|
|
|
130,684
|
|
|
|
32,319
|
|
|
|
28,719
|
|
|
|
—
|
|
|
|
191,722
|
|
Inventories, net
|
|
|
175,697
|
|
|
|
470,610
|
|
|
|
36,864
|
|
|
|
—
|
|
|
|
683,171
|
|
Prepaid expenses and other current assets
|
|
|
31,195
|
|
|
|
32,556
|
|
|
|
7,603
|
|
|
|
—
|
|
|
|
71,354
|
|
Intercompany receivable - current
|
|
|
190
|
|
|
|
42
|
|
|
|
15,279
|
|
|
|
(15,511
|
)
|
|
|
—
|
|
Total current assets
|
|
|
337,768
|
|
|
|
544,675
|
|
|
|
109,515
|
|
|
|
(15,511
|
)
|
|
|
976,447
|
|
Property and equipment, net
|
|
|
62,608
|
|
|
|
157,270
|
|
|
|
10,906
|
|
|
|
—
|
|
|
|
230,784
|
|
Goodwill and intangible assets, net
|
|
|
108,884
|
|
|
|
331,810
|
|
|
|
109,203
|
|
|
|
—
|
|
|
|
549,897
|
|
Other assets
|
|
|
68,707
|
|
|
|
11,824
|
|
|
|
909
|
|
|
|
—
|
|
|
|
81,440
|
|
Investment in subsidiaries
|
|
|
1,499,209
|
|
|
|
—
|
|
|
|
(24,838
|
)
|
|
|
(1,474,371
|
)
|
|
|
—
|
|
Intercompany receivable - noncurrent
|
|
|
597,515
|
|
|
|
578,821
|
|
|
|
762,281
|
|
|
|
(1,938,617
|
)
|
|
|
—
|
|
Total assets
|
|
$
|
2,674,691
|
|
|
$
|
1,624,400
|
|
|
$
|
967,976
|
|
|
$
|
(3,428,499
|
)
|
|
$
|
1,838,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
$
|
335,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
335,000
|
|
Trade accounts payable
|
|
|
146,400
|
|
|
|
130,670
|
|
|
|
39,228
|
|
|
|
—
|
|
|
|
316,298
|
|
Other accrued expenses
|
|
|
95,498
|
|
|
|
86,015
|
|
|
|
20,525
|
|
|
|
—
|
|
|
|
202,038
|
|
Intercompany payable - current
|
|
|
10,781
|
|
|
|
—
|
|
|
|
4,730
|
|
|
|
(15,511
|
)
|
|
|
—
|
|
Total current liabilities
|
|
|
587,679
|
|
|
|
216,685
|
|
|
|
64,483
|
|
|
|
(15,511
|
)
|
|
|
853,336
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
197,932
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
197,932
|
|
Other liabilities
|
|
|
105,689
|
|
|
|
41,149
|
|
|
|
5,027
|
|
|
|
—
|
|
|
|
151,865
|
|
Intercompany payable - noncurrent
|
|
|
1,149,338
|
|
|
|
115,114
|
|
|
|
674,165
|
|
|
|
(1,938,617
|
)
|
|
|
—
|
|
Total other liabilities
|
|
|
1,452,959
|
|
|
|
156,263
|
|
|
|
679,192
|
|
|
|
(1,938,617
|
)
|
|
|
349,797
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
|
|
634,053
|
|
|
|
1,251,452
|
|
|
|
222,919
|
|
|
|
(1,474,371
|
)
|
|
|
634,053
|
|
Noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
1,382
|
|
|
|
—
|
|
|
|
1,382
|
|
Total equity
|
|
|
634,053
|
|
|
|
1,251,452
|
|
|
|
224,301
|
|
|
|
(1,474,371
|
)
|
|
|
635,435
|
|
Total liabilities and equity
|
|
$
|
2,674,691
|
|
|
$
|
1,624,400
|
|
|
$
|
967,976
|
|
|
$
|
(3,428,499
|
)
|
|
$
|
1,838,568
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
FOR THE FISCAL YEAR ENDED February 2, 2019
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
888,234
|
|
|
$
|
1,975,219
|
|
|
$
|
237,607
|
|
|
$
|
(266,214
|
)
|
|
$
|
2,834,846
|
|
Cost of goods sold
|
|
|
619,120
|
|
|
|
1,157,558
|
|
|
|
124,037
|
|
|
|
(222,213
|
)
|
|
|
1,678,502
|
|
Gross profit
|
|
|
269,114
|
|
|
|
817,661
|
|
|
|
113,570
|
|
|
|
(44,001
|
)
|
|
|
1,156,344
|
|
Selling and administrative expenses
|
|
|
267,584
|
|
|
|
760,754
|
|
|
|
57,428
|
|
|
|
(44,001
|
)
|
|
|
1,041,765
|
|
Impairment of goodwill and intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
98,044
|
|
|
|
—
|
|
|
|
98,044
|
|
Restructuring and other special charges, net
|
|
|
9,734
|
|
|
|
6,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,134
|
|
Operating (loss) earnings
|
|
|
(8,204
|
)
|
|
|
50,507
|
|
|
|
(41,902
|
)
|
|
|
—
|
|
|
|
401
|
|
Interest (expense) income
|
|
|
(19,048
|
)
|
|
|
(25
|
)
|
|
|
796
|
|
|
|
—
|
|
|
|
(18,277
|
)
|
Loss on early extinguishment of debt
|
|
|
(186
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(186
|
)
|
Other income (expense)
|
|
|
12,408
|
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
12,308
|
|
Intercompany interest income (expense)
|
|
|
11,436
|
|
|
|
(11,494
|
)
|
|
|
58
|
|
|
|
—
|
|
|
|
—
|
|
(Loss) earnings before income taxes
|
|
|
(3,594
|
)
|
|
|
38,988
|
|
|
|
(41,148
|
)
|
|
|
—
|
|
|
|
(5,754
|
)
|
Income tax benefit (provision)
|
|
|
1,687
|
|
|
|
(7,719
|
)
|
|
|
6,305
|
|
|
|
—
|
|
|
|
273
|
|
Equity in loss of subsidiaries, net of tax
|
|
|
(3,534
|
)
|
|
|
—
|
|
|
|
(1,275
|
)
|
|
|
4,809
|
|
|
|
—
|
|
Net (loss) earnings
|
|
|
(5,441
|
)
|
|
|
31,269
|
|
|
|
(36,118
|
)
|
|
|
4,809
|
|
|
|
(5,481
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
(40
|
)
|
Net (loss) earnings attributable to Caleres, Inc.
|
|
$
|
(5,441
|
)
|
|
$
|
31,269
|
|
|
$
|
(36,078
|
)
|
|
$
|
4,809
|
|
|
$
|
(5,441
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE FISCAL YEAR ENDED February 2, 2019
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net (loss) earnings
|
|
$
|
(5,441
|
)
|
|
$
|
31,269
|
|
|
$
|
(36,118
|
)
|
|
$
|
4,809
|
|
|
$
|
(5,481
|
)
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,224
|
)
|
|
|
—
|
|
|
|
(1,224
|
)
|
Pension and other postretirement benefits adjustments
|
|
|
(13,663
|
)
|
|
|
—
|
|
|
|
(220
|
)
|
|
|
—
|
|
|
|
(13,883
|
)
|
Derivative financial instruments
|
|
|
(1,967
|
)
|
|
|
(38
|
)
|
|
|
630
|
|
|
|
—
|
|
|
|
(1,375
|
)
|
Other comprehensive loss from investment in subsidiaries
|
|
|
(801
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
801
|
|
|
|
—
|
|
Other comprehensive loss, net of tax
|
|
|
(16,431
|
)
|
|
|
(38
|
)
|
|
|
(814
|
)
|
|
|
801
|
|
|
|
(16,482
|
)
|
Comprehensive (loss) income
|
|
|
(21,872
|
)
|
|
|
31,231
|
|
|
|
(36,932
|
)
|
|
|
5,610
|
|
|
|
(21,963
|
)
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(91
|
)
|
|
|
—
|
|
|
|
(91
|
)
|
Comprehensive (loss) income attributable to Caleres, Inc.
|
|
$
|
(21,872
|
)
|
|
$
|
31,231
|
|
|
$
|
(36,841
|
)
|
|
$
|
5,610
|
|
|
$
|
(21,872
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE FISCAL YEAR ENDED February 2, 2019
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Net cash provided by operating activities
|
|
$
|
21,220
|
|
|
$
|
84,546
|
|
|
$
|
23,823
|
|
|
$
|
—
|
|
|
$
|
129,589
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(34,583
|
)
|
|
|
(25,871
|
)
|
|
|
(2,029
|
)
|
|
|
—
|
|
|
|
(62,483
|
)
|
Capitalized software
|
|
|
(3,962
|
)
|
|
|
(454
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,416
|
)
|
Acquisition of Blowfish Malibu, net of cash received
|
|
|
(16,792
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,792
|
)
|
Acquisition of Vionic, net of cash received
|
|
|
(352,666
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(352,666
|
)
|
Intercompany investing
|
|
|
(137
|
)
|
|
|
137
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net cash used for investing activities
|
|
|
(408,140
|
)
|
|
|
(26,188
|
)
|
|
|
(2,029
|
)
|
|
|
—
|
|
|
|
(436,357
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
|
360,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
360,000
|
|
Repayments under revolving credit agreement
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,000
|
)
|
Repayments of capital lease obligation
|
|
|
—
|
|
|
|
(406
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(406
|
)
|
Dividends paid
|
|
|
(11,983
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,983
|
)
|
Debt issuance costs
|
|
|
(1,298
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,298
|
)
|
Acquisition of treasury stock
|
|
|
(43,771
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(43,771
|
)
|
Issuance of common stock under share-based plans, net
|
|
|
(4,372
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,372
|
)
|
Intercompany financing
|
|
|
87,257
|
|
|
|
(48,804
|
)
|
|
|
(38,453
|
)
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by (used for) financing activities
|
|
|
360,833
|
|
|
|
(49,210
|
)
|
|
|
(38,453
|
)
|
|
|
—
|
|
|
|
273,170
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
(249
|
)
|
|
|
—
|
|
|
|
(249
|
)
|
(Decrease) increase in cash and cash equivalents
|
|
|
(26,087
|
)
|
|
|
9,148
|
|
|
|
(16,908
|
)
|
|
|
—
|
|
|
|
(33,847
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
26,089
|
|
|
|
—
|
|
|
|
37,958
|
|
|
|
—
|
|
|
|
64,047
|
|
Cash and cash equivalents at end of year
|
|
$
|
2
|
|
|
$
|
9,148
|
|
|
$
|
21,050
|
|
|
$
|
—
|
|
|
$
|
30,200
|
|
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
|
|
|
246,208
|
|
|
|
771,027
|
|
|
|
55,600
|
|
|
|
(36,784
|
)
|
|
|
1,036,051
|
|
Restructuring and other special charges, net
|
|
|
3,942
|
|
|
|
756
|
|
|
|
217
|
|
|
|
—
|
|
|
|
4,915
|
|
Operating earnings
|
|
|
7,661
|
|
|
|
73,128
|
|
|
|
46,894
|
|
|
|
—
|
|
|
|
127,683
|
|
Interest (expense) income
|
|
|
(17,743
|
)
|
|
|
(14
|
)
|
|
|
432
|
|
|
|
—
|
|
|
|
(17,325
|
)
|
Other income
|
|
|
12,348
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,348
|
|
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
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-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
|
($ thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-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
|
|
20. QUARTERLY FINANCIAL DATA (Unaudited)
Quarterly financial results (unaudited) for 2019 and 2018 are as follows:
|
|
Quarters
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
($ thousands, except per share amounts)
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 Weeks)
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
677,754
|
|
|
$
|
752,485
|
|
|
$
|
792,375
|
|
|
$
|
698,948
|
|
Gross profit
|
|
|
279,836
|
|
|
|
305,944
|
|
|
|
319,770
|
|
|
|
278,810
|
|
Net earnings (1)
|
|
|
9,085
|
|
|
|
25,227
|
|
|
|
27,761
|
|
|
|
9
|
|
Net earnings attributable to Caleres, Inc. (1)
|
|
|
9,083
|
|
|
|
25,341
|
|
|
|
27,987
|
|
|
|
408
|
|
Per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders (2)
|
|
|
0.22
|
|
|
|
0.61
|
|
|
|
0.69
|
|
|
|
0.01
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders (2)
|
|
|
0.22
|
|
|
|
0.61
|
|
|
|
0.69
|
|
|
|
0.01
|
|
Market value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
30.66
|
|
|
|
22.52
|
|
|
|
22.50
|
|
|
|
24.39
|
|
Low
|
|
|
25.24
|
|
|
|
17.53
|
|
|
|
18.29
|
|
|
|
19.48
|
|
(1) The fourth quarter of 2019 reflects expense containment initiatives of $11.2 million on an after-tax basis and costs associated with the repositioning of the Via Spiga brand of $1.2 million on an after-tax basis, both of which are further described in Note 5 to the consolidated financial statements, as well as the fair value adjustment to the Blowfish purchase obligation of $1.1 million on an after-tax basis, as further described in Note 2 and Note 15 to the consolidated financial statements.
(2) EPS for the quarters may not sum to the annual amount as each period is computed on a discrete period basis.
|
|
Quarters
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
($ thousands, except per share amounts)
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 Weeks)
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
632,142
|
|
|
$
|
706,612
|
|
|
$
|
775,829
|
|
|
$
|
720,263
|
|
Gross profit
|
|
|
274,921
|
|
|
|
293,101
|
|
|
|
310,610
|
|
|
|
277,712
|
|
Net earnings (loss) (1)
|
|
|
17,180
|
|
|
|
23,611
|
|
|
|
29,155
|
|
|
|
(75,427
|
)
|
Net earnings (loss) attributable to Caleres, Inc. (1)
|
|
|
17,212
|
|
|
|
23,646
|
|
|
|
29,153
|
|
|
|
(75,452
|
)
|
Per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Caleres, Inc. shareholders (2)
|
|
|
0.40
|
|
|
|
0.55
|
|
|
|
0.68
|
|
|
|
(1.83
|
)
|
Diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders (2)
|
|
|
0.40
|
|
|
|
0.55
|
|
|
|
0.67
|
|
|
|
(1.83
|
)
|
Market value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
36.00
|
|
|
|
37.06
|
|
|
|
41.09
|
|
|
|
37.82
|
|
Low
|
|
|
27.10
|
|
|
|
32.18
|
|
|
|
31.84
|
|
|
|
26.63
|
|
(1) The fourth quarter of 2018 reflects impairment of goodwill and intangible assets of $83.0 million on an after-tax basis, as further described in Note 11 to the consolidated financial statements, the impact of amortization of the inventory fair value adjustments required for purchase accounting of $6.1 million on an after-tax basis, as further described in Note 2 to the consolidated financial statements, and several restructuring and other charges totaling $4.7 million, on an after-tax basis, as further described in Note 5 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.