Famous Footwear 2004 Annual Report Download - page 47

Table of Contents
Notes to Consolidated Financial Statements (continued)
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
Other
In the fourth quarter of 2001, the Company’s Board of Directors approved the implementation of various initiatives to improve the Company’s
competitive position, reduce expenses and improve profitability that led to restructuring charges totaling $41.4 million before taxes and
$27.3 million after tax. Following is a summary of the charges on a pretax basis:
• $16.8 million to close 97 underperforming domestic Naturalizer retail stores.
• $16.0 million to write down inventory at Famous Footwear to accelerate the clearance of older merchandise as part of its initiative to
improve inventory turns and “freshness.”
• $3.9 million of costs associated with the transition to new management at the Famous Footwear division. This charge is primarily
related to the retirement of the former President of this division.
• $3.5 million of severance costs related to the elimination of 117 positions in the Company’s information systems, finance and human
resources functions as it moves to a new shared-services platform.
• $1.2 million for the write-off of goodwill from the Company’s investment in its Shoes.com e-commerce venture.
In the fourth quarter of fiscal 2002, the Company substantially completed these restructurings and determined a portion of the reserves
provided in fiscal 2001 would not be needed. Accordingly, a $2.0 million recovery was recorded in earnings, of which $0.9 million related to
the Naturalizer retail store closing reserves and $1.1 million related to the severance reserve to implement the shared-services platform.
The Naturalizer retail store closing initiative originally identified 97 underperforming stores to be closed. During fiscal 2002, the Company
decided to keep four of these stores open and to close an additional 13 stores. As a result, a total of 106 stores were included under this
program. In the fourth quarter of fiscal 2002, the Company completed negotiations with landlords to buy out of the remaining store leases
and completed the closing of all but one store. Assessment of remaining reserve needs indicated $0.9 million of the originally established
reserve was not needed, and it was reversed to earnings. In early fiscal 2003, $0.4 million was paid to landlords to complete all obligations.
Following is a summary of the activity in the Naturalizer retail store reserve, by category of cost:
Lease Inventory Fixed Asset Employee
($ millions) Buyouts Markdowns Writeoffs Severance Total
Original charge and reserve balance $8.3 $ 4.1 $ 4.1 $ 0.3 $ 16.8
Expenditures in fiscal 2001 (0.5) (0.5) (0.3) — (1.3)
Expenditures in fiscal 2002 (6.8) (2.7) (4.4) (0.2) (14.1)
(Excess) shortfall recorded in earnings in 2002 (0.6) (0.8) 0.6 (0.1) (0.9)
Expenditures in fiscal 2003 (0.4) (0.1) — — (0.5)
Reserve balance January 31, 2004 $ — $ — $ — $ — $ —
The severance reserve established to implement a new shared-services platform provided costs to eliminate 117 positions. As of February 1,
2003, 88 positions had been eliminated, resulting in $2.1 million of the reserve being expended, with an additional $0.3 million remaining
in the reserve that was paid out to certain of the terminated employees in fiscal 2003. Due to personnel attrition and transfer to other
positions, fewer personnel were terminated than originally planned, leaving the $1.1 million of the reserve as excess. This excess was
reversed to income in the fourth quarter of fiscal 2002.
The 2001 pretax charges totaled $41.4 million, of which $20.1 million was reflected in cost of goods sold, and $21.3 million was reflected in
selling and administrative expenses. A tax benefit of $14.1 million was associated with these nonrecurring charges. The 2002 pretax
recoveries totaled $2.0 million, of which $0.8 million is reflected in cost of goods sold and $1.2 million in selling and administrative
expenses. A tax provision of $0.8 million was associated with these recoveries.
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