Famous Footwear 2012 Annual Report Download - page 60

58 2012 BROWN SHOE COMPANY, INC. FORM 10-K
4. RESTRUCTURING AND OTHER SPECIAL CHARGES, NET
Portfolio Realignment
The Company’s portfolio realignment initiatives include selling the AND 1 division (TBMC, which was acquired with ASG);
exiting certain women’s specialty and private label brands; exiting the children’s wholesale business; closing two U.S.
distribution centers; closing or relocating numerous underperforming or poorly aligned retail stores; closing facilities in China;
and other infrastructure changes. These portfolio realignment initiatives began in 2011 and continued throughout 2012.
The termination of the Etienne Aigner license agreement is also considered part of the Company’s portfolio realignment
initiatives. During 2012, the Company terminated the Etienne Aigner license agreement (“former license agreement”),
due to a dispute with the licensor. In conjunction with the termination, the Company recognized an impairment charge of
$5.8 million to reduce the remaining unamortized value of the licensed trademark intangible asset to zero.
During 2012, the Company incurred costs related to its portfolio realignment activities of $29.9 million ($19.3 million
after-tax, or $0.45 per diluted share). These costs are reflected on the condensed consolidated statement of earnings as
$21.0 million in restructuring and other special charges, net, $5.8 million in impairment of intangible assets and $3.1 million
in cost of goods sold. Of the $21.0 million in restructuring and other special charges, net, $8.6 million is included in the
Wholesale Operations segment, $7.8 million is included in the Famous Footwear segment, $3.7 million is included in the
Specialty Retail segment and $0.9 million is included in the Other segment. Of the $3.1 million in cost of goods sold,
$2.7 million is included in the Wholesale Operations segment and $0.4 million is included in the Specialty Retail segment.
In conjunction with the sale of TBMC in 2011, the Company recorded a gain of $20.6 million ($14.0 million on an after-
tax basis, or $0.32 per diluted share), which is reflected in the consolidated statements of earnings as a component of
discontinued operations. Also during 2011, the Company incurred costs related to its portfolio realignment activities
of $19.2 million ($12.0 million on an after-tax basis, or $0.28 per diluted share). These costs are reflected on the
consolidated statements of earnings as $17.2 million in restructuring and other special charges, net, and $2.0 million in
costs of goods sold. Of the $17.2 million, $10.5 million was recorded in the Wholesale Operations segment, $3.3 million
was recorded in the Other segment, $2.8 million was recorded in the Famous Footwear segment and $0.6 million was
recorded in the Specialty Retail segment. Of the $2.0 million, $1.6 million was recorded in the Wholesale Operations
segment and $0.4 million was recorded in the Specialty Retail segment.
The following is a summary of the charges and settlements by category of costs:
Markdowns
and Royalty
($ millions) Employee Shortfalls Facility Other Total
Original charges and reserve balance . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.9 $ 6.1 $ 1.4 $ 2.8 $ 19.2
Amounts settled in 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3. 1 ) (4.5) (0.1) (1.5) (9.2)
Reserve balance at January 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.8 $ 1.6 $ 1.3 $ 1.3 $ 10.0
Additional charges in 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0 3.1 11.4 9.4 29.9
Amounts settled in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10.1) (4.5) (9.4) (10.4) (34.4)
Reserve balance at February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.7 $ 0.2 $ 3.3 $ 0.3 $ 5.5
Acquisition and Integration Related Costs
On February 17, 2011, the Company entered into a Stock Purchase Agreement with ASG’s stockholders, pursuant to which
the Company acquired all of the outstanding capital stock of ASG. During 2012, the Company incurred integration related
costs totaling $0.7 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) all of which were reflected within
the Wholesale Operations segment. During 2011, the Company incurred acquisition and integration related costs totaling
$6.5 million ($4.5 million on an after-tax basis, or $0.11 per diluted share). Of the $6.5 million costs recorded during 2011,
$4.0 million was recorded in the Other segment and $2.5 million was reflected within the Wholesale Operations segment.
In 2011, $2.9 million of the ASG acquisition and integration costs related to severance. During 2010, the Company incurred
acquisition-related costs totaling $1.1 million ($0.7 million on an after-tax basis, or $0.02 per diluted share). All of the
costs incurred in 2010 were reflected within the Other segment. All of the expenses incurred in 2012, 2011 and 2010
were recorded as a component of restructuring and other special charges, net. See Note 2 to the consolidated financial
statements for further information.
Organizational Changes
During 2012, the Company incurred costs of $2.3 million ($1.4 million on an after-tax basis, or $0.03 per diluted share)
related to an organizational change at its corporate headquarters. All of these costs were recorded in the Other segment and
as a component of restructuring and other special charges, net. No organizational change costs were incurred 2011 or 2010.
Information Technology Initiatives
During 2008, the Company began implementation of an integrated enterprise resource planning (“ERP”) system provided
by third-party vendors to replace certain existing internally developed and certain other third-party applications. The
Company went live on the wholesale portion of its new ERP system in the fourth quarter of 2010. During 2010, the
Company incurred expenses of $6.8 million ($4.6 million on an after-tax basis, or $0.10 per diluted share) related to these
initiatives. Of the $6.8 million in expenses recorded during 2010, $6.1 million was recorded in the Other segment, and
the remaining expense was recorded in the Wholesale Operations segment. All expenses incurred were recorded as a
component of restructuring and other special charges, net.