Famous Footwear 2013 Annual Report Download - page 35

2013 BROWN SHOE COMPANY, INC. FORM 10-K 33
in other countries, and a decline in the value of the U.S. dollar and the impact of labor shortages in China may result in higher
manufacturing costs. Similarly, any potential significant shortage of quantities or increases in the cost of the materials that
are used in our manufacturing process, such as leather and other materials or resources, could have a material negative
impact on our business and results of operations. In addition, inflation is often accompanied by higher interest rates, which
could have a negative impact on consumer spending, in which case our net sales and profit rates could decrease. Moreover,
increases in inflation may not be matched by increases in income, which also could have a negative impact on consumer
spending. If we incur increased costs that are unable to be recovered through price increases, or if consumer spending
decreases generally, our business, results of operations, financial condition, and cash flows may be adversely aected. In an
eort to mitigate the impact of these incremental costs on our operating results, we expect to pass on some portion of cost
increases to our consumers and adjust our business model, as appropriate, to minimize the impact of higher costs. Further
discussion of the potential impact of inflation and changing prices is included in Item 1A, Risk Factors.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) February 1, 2014 February 2, 2013 (Decrease) Increase
Borrowings under Credit Agreement . . . . . . . . . . . . . $ 7.0 $ 105.0 $ (98.0)
Long-term debt - Senior Notes . . . . . . . . . . . . . . . . 199.0 198.8 0.2
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 206.0 $ 303.8 $ (97.8)
Total debt obligations decreased $97.8 million, or 32.2%, to $206.0 million at the end of 2013 compared to $303.8 million
at the end of last year due to a decrease in borrowings under our revolving credit agreement. Interest expense in 2013 was
$21.3 million compared to $23.0 million in 2012 and $25.4 million in 2011.
Credit Agreement
On January 7, 2011, Brown Shoe Company, Inc. and certain of its subsidiaries (the “Loan Parties”) entered into a Third
Amended and Restated Credit Agreement, which was further amended on February 17, 2011 (as so amended, the “Credit
Agreement”). The Credit Agreement matures on January 7, 2016 and provides for a revolving credit facility in an aggregate
amount of up to $530.0 million (eective February 17, 2011), subject to the calculated borrowing base restrictions, and
provides for an increase at our option by up to $150.0 million from time to time during the term of the Credit Agreement
(the “general purpose accordion feature”) subject to satisfaction of certain conditions and the willingness of existing or
new lenders to assume the increase.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing
base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, 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 Oered 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 incur additional indebtedness, create 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 (i) 15.0% of the lesser
of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million for three consecutive business days, or an
event of default occurs, the lenders may assume dominion and control over the Company’s cash (a “cash dominion event”)
until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches
of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of
bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security
document supporting the agreement to be in full force and eect and a change of control event. In addition, if the excess
availability falls below the greater of (i) 12.5% of the lesser of (x) the borrowing base or (y) the total commitments and
(ii) $35.0 million, and the fixed charge coverage ratio is less than 1.0 to 1.0, we would be in default under the Credit
Agreement. The Credit Agreement also contains certain other covenants and restrictions. We were in compliance with
all covenants and restrictions under the Credit Agreement as of February 1, 2014.
At February 1, 2014, we had $7.0 million in borrowings outstanding and $6.4 million in letters of credit outstanding under
the Credit Agreement. Total additional borrowing availability was $503.2 million at February 1, 2014.