Famous Footwear 2004 Annual Report Download - page 28

Table of Contents
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
Operating Earnings
The Shoes.com business generated an operating loss of $0.7 million in 2003, improving upon its $1.6 million operating loss in 2002. The
improvement is primarily attributed to a $0.7 million impairment charge recorded in 2002 to reduce the value of the domain name intangible
asset. In addition, the substantial growth in the Shoes.com business has resulted in better leveraging of fixed costs.
The Shoes.com business generated an operating loss of $1.6 million in 2002, improving upon its partial year $3.2 million operating loss in
2001. The 2001 operating loss included a $1.2 million charge to write off goodwill.
Other Corporate Expenses
Unallocated corporate administrative and other costs were $30.0 million, $27.2 million and $24.7 million in fiscal 2003, 2002 and 2001,
respectively.
The 2001 expenses include a $3.0 million charge for severance costs related to the implementation of our new shared-services platform and
a charge of $3.4 million for costs associated with the transition to new management at Famous Footwear which was primarily related to the
retirement of the former President of this division.
The 2002 expenses are net of a recovery of $1.1 million of a severance charge taken in 2001. See Note 3 to the consolidated financial
statements for further description of the charges and the related recovery. After consideration of these special items in 2001 and 2002,
corporate expenses increased $10.0 million in 2002 compared to 2001. This increase reflects higher environmental costs in 2002 of
$3.0 million, primarily related to our Redfield property in Denver, Colorado, as described in Note 14 to the consolidated financial statements,
higher incentive plan costs of $3.3 million, higher salaries and benefits of $1.6 million, higher charitable contributions of $1.0 million and the
non-recurrence of a $1.9 million gain on the sale of our aircraft in 2001, partially offset by $2.9 million of lower consulting costs, which were
associated with the implementation of the shared-services platform.
The 2003 expenses include a $3.1 million charge for costs related to the class action litigation related to the Redfield site and related costs,
including the verdict, anticipated pretrial interest and sanction costs. Removing the impact of the litigation charge in 2003 and the severance
recovery in 2002, corporate expenses decreased $1.4 million in 2003 compared to 2002. This decrease is primarily attributable to lower
environmental costs of $3.3 million, lower charitable contributions of $1.0 million and lower consulting costs of $0.8 million, partially offset
by higher salaries of $1.5 million, higher legal fees of $0.4 million and higher recruiting costs of $0.4 million. Incentive plan costs were
approximately the same as in fiscal 2002.
RESTRUCTURING INITIATIVES
Closure of Canadian Manufacturing Facility
In the fourth quarter of fiscal 2003, we made the decision to close our last Canadian footwear manufacturing factory and recorded a pretax
charge of $4.5 million, the components of which were as follows:
• Severance and benefit costs for approximately 300 factory employees — $2.3 million
• Inventory markdowns to liquidate factory inventory — $1.6 million
• Cost to buy out leases prior to their normal expiration date — $0.6 million
As of January 31, 2004, no spending has occurred against the factory closing charge. Of the $4.5 million charge, $1.6 million was reflected
in cost of goods sold and $2.9 million was reflected in selling and administrative expenses. A tax benefit of $1.8 million was associated with
this charge.
Closure of Underperforming Naturalizer Retail Stores
In the fourth quarter of fiscal 2001, we made the decision to close 97 underperforming Naturalizer retail stores in the United States and
recorded a pretax charge of $16.8 million, the components of which were as follows:
• Costs to buy out leases prior to their normal expiration date — $8.3 million
• Inventory markdowns to liquidate quantities in closing stores — $4.1 million
• Fixed asset write-downs to net realizable value — $4.1 million
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