Famous Footwear 2004 Annual Report Download - page 30

Table of Contents
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
• Severance and benefit costs for employees terminated by the store closings — $0.3 million
During fiscal 2002, we decided to keep 4 of the originally identified 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, we completed negotiations with landlords to buy out store leases
and completed the closing of all but one store. An assessment of remaining reserve needs indicated $0.9 million of the originally established
reserve was not needed, and we reversed it to income. In early fiscal 2003, we paid $0.4 million to landlords to complete all obligations.
Shared-Services Platform
Also in the fourth quarter of fiscal 2001, we recorded a charge of $3.5 million for severance costs related to the elimination of 117 positions as
we moved to a new shared-services platform for our human resources, finance and information systems functions. As of February 1, 2003,
we eliminated 88 positions, resulting in $2.1 million of the reserve being expended, with an additional $0.3 million remaining in the reserve
paid out to certain of the terminated employees in fiscal 2003. Due to personnel attrition and transfers to other positions, we terminated fewer
personnel than originally planned, leaving $1.1 million of the reserve as excess, which we reversed to income in the fourth quarter of fiscal
2002.
IMPACT OF INFLATION
The effects of inflation on our business and results of operations have been minor over the last several years, and we do not expect inflation
to have a significant impact in the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
Increase/
($ millions) January 31, 2004 February 1, 2003 (Decrease)
Notes payable $ 19.5 $ 29.0 $ (9.5)
Long-term debt, including current maturities 100.0 123.5 (23.5)
Total short- and long-term debt $119.5 $152.5 $(33.0)
In fiscal 2001, we completed a restructuring of our capital structure by entering into a new revolving credit agreement and redeeming our
9.5% $100 million notes that were outstanding. This restructuring provided us with increased financial flexibility and lower interest rates in
fiscal 2002 and 2003. Interest expense decreased by $2.4 million and $8.0 million in fiscal years 2003 and 2002, respectively. This decrease
reflects a combination of lower rates and lower borrowings.
In December 2001, we entered into a five-year $350 million secured revolving bank credit agreement with a syndicate of banks. The amount
we may borrow under this agreement is referred to as Availability, which is based on a formula of eligible accounts receivable and eligible
inventory, subject to certain adjustments, less outstanding borrowings and letters of credit. If Availability falls below a certain level, we would
be required to reclassify all outstanding borrowings under the Revolving Credit Agreement to a current liability. In addition, certain covenants
would be triggered if Availability were to fall below specified levels, including fixed charge coverage requirements if Availability falls below
$35 million and default if Availability falls below $25 million. There are certain other restrictions and covenants in the agreement. Interest
rates are based on LIBOR plus 2.00% to 2.75%, or 0.00% to 0.75% over the base rate, depending on our fixed charge coverage ratio, as
defined. There is an unused line fee of 0.25% to 0.50%, also based on the fixed charge coverage ratio. Borrowings are collateralized by
accounts receivable and inventory of the parent company and its wholly-owned domestic and Canadian subsidiaries.
We believe that borrowing capacity under this facility will be adequate to meet our operational needs and capital expenditure plans for the
foreseeable future.
In conjunction with entering into this credit agreement, in January 2002 we redeemed our 9.5% $100 million notes that were due in 2006.
The call premium and the write-off of deferred debt issuance costs associated with this debt and the previous revolving credit agreement,
totaling $7.6 million pretax ($4.9 million after tax), were recorded in the fourth quarter of fiscal 2001.
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