Famous Footwear 2014 Annual Report Download - page 31

30 2014 BROWN SHOE COMPANY, INC. FORM 10-K
Selling and Administrative Expenses
Selling and administrative expenses decreased $7.0 million, or 2.6%, to $260.3 million during 2014 compared to $267.3 million
last year, primarily due to lower warehouse expenses, our lower branded retail store count and a lower Canadian dollar
exchange rate, partially oset by an increase in anticipated payments under our cash and stock-based incentive plans and
higher marketing expenses. As a percentage of net sales, selling and administrative expenses decreased to 26.5% in 2014
from 29.0% last year, reflecting the above named factors.
Selling and administrative expenses increased $1.0 million, or 0.4%, to $267.3 million during 2013 compared to
$266.3 million in 2012, due to an increase in anticipated payments under our cash and stock-based incentive plans
and higher warehouse expenses, partially oset by a lower branded retail store count, lower marketing expenses
and the lower Canadian dollar exchange rate. As a percentage of net sales, selling and administrative expenses
decreased to 29.0% in 2013 from 29.7% in 2012, reflecting the above named factors.
Restructuring and Other Special Charges, Net
Restructuring and other special charges decreased $0.9 million, or 77.3%, to $0.3 million in 2014, compared to $1.2 million
last year as a result of our portfolio realignment initiatives, which were substantially complete in early 2013. Expenses
related to our portfolio realignment initiative declined $10.4 million in 2013 to $1.2 million, from $11.6 million in 2012. Refer to
Notes 2 and 4 to the consolidated financial statements for additional information related to these charges and recoveries.
Impairment of Assets Held for Sale
During 2013, we sold certain of our supply chain and sourcing assets. In conjunction with the sale, we recognized an
impairment charge of $4.7 million, representing the dierence between the fair value of the assets, less costs to sell,
and the carrying value of the assets.
Operating Earnings
Operating earnings increased $33.5 million, or 83.9%, to $73.4 million in 2014 compared to $39.9 million last year. The
increase was primarily driven by higher net sales and lower selling and administrative expenses. As a percentage of net
sales, operating earnings increased to 7.5% in 2014 compared to 4.3% last year.
Operating earnings increased $18.6 million, or 87.7%, to $39.9 million in 2013, compared to $21.3 million in 2012. The
increase was primarily driven by higher net sales and corresponding gross profit rate and lower restructuring and other
special charges, net. As a percentage of net sales, operating earnings increased to 4.3% in 2013 compared to 2.4% in 2012.
OTHER
The Other category includes unallocated corporate administrative and other costs and recoveries. Costs of $52.1 million,
$46.7 million, and $41.0 million were incurred in 2014, 2013, and 2012, respectively.
The $5.4 million increase in costs in 2014 compared to 2013 was primarily a result of higher anticipated payments under our
cash and stock-based incentive plans and higher consulting fees.
The $5.7 million increase in costs in 2013 compared to 2012 was primarily a result of an increase in selling and administrative
expenses due to higher consulting fees and higher anticipated payments under our cash and stock-based incentive plans.
RESTRUCTURING AND OTHER INITIATIVES
During 2014, we incurred costs associated with the disposal of Shoes.com of $1.5 million, with no corresponding costs in
2013 or 2012. During 2014 and 2012, we incurred costs of $1.9 million and $2.3 million related to management changes
at our corporate headquarters, with no corresponding costs in 2013. During 2013 and 2012, we recorded portfolio
realignment initiative costs of $30.7 million, and $29.9 million, respectively, with no corresponding costs in 2014. During
2012, we incurred acquisition and integration-related costs of $0.7 million with no corresponding costs in 2014 or 2013.
See the Financial Highlights section above and Note 2 and Note 4 to the consolidated financial statements for additional
information related to these charges.
IMPACT OF INFLATION AND CHANGING PRICES
While we have felt the eects of inflation on our business and results of operations, it has not had a significant impact
on our business over the last three years. Inflation can have a long-term impact on our business because increasing
costs of materials and labor may impact our ability to maintain satisfactory profit rates. For example, our products are
manufactured 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