Annual Reports

 
Quarterly Reports

  • 10-Q (Dec 6, 2017)
  • 10-Q (Sep 6, 2017)
  • 10-Q (Jun 7, 2017)
  • 10-Q (Dec 7, 2016)
  • 10-Q (Sep 7, 2016)
  • 10-Q (Jun 8, 2016)

 
8-K

 
Other

Continental Airlines 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1
Document


 
UNITED STATES  
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549 
 
 
FORM 10-Q 
 
(Mark One)
[X]
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
 
For the quarterly period ended October 29, 2016
 
 
[  ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
 
For the transition period from  _____________  to  _____________
 
Commission file number: 1-2191 
 
CALERES, INC.
(Exact name of registrant as specified in its charter)
 
 
New York
(State or other jurisdiction
of incorporation or organization)
43-0197190
(IRS Employer Identification Number)
 
 
8300 Maryland Avenue
St. Louis, Missouri
(Address of principal executive offices)
63105
(Zip Code)
(314) 854-4000
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ     No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes  þ   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes  ¨     No þ 
 
As of November 25, 2016, 42,943,480 common shares were outstanding.

1



PART I
FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CALERES, INC.
 
 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
(Unaudited)
 
 

($ thousands)
October 29, 2016

 
October 31, 2015

 
January 30, 2016

Assets
 
 
 
 
 

Current assets:
 
 
 
 
 
Cash and cash equivalents
$
173,435


$
86,298


$
118,151

Receivables, net
139,475


148,192


153,664

Inventories, net
524,823


544,341


546,745

Prepaid expenses and other current assets
31,716


40,815


56,505

Total current assets
869,449

 
819,646

 
875,065

 
 
 
 
 
 
Other assets
114,851


141,840


118,349

Goodwill
13,954

 
13,954

 
13,954

Intangible assets, net
114,187

 
117,864

 
116,945

Property and equipment
497,486

 
455,038

 
475,750

Allowance for depreciation
(305,732
)
 
(291,596
)
 
(296,740
)
Net property and equipment
191,754


163,442


179,010

Total assets
$
1,304,195

 
$
1,256,746

 
$
1,303,323

 
 
 
 
 
 
Liabilities and Equity
 

 
 

 
 

Current liabilities:
 

 
 

 
 

Trade accounts payable
$
212,088


$
200,251


$
237,802

Other accrued expenses
141,886


154,304


152,497

Total current liabilities
353,974

 
354,555

 
390,299

 
 
 
 
 
 
Other liabilities:
 

 
 

 
 

Long-term debt
196,888


196,463


196,544

Deferred rent
48,696


43,231


46,506

Other liabilities
57,574


60,642


67,502

Total other liabilities
303,158

 
300,336

 
310,552

 
 
 
 
 
 
Equity:
 

 
 

 
 

Common stock
429

 
437

 
437

Additional paid-in capital
120,775

 
137,927

 
138,881

Accumulated other comprehensive (loss) income
(6,310
)
 
2,961

 
(5,864
)
Retained earnings
531,216

 
459,678

 
468,030

Total Caleres, Inc. shareholders’ equity
646,110


601,003


601,484

Noncontrolling interests
953


852


988

Total equity
647,063

 
601,855

 
602,472

Total liabilities and equity
$
1,304,195

 
$
1,256,746

 
$
1,303,323

See notes to condensed consolidated financial statements.

2



CALERES, INC.
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 
 
 
 
 
 
 
 
(Unaudited)
 
Thirteen Weeks Ended
Thirty-nine Weeks Ended
($ thousands, except per share amounts)
October 29, 2016

October 31, 2015

October 29, 2016

October 31, 2015

Net sales
$
732,230

$
728,639

$
1,939,900

$
1,968,756

Cost of goods sold
438,459

440,205

1,138,781

1,169,001

Gross profit
293,771

288,434

801,119

799,755

Selling and administrative expenses
238,319

236,211

684,666

681,462

Operating earnings
55,452

52,223

116,453

118,293

Interest expense
(3,475
)
(4,136
)
(10,564
)
(12,944
)
Loss on early extinguishment of debt

(1,961
)

(10,651
)
Interest income
350

224

907

766

Earnings before income taxes
52,327

46,350

106,796

95,464

Income tax provision
(17,601
)
(12,358
)
(34,514
)
(25,218
)
Net earnings
34,726

33,992

72,282

70,246

Net (loss) earnings attributable to noncontrolling interests
(4
)
9

2

177

Net earnings attributable to Caleres, Inc.
$
34,730

$
33,983

$
72,280

$
70,069

 
 
 
 
 
Basic earnings per common share attributable to Caleres, Inc. shareholders
$
0.81

$
0.78

$
1.67

$
1.60

 
 
 
 
 
Diluted earnings per common share attributable to Caleres, Inc. shareholders
$
0.81

$
0.78

$
1.67

$
1.59

 
 
 
 
 
Dividends per common share
$
0.07

$
0.07

$
0.21

$
0.21

See notes to condensed consolidated financial statements.

3




CALERES, INC.
 
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
 
 
(Unaudited)
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
($ thousands)
October 29, 2016

October 31, 2015

 
October 29, 2016

October 31, 2015

Net earnings
$
34,726

$
33,992

 
$
72,282

$
70,246

Other comprehensive (loss) income, net of tax:
 

 

 
 

 

Foreign currency translation adjustment
(545
)
348

 
961

791

Pension and other postretirement benefits adjustments
(289
)
(230
)
 
(865
)
(688
)
Derivative financial instruments
(101
)
(184
)
 
(542
)
146

Other comprehensive (loss) income, net of tax
(935
)
(66
)
 
(446
)
249

Comprehensive income
33,791

33,926

 
71,836

70,495

Comprehensive (loss) income attributable to noncontrolling interests
(25
)
(31
)
 
(35
)
140

Comprehensive income attributable to Caleres, Inc.
$
33,816

$
33,957

 
$
71,871

$
70,355

See notes to condensed consolidated financial statements.


4



CALERES, INC.
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
(Unaudited)
 
Thirty-nine Weeks Ended
($ thousands)
October 29, 2016

October 31, 2015

Operating Activities
 
 

Net earnings
$
72,282

$
70,246

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 

Depreciation
28,131

26,452

Amortization of capitalized software
9,589

9,118

Amortization of intangible assets
2,758

2,769

Amortization of debt issuance costs and debt discount
1,295

873

Loss on early extinguishment of debt

10,651

Share-based compensation expense
5,966

5,448

Tax benefit related to share-based plans
(3,264
)
(3,049
)
Loss (gain) on disposal of property and equipment
872

(2,203
)
Impairment charges for property and equipment
913

1,479

Deferred rent
2,190

3,489

Provision for doubtful accounts
564

362

Changes in operating assets and liabilities:
 

 

Receivables
13,626

(11,848
)
Inventories
22,587

(1,882
)
Prepaid expenses and other current and noncurrent assets
22,119

(12,212
)
Trade accounts payable
(25,870
)
(15,593
)
Accrued expenses and other liabilities
(17,419
)
(2,188
)
Other, net
664

2,138

Net cash provided by operating activities
137,003

84,050

 
 
 
Investing Activities
 

 

Purchases of property and equipment
(43,019
)
(47,344
)
Proceeds from disposal of property and equipment

7,433

Capitalized software
(5,672
)
(5,422
)
Net cash used for investing activities
(48,691
)
(45,333
)
 
 
 
Financing Activities
 

 

Borrowings under revolving credit agreement
103,000

117,000

Repayments under revolving credit agreement
(103,000
)
(117,000
)
Proceeds from issuance of 2023 senior notes

200,000

Redemption of 2019 senior notes

(200,000
)
Debt issuance costs

(3,650
)
Dividends paid
(9,094
)
(9,195
)
Acquisition of treasury stock
(23,139
)
(4,921
)
Issuance of common stock under share-based plans, net
(4,205
)
(4,606
)
Tax benefit related to share-based plans
3,264

3,049

Net cash used for financing activities
(33,174
)
(19,323
)
Effect of exchange rate changes on cash and cash equivalents
146

(499
)
Increase in cash and cash equivalents
55,284

18,895

Cash and cash equivalents at beginning of period
118,151

67,403

Cash and cash equivalents at end of period
$
173,435

$
86,298

See notes to condensed consolidated financial statements.

5



CALERES, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1
Basis of Presentation
 
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. (the "Company"). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions. 
 
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole. 
 
Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc. 
 
For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended January 30, 2016.

Note 2
Impact of New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequently issued ASU 2015-14 to defer the effective date and ASUs 2016-08, 2016-10 and 2016-12 to clarify the implementation guidance in ASU 2014-09 Topic 606 provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  ASU 2014-09 also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.   The ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted beginning after December 15, 2016.  The Company has completed an initial assessment of the ASUs. Although the ASUs will impact revenue recognition for both of the Company's reportable segments, the Company anticipates a more significant impact on its Famous Footwear segment, primarily due to the ASUs' required treatment for loyalty programs (such as Rewards, the Company's loyalty program). While the Company is currently developing its implementation plan, including the determination of its adoption method, it expects to adopt the ASUs in the first quarter of 2018. The Company anticipates that the adoption may have a material impact on the condensed consolidated financial statements.
 
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (Topic 330), which requires entities to measure inventory at "the lower of cost and net realizable value", simplifying the current guidance under which entities must measure inventory at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using the last-in, first-out (LIFO) method. The ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. Because approximately 95% of the Company's inventories are valued using the LIFO method, the Company anticipates that the adoption of this ASU will not have a material impact on the condensed consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any fair value changes in net income. The ASU permits entities to elect a measurement alternative for equity investments that don’t have readily determinable fair values. If elected, those investments would be valued at cost, less any impairment, plus or minus changes resulting from observable price

6



changes in orderly transactions for the identical or a similar investment of the same issuer. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company has an investment in a nonconsolidated affiliate that is currently accounted for using the cost method. The investment, with a carrying value of $7.0 million as of October 29, 2016, October 31, 2015 and January 30, 2016, is subject to this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements. Due to the large number of retail operating leases to which the Company is a party, the Company anticipates that the impact to its condensed consolidated financial statements upon adoption in the first quarter of 2019 will be significant. However, the adoption of the ASU is not expected to trigger non-compliance with any covenant or other restrictions under the provisions of any of the Company’s debt obligations. 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies accounting for certain aspects of share-based payments to employees, including income taxes, forfeitures and statutory income tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The ASU requires certain income tax impacts related to share-based plans to be recorded within the income tax provision, rather than as a component of additional paid-in capital, as presented today. Upon adoption of the standard in the first quarter of 2017, the Company anticipates a greater degree of volatility in its income tax provision and effective income tax rate.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted beginning after December 15, 2018. The ASU's provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which it is adopted. The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.

Note 3
Earnings Per Share
 
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended October 29, 2016 and October 31, 2015:
 

7



 
Thirteen Weeks Ended
Thirty-nine Weeks Ended
($ thousands, except per share amounts)
October 29, 2016

October 31, 2015

October 29, 2016

October 31, 2015

NUMERATOR
 

 

 

 

Net earnings
$
34,726

$
33,992

$
72,282

$
70,246

Net loss (earnings) attributable to noncontrolling interests
4

(9
)
(2
)
(177
)
Net earnings allocated to participating securities
(910
)
(1,063
)
(1,933
)
(2,272
)
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities
$
33,820

$
32,920

$
70,347

$
67,797

 
 
 
 
 
DENOMINATOR
 

 

 

 

Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders
41,802

42,345

42,093

42,483

Dilutive effect of share-based awards
137

120

144

132

Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders
41,939

42,465

42,237

42,615


 
 
 
 
Basic earnings per common share attributable to Caleres, Inc. shareholders
$
0.81

$
0.78

$
1.67

$
1.60


 
 
 
 
Diluted earnings per common share attributable to Caleres, Inc. shareholders
$
0.81

$
0.78

$
1.67

$
1.59

 
Options to purchase 63,915 shares of common stock for the thirteen and thirty-nine weeks ended October 29, 2016 and 56,997 shares of common stock for the thirteen and thirty-nine weeks ended October 31, 2015 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive.

During the thirty-nine weeks ended October 29, 2016 and October 31, 2015, the Company repurchased 900,000 shares and 151,500 shares, respectively, under the publicly announced share repurchase program, which permits repurchases of up to 2.5 million shares. As of October 29, 2016, the Company has repurchased a total of 1.1 million shares at a cost of $28.1 million.

Note 4
Long-term and Short-term Financing Arrangements

Credit Agreement 
The Company maintains a revolving credit facility for working capital needs in an aggregate amount of up to $600.0 million, with the option to increase by up to $150.0 million. On December 18, 2014, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement, which was further amended on July 20, 2015 to release all of the Company’s subsidiaries that were borrowers under or that guaranteed the Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC (as so amended, the “Credit Agreement”). After giving effect to the amendment, the Company is the lead borrower, and Sidney Rich Associates, Inc. and BG Retail, LLC are each co-borrowers and guarantors under the Credit Agreement. The Credit Agreement matures on December 18, 2019.

Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, 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 Offered 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 create, incur, assume or permit to exist additional indebtedness and 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,

8



including fixed charge coverage ratio requirements.  Furthermore, if excess availability falls below 12.5% of the Loan Cap 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, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for 30 consecutive business days) after a cash dominion event has occurred and been discontinued on two occasions in any twelve-month period.
 
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 effect, and a change of control event.  In addition, if the excess availability falls below the greater of (i) 10.0% of the lesser of the Loan Cap and (ii) $50.0 million, and the fixed charge coverage ratio is less than 1.0 to 1.0, the Company would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of October 29, 2016

At October 29, 2016, the Company had no borrowings outstanding and $6.5 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $531.3 million at October 29, 2016.   

$200 Million Senior Notes Due 2019 
During 2011, the Company issued $200.0 million aggregate principal amount of 7.125% Senior Notes due 2019 (the “2019 Senior Notes”).  The 2019 Senior Notes were guaranteed on a senior unsecured basis by each of its subsidiaries that was an obligor under the Credit Agreement. Interest on the 2019 Senior Notes was payable on May 15 and November 15 of each year. The 2019 Senior Notes were scheduled to mature on May 15, 2019 but were callable at specified redemption prices, plus accrued and unpaid interest.
 
On July 20, 2015, the Company commenced a cash tender offer (the "Tender Offer") to purchase any and all of the outstanding aggregate principal amount of its 2019 Senior Notes. Upon expiration of the Tender Offer on July 24, 2015, $160.7 million aggregate principal amount of the 2019 Senior Notes were validly tendered at the redemption price of 103.950%, representing the specified redemption price and a tender premium. On August 26, 2015, the remaining outstanding $39.3 million aggregate principal amount of outstanding 2019 Senior Notes were redeemed at the redemption price of 103.563%. During the thirteen and thirty-nine weeks ended October 31, 2015, the Company recognized a loss on the early extinguishment of the 2019 Senior Notes of $2.0 million and $10.7 million, respectively, representing the tender offer and call premiums, the unamortized debt issuance costs and the original issue discount.

$200 Million Senior Notes Due 2023
On July 27, 2015, the Company issued $200.0 million aggregate principal amount of 6.25% Senior Notes due 2023 (the "2023 Senior Notes") in a private placement. On October 22, 2015, the Company commenced an offer to exchange its 2023 Senior Notes outstanding for substantially identical debt securities registered under the Securities Act of 1933. The exchange offer was completed on November 23, 2015 and did not affect the amount of the Company's indebtedness outstanding. The net proceeds from the issuance of the 2023 Senior Notes were approximately $196.3 million after deducting fees and expenses associated with the offering. The Company used the net proceeds, together with cash on hand, to redeem the outstanding 2019 Senior Notes.

The 2023 Senior Notes are guaranteed on a senior unsecured basis by each of the Company's subsidiaries that is a borrower or guarantor under the Credit Agreement. Interest on the 2023 Senior Notes is payable on February 15 and August 15 of each year, beginning on February 15, 2016. The 2023 Senior Notes will mature on August 15, 2023.  Prior to August 15, 2018, the Company may redeem some or all of the 2023 Senior Notes at a redemption price equal to 100% of the principal amount of the 2023 Senior Notes plus a "make-whole" premium (as defined in the 2023 Senior Notes indenture) and accrued and unpaid interest to the redemption date.  After August 15, 2018, the Company may redeem all or a part of the 2023 Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest (as defined in the 2023 Senior Notes indenture), if redeemed during the 12-month period beginning on August 15 of the years indicated below:
Year
Percentage

2018
104.688
%
2019
103.125
%
2020
101.563
%
2021 and thereafter
100.000
%
 

9



If the Company experiences specific kinds of changes of control, it would be required to offer to purchase the 2023 Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to, but not including, the date of repurchase.

The 2023 Senior Notes also contain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of October 29, 2016, the Company was in compliance with all covenants and restrictions relating to the 2023 Senior Notes.

Note 5
Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended October 29, 2016 and October 31, 2015.  
 
Famous Footwear
Brand Portfolio
 
 
($ thousands)
Other
Total
Thirteen Weeks Ended October 29, 2016
External sales
$
467,816

$
264,414

$

$
732,230

Intersegment sales

20,234


20,234

Operating earnings (loss)
32,709

30,454

(7,711
)
55,452

Segment assets
555,934

471,329

276,932

1,304,195

 
 
 
 
 
Thirteen Weeks Ended October 31, 2015
External sales
$
456,177

$
272,462

$

$
728,639

Intersegment sales

21,004


21,004

Operating earnings (loss)
39,638

21,042

(8,457
)
52,223

Segment assets
541,232

515,699

199,815

1,256,746

 
 
 
 
 
Thirty-nine Weeks Ended October 29, 2016
External sales
$
1,222,535

$
717,365

$

$
1,939,900

Intersegment sales

66,386


66,386

Operating earnings (loss)
81,067

57,539

(22,153
)
116,453

 
 
 
 
 
Thirty-nine Weeks Ended October 31, 2015
External sales
$
1,212,069

$
756,687

$

$
1,968,756

Intersegment sales

71,292


71,292

Operating earnings (loss)
95,269

48,107

(25,083
)
118,293

 
The Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments.  

Following is a reconciliation of operating earnings to earnings before income taxes:   
 
Thirteen Weeks Ended
Thirty-nine Weeks Ended
($ thousands)
October 29, 2016

October 31, 2015

October 29, 2016

October 31, 2015

Operating earnings
$
55,452

$
52,223

$
116,453

$
118,293

Interest expense
(3,475
)
(4,136
)
(10,564
)
(12,944
)
Loss on early extinguishment of debt

(1,961
)

(10,651
)
Interest income
350

224

907

766

Earnings before income taxes
$
52,327

$
46,350

$
106,796

$
95,464



10



Note 6
Goodwill and Intangible Assets
 
Goodwill and intangible assets were as follows:
($ thousands)
October 29, 2016

October 31, 2015

January 30, 2016

Intangible Assets
 

 

 

Famous Footwear
$
2,800

$
2,800

$
2,800

Brand Portfolio
183,068

183,068

183,068

Total intangible assets
185,868

185,868

185,868

Accumulated amortization
(71,681
)
(68,004
)
(68,923
)
Total intangible assets, net
114,187

117,864

116,945

Goodwill
 

 

 

Brand Portfolio
13,954

13,954

13,954

Total goodwill
13,954

13,954

13,954

Goodwill and intangible assets, net
$
128,141

$
131,818

$
130,899

 
Intangible assets consist primarily of owned and licensed trademarks, of which $20.8 million as of October 29, 2016, October 31, 2015 and January 30, 2016, are not subject to amortization. The remaining intangible assets are subject to amortization and have useful lives ranging from 15 to 40 years as of October 29, 2016. Amortization expense related to intangible assets was $0.9 million for the thirteen weeks ended October 29, 2016 and October 31, 2015 and $2.8 million for the thirty-nine weeks ended October 29, 2016 and October 31, 2015
 
Note 7
Shareholders’ Equity
 
The following tables set forth the changes in Caleres, Inc. shareholders’ equity and noncontrolling interests for the thirty-nine weeks ended October 29, 2016 and October 31, 2015:

($ thousands)
Caleres, Inc. Shareholders’ Equity

Noncontrolling Interests

Total Equity

Equity at January 30, 2016
$
601,484

$
988

$
602,472

Net earnings
72,280

2

72,282

Other comprehensive loss
(446
)
(37
)
(483
)
Dividends paid
(9,094
)

(9,094
)
Acquisition of treasury stock
(23,139
)

(23,139
)
Issuance of common stock under share-based plans, net
(4,205
)

(4,205
)
Tax benefit related to share-based plans
3,264


3,264

Share-based compensation expense
5,966


5,966

Equity at October 29, 2016
$
646,110

$
953

$
647,063

 

11



($ thousands)
Caleres, Inc. Shareholders’ Equity

Noncontrolling Interests

Total Equity

Equity at January 31, 2015
$
540,910

$
712

$
541,622

Net earnings
70,069

177

70,246

Other comprehensive income (loss)
249

(37
)
212

Dividends paid
(9,195
)

(9,195
)
Acquisition of treasury stock
(4,921
)

(4,921
)
Issuance of common stock under share-based plans, net
(4,606
)

(4,606
)
Tax benefit related to share-based plans
3,049


3,049

Share-based compensation expense
5,448


5,448

Equity at October 31, 2015
$
601,003

$
852

$
601,855



12



Accumulated Other Comprehensive (Loss) Income
The following table sets forth the changes in accumulated other comprehensive (loss) income by component for the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015:
($ thousands)
Foreign Currency Translation

Pension and Other Postretirement Transactions (1)

Derivative Financial Instrument Transactions (2)

Accumulated Other Comprehensive (Loss) Income

Balance July 30, 2016
$
606

$
(5,932
)
$
(49
)
$
(5,375
)
Other comprehensive loss before reclassifications
(545
)

(150
)
(695
)
Reclassifications:
 
 
 
 
Amounts reclassified from accumulated other comprehensive (loss) income

(478
)
79

(399
)
Tax provision (benefit)

189

(30
)
159

Net reclassifications

(289
)
49

(240
)
Other comprehensive loss
(545
)
(289
)
(101
)
(935
)
Balance October 29, 2016
$
61

$
(6,221
)
$
(150
)
$
(6,310
)
 
 
 
 
 
Balance August 1, 2015
$
(302
)
$
2,775

$
554

$
3,027

Other comprehensive income (loss) before reclassifications
348


(189
)
159

Reclassifications:
 
 
 
 
Amounts reclassified from accumulated other comprehensive (loss) income

(382
)
16

(366
)
Tax provision (benefit)

152

(11
)
141

Net reclassifications

(230
)
5

(225
)
Other comprehensive income (loss)
348

(230
)
(184
)
(66
)
Balance October 31, 2015
$
46

$
2,545

$
370

$
2,961

 
 
 
 
 
Balance January 30, 2016
$
(900
)
$
(5,356
)
$
392

$
(5,864
)
Other comprehensive income (loss) before reclassifications
961


(789
)
172

Reclassifications:
 
 
 
 
Amounts reclassified from accumulated other comprehensive (loss) income

(1,432
)
392

(1,040
)
Tax provision (benefit)

567

(145
)
422

Net reclassifications

(865
)
247

(618
)
Other comprehensive income (loss)
961

(865
)
(542
)
(446
)
Balance October 29, 2016
$
61

$
(6,221
)
$
(150
)
$
(6,310
)
 
 
 
 
 
Balance January 31, 2015
$
(745
)
$
3,233

$
224

$
2,712

Other comprehensive income before reclassifications
791


176

967

Reclassifications:
 
 
 
 
Amounts reclassified from accumulated other comprehensive (loss) income

(1,140
)
(22
)
(1,162
)
Tax provision (benefit)

452

(8
)
444

Net reclassifications

(688
)
(30
)
(718
)
Other comprehensive income (loss)
791

(688
)
146

249

Balance October 31, 2015
$
46

$
2,545

$
370

$
2,961

(1)
Amounts reclassified are included in selling and administrative expenses. See Note 9 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits.
(2)
Amounts reclassified are included in net sales, costs of goods sold, selling and administrative expenses and interest expense. See Notes 10 and 11 to the condensed consolidated financial statements for additional information related to derivative financial instruments.

13




Note 8
Share-Based Compensation
 
The Company recognized share-based compensation expense of $1.6 million and $1.8 million during the thirteen weeks and $6.0 million and $5.4 million during the thirty-nine weeks ended October 29, 2016 and October 31, 2015, respectively. In addition to share-based compensation expense, the Company recognized cash-based expense related to performance share units and cash awards granted under the performance share plans of $0.4 million and $1.5 million during the thirteen weeks and $2.1 million and $5.7 million during the thirty-nine weeks ended October 29, 2016 and October 31, 2015, respectively.
 
The Company issued 7,267 and 14,216 shares of common stock during the thirteen weeks and 415,701 and 379,058 during the thirty-nine weeks ended October 29, 2016 and October 31, 2015, respectively, for stock-based awards, stock options exercised and directors' fees.

Restricted Stock 
The following table summarizes restricted stock activity for the periods ended October 29, 2016 and October 31, 2015:
 
Thirteen Weeks Ended October 29, 2016
 
 
Thirteen Weeks Ended October 31, 2015
 
 
 
Weighted- Average Grant Date Fair Value
 
 
 
 
Weighted- Average Grant Date Fair Value
 
Total Number of Restricted Shares
 
 
 
Total Number of Restricted Shares
 
 
 
 
 
 
July 30, 2016
1,139,299

 
$
25.42

 
August 1, 2015
1,395,616

 
$
18.97

Granted
6,500

 
25.18

 
Granted
8,000

 
33.14

Forfeited
(29,500
)
 
24.87

 
Forfeited
(42,500
)
 
17.64

Vested

 

 
Vested
(17,000
)
 
7.30

October 29, 2016
1,116,299

 
$
25.43

 
October 31, 2015
1,344,116

 
$
19.24


 
Thirty-nine Weeks Ended October 29, 2016
 
 
Thirty-nine Weeks Ended October 31, 2015
 
 
 
Weighted- Average Grant Date Fair Value
 
 
 
 
Weighted- Average Grant Date Fair Value
 
Total Number of Restricted Shares
 
 
 
Total Number of Restricted Shares
 
 
 
 
 
 
January 30, 2016
1,262,449

 
$
19.55

 
January 31, 2015
1,562,470

 
$
15.61

Granted
357,100

 
26.54

 
Granted
301,421

 
30.19

Forfeited
(78,000
)
 
23.67

 
Forfeited
(92,350
)
 
18.65

Vested
(425,250
)
 
9.22

 
Vested
(427,425
)
 
13.88

October 29, 2016
1,116,299

 
$
25.43

 
October 31, 2015
1,344,116

 
$
19.24


Of the 6,500 and 8,000 restricted shares granted during the thirteen weeks ended October 29, 2016 and October 31, 2015, respectively, all of the shares have a vesting term of four years. Of the 357,100 restricted shares granted during the thirty-nine weeks ended October 29, 2016, all of the shares have a vesting term of four years. Of the 301,421 restricted shares granted during the thirty-nine weeks ended October 31, 2015, 288,921 have a vesting term of four years and 12,500 of the shares have a vesting term of five years. Share-based compensation expense is recognized on a straight-line basis over the respective vesting periods.

Performance Share Awards
During the thirteen weeks ended October 29, 2016 and October 31, 2015, the Company granted no performance share awards. During the thirty-nine weeks ended October 29, 2016 and October 31, 2015, the Company granted performance share awards for a targeted 159,000 and 177,921 shares, respectively, with a weighted-average grant date fair value of $26.64 and $30.12, respectively. Vesting of performance-based awards is dependent upon the financial performance of the Company and the attainment of certain financial goals during the three-year period following the grant. At the end of the vesting period, the employee will have earned an amount of shares or units between 0% and 200% of the targeted award, depending on the achievement of the specified financial goals for the service period. Compensation expense is recognized based on the fair value of the award and the anticipated number of shares or units to be awarded in accordance with the vesting schedule of the units over the three-year service period.

14



The performance share units are settled in cash and their fair value is based on the unadjusted quoted market price for the Company’s common stock on each measurement date.

Stock Options
The following table summarizes stock option activity for the periods ended October 29, 2016 and October 31, 2015:
 
Thirteen Weeks Ended October 29, 2016
 
 
Thirteen Weeks Ended October 31, 2015
 
 
 
Weighted- Average Grant Date Fair Value
 
 
 
 
Weighted- Average Grant Date Fair Value
 
Total Number of Stock Options
 
 
 
Total Number of Stock Options
 
 
 
 
 
 
July 30, 2016
222,790

 
$
8.98

 
August 1, 2015
323,386

 
$
9.02

Granted

 

 
Granted

 

Exercised

 

 
Exercised
(6,216
)
 
8.72

Forfeited
(2,250
)
 
15.94

 
Forfeited
(4,500
)
 
15.94

Expired
(15,000
)
 
9.82

 
Expired

 

October 29, 2016
205,540

 
$
8.85

 
October 31, 2015
312,670

 
$
8.93


 
Thirty-nine Weeks Ended October 29, 2016
 
 
Thirty-nine Weeks Ended October 31, 2015
 
 
 
Weighted- Average Grant Date Fair Value
 
 
 
 
Weighted- Average Grant Date Fair Value
 
Total Number of Stock Options
 
 
 
Total Number of Stock Options
 
 
 
 
 
 
January 30, 2016
301,295

 
$
8.95

 
January 31, 2015
416,803

 
$
8.42

Granted

 

 
Granted
16,667

 
12.81

Exercised
(56,381
)
 
7.41

 
Exercised
(76,849
)
 
7.25

Forfeited
(9,749
)
 
15.94

 
Forfeited
(7,500
)
 
15.94

Expired
(29,625
)
 
10.27

 
Expired
(36,451
)
 
6.95

October 29, 2016
205,540

 
$
8.85

 
October 31, 2015
312,670

 
$
8.93


Of the 16,667 stock options granted during the thirty-nine weeks ended October 31, 20158,333 have a vesting period of four years and 8,334 have a vesting period of five years.

Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of cash-equivalent restricted stock units ("RSUs"). The RSUs earn dividend equivalents at the same rate as dividends on the Company's common stock and are automatically re-invested in additional RSUs. The Company granted 1,086 and 784 RSUs for dividend equivalents to non-employee directors during the thirteen weeks ended October 29, 2016 and October 31, 2015, respectively, with weighted-average grant date fair values of $24.98 and $30.40, respectively. The Company granted 55,250 and 38,228 RSUs, including 3,050 and 2,229 RSUs for dividend equivalents, to non-employee directors during the thirty-nine weeks ended October 29, 2016 and October 31, 2015, respectively, with weighted-average grant date fair values of $21.78 and $31.66, respectively. All RSUs for dividend equivalents vested immediately and compensation expense was fully recognized during the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015.


15



Note 9
Retirement and Other Benefit Plans
 
The following table sets forth the components of net periodic benefit income for the Company, including domestic and Canadian plans:
 
Pension Benefits
Other Postretirement Benefits
 
Thirteen Weeks Ended
Thirteen Weeks Ended
($ thousands)
October 29, 2016

October 31, 2015

October 29, 2016

October 31, 2015

Service cost
$
2,084

$
3,160

$

$

Interest cost
3,835

3,580

15

14

Expected return on assets
(7,237
)
(7,919
)


Amortization of:
 

 

 

 

Actuarial loss (gain)
38

152

(55
)
(56
)
Prior service income
(461
)
(478
)


Settlement cost




Total net periodic benefit income
$
(1,741
)
$
(1,505
)
$
(40
)
$
(42
)
 
 
 
 
 
 
Pension Benefits
Other Postretirement Benefits
 
Thirty-nine Weeks Ended
Thirty-nine Weeks Ended
($ thousands)
October 29, 2016

October 31, 2015

October 29, 2016

October 31, 2015

Service cost
$
6,251

$
9,482

$

$

Interest cost
11,506

10,744

45

42

Expected return on assets
(21,712
)
(23,764
)


Amortization of:
 

 

 

 

Actuarial loss (gain)
115

461

(165
)
(167
)
Prior service income
(1,382
)
(1,434
)


Settlement cost
250




Total net periodic benefit income
$
(4,972
)
$
(4,511
)
$
(120
)
$
(125
)

Note 10
Risk Management and Derivatives
 
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions. 
 
Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions and have varying maturities through October 2017. Credit risk is managed through the continuous monitoring of exposures to such counterparties. 
 
The Company’s hedging strategy uses foreign currency forward contracts as cash flow hedging instruments, which are recorded in the Company's condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive (loss) income and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

Hedge ineffectiveness is evaluated using the hypothetical derivative method. The amount of hedge ineffectiveness for the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015 was not material. 
 

16



As of October 29, 2016, October 31, 2015 and January 30, 2016, the Company had forward contracts maturing at various dates through October 2017, October 2016 and January 2017, respectively. The contract notional amount represents the net amount of all purchase and sale contracts of a foreign currency. 
 
Contract Notional Amount
(U.S. $ equivalent in thousands)
October 29, 2016

October 31, 2015

January 30, 2016

Financial Instruments
 
 
 
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
$
17,229

$
17,820

$
14,118

Euro
10,854

16,178

15,499

Chinese yuan
13,038

15,828

14,623

Japanese yen
1,145

1,184

1,159

United Arab Emirates dirham
1,143

866

930

New Taiwanese dollars
538

610

570

Other currencies
206

243

219

Total financial instruments
$
44,153

$
52,729

$
47,118

 
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of October 29, 2016, October 31, 2015 and January 30, 2016 are as follows:

 
Asset Derivatives
 
Liability Derivatives
($ thousands)
Balance Sheet Location
Fair Value

 
Balance Sheet Location
Fair Value

 
 
 
 
 
 
Foreign exchange forward contracts:
 

 
 
 

October 29, 2016
Prepaid expenses and other current assets
$
362

 
Other accrued expenses
$
570

October 31, 2015
Prepaid expenses and other current assets
513

 
Other accrued expenses
598

January 30, 2016
Prepaid expenses and other current assets
1,000

 
Other accrued expenses
846

 
For the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:

 
Thirteen Weeks Ended
Thirteen Weeks Ended
($ thousands)
October 29, 2016
October 31, 2015
Foreign exchange forward contracts:
Income Statement Classification Gains (Losses) - Realized
Gain (Loss) Recognized in OCI on Derivatives

Loss Reclassified from Accumulated OCI into Earnings

(Loss) Gain Recognized in OCI on Derivatives

Gain (Loss) Reclassified from Accumulated OCI into Earnings

 
 
 
 
 
Net sales
$
16

$
(55
)
$
(35
)
$
19

Cost of goods sold
(181
)
(8
)
413

74

Selling and administrative expenses
(97
)
(15
)
(603
)
(109
)
Interest expense
5

(1
)
(13
)



17



 
Thirty-Nine Weeks Ended
Thirty-Nine Weeks Ended
($ thousands)
October 29, 2016
October 31, 2015
 
 
 
 
 
Foreign exchange forward contracts:
Income Statement Classification (Losses) Gains - Realized
Loss Recognized in OCI on Derivatives

(Loss) Gain Reclassified from Accumulated OCI into Earnings

Gain (Loss) Recognized in OCI on Derivatives

Gain (Loss) Reclassified from Accumulated OCI into Earnings

 
 
 
 
 
Net sales
$
(173
)
$
(127
)
$
24

$
132

Cost of goods sold
(766
)
109

945

(48
)
Selling and administrative expenses
(121
)
(373
)
(570
)
(62
)
Interest expense
(19
)
(1
)
(27
)


All gains and losses currently included within accumulated other comprehensive (loss) income associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 11 to the condensed consolidated financial statements. 
 
Note 11
Fair Value Measurements
 
Fair Value Hierarchy 
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows: 

Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. 

Measurement of Fair Value 
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value. 
 
Money Market Funds 
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations and it does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1). 
 

18



Deferred Compensation Plan Assets and Liabilities 
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified as trading securities within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1). 
 
Deferred Compensation Plan for Non-Employee Directors  
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs that is equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statement of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). 
 
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company may be granted at no cost to non-employee directors. The RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units, and are settled in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each RSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).  Additional information related to restricted stock units for non-employee directors is disclosed in Note 8 to the condensed consolidated financial statements.
 
Performance Share Units
Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period at no cost to certain officers and key employe