EX-99.3 4 exhibit993.htm EXHIBIT 99.3 Exhibit

Exhibit 99.3  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA 

Except as otherwise indicated in the information included in this Exhibit 99.3, or as the context may otherwise require, references to (i) the terms “Company,” “we,” “us,” “Caleres,” and “our” refer to Caleres, Inc. and its subsidiaries; (ii) the term “Vionic” refers to Vionic Group LLC and Vionic International LLC, and VCG Holdings Ltd., a Cayman Islands corporation (collectively, "Vionic"); and (iii) the term “Transaction” refers to the Equity and Asset Purchase Agreement entered into between Caleres, Inc. and the equity holders of Vionic on October 18, 2018.  

The following unaudited pro forma condensed combined financial information for Caleres gives effect to the Transaction as if it had occurred on the dates indicated below and after giving effect to the pro forma adjustments. The unaudited pro forma condensed combined statement of earnings for the fiscal year ended February 3, 2018 has been derived from the Company's audited consolidated statement of earnings for Caleres' fiscal 2017, ending February 3, 2018, and Vionic’s audited consolidated statement of income for Vionic's fiscal 2017, ending December 31, 2017, and gives effect to the consummation of the Transaction as if it had occurred on January 29, 2017 (the beginning of Caleres' fiscal 2017). The unaudited pro forma condensed combined balance sheet as of August 4, 2018 has been derived from Caleres' unaudited condensed consolidated balance sheet as of August 4, 2018 and Vionic's unaudited consolidated balance sheet as of June 30, 2018, adjusted to give effect to the Transaction as if it had occurred on August 4, 2018 (the end of Caleres' second fiscal quarter). The unaudited pro forma condensed combined financial data should be read in conjunction with the historical financial statements and the accompanying notes of Caleres included in the Annual Report on Form 10-K filed with the SEC on April 4, 2018 and quarterly report on Form 10-Q filed with the SEC on September 12, 2018, and the audited consolidated financial statements of Vionic included as Exhibit 99.2 to this Current Report on Form 8-K/A.  The pro forma adjustments are based upon available information and certain assumptions that we consider reasonable. The pro forma adjustments have been made solely for purposes of developing the pro forma financial information for illustrative purposes necessary to comply with the requirements of Article 11 of Regulation S-X.  The actual results reported in periods following the Transaction may differ significantly from those reflected in the unaudited pro forma condensed combined financial data for a number of reasons, including but not limited to, differences between the assumptions used to prepare these unaudited pro forma financial statements and actual amounts, potential cost savings from operating efficiencies, potential synergies, the timing of anticipated repayments of our borrowings under revolving credit agreement and the impact of any incremental costs incurred to integrate Vionic. The pro forma results of operations are not necessarily indicative of the results of operations that would have been achieved had the Transaction reflected therein been consummated on the dates indicated or that will be achieved in the future.


1

CALERES, INC.
 
 
 
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AUGUST 4, 2018
 
 
 
 
 
 
 
 
 
 
 
($ thousands)
Historical Caleres

Historical Vionic

Pro Forma Adjustments

 
Pro Forma Combined

Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
102,884

$
1,628

$
7,660

(a)
$
112,172

Receivables, net
153,421

35,307

2,250

(b)
190,978

Inventories, net
715,705

37,800

16,329

(c)
769,834

Prepaid expenses and other current assets
62,159

1,968

(318
)
(d)
63,809

Total current assets
1,034,169

76,703

25,921

 
1,136,793

 
 
 
 
 
 
Other assets
89,701

—

—

 
89,701

Goodwill
134,546

—

143,069

(e)
277,615

Intangible assets, net
227,503

2,554

142,146

(f)
372,203

Property and equipment, net
207,726

6,989

—

 
214,715

Total assets
$
1,693,645

$
86,246

$
311,136

 
$
2,091,027

 
 
 
 
 
 
Liabilities and Equity
 

 
 
 
 
Current liabilities:
 

 
 
 
 
Borrowings under revolving credit agreement
$
—

$
33,354

$
326,646

(g)
$
360,000

Trade accounts payable
400,391

21,464

—

 
421,855

Other accrued expenses
195,987

6,090

13,320

(h)
215,397

Total current liabilities
596,378

60,908

339,966

 
997,252

 
 
 
 
 
 
Other liabilities:
 

 
 
 
 
Long-term debt
197,702

20,650

(20,650
)
(i)
197,702

Deferred rent
52,396

—

—

 
52,396

Other liabilities
109,975

4,910

(4,910
)
(j)
109,975

Total other liabilities
360,073

25,560

(25,560
)
 
360,073

 
 
 
 
 
 
Equity:
 

 
 
 
 
Total Caleres, Inc. shareholders’ equity
735,853

(222
)
(3,270
)
(k)
732,361

Noncontrolling interests
1,341

—

—

 
1,341

Total equity
737,194

(222
)
(3,270
)
 
733,702

Total liabilities and equity
$
1,693,645

$
86,246

$
311,136

 
$
2,091,027

See accompanying notes to the unaudited pro forma condensed combined financial statements.


2

CALERES, INC.
 
 
 
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
TWENTY-SIX WEEKS ENDED AUGUST 4, 2018
 
 
 
 
 
 
 
($ thousands, except per share amounts)
Historical Caleres

Historical Vionic

Pro Forma Adjustments

 
Pro Forma Combined

Net sales
$
1,338,754

$
100,171

$
(898
)
(l)
$
1,438,027

Cost of goods sold
770,731

50,987

—


821,718

Gross profit
568,023

49,184

(898
)

616,309

Selling and administrative expenses
509,033

34,736

3,345

(m)
547,114

Restructuring and other special charges, net
3,900

—

—


3,900

Operating earnings (loss)
55,090

14,448

(4,243
)

65,295

Interest expense, net
(7,285
)
(1,115
)
(4,744
)
(n)
(13,144
)
Other income (expense), net
6,169

(493
)
—


5,676

Earnings (loss) before income taxes
53,974

12,840

(8,987
)

57,827

Income tax provision
(13,183
)
—

(1,211
)
(o)
(14,394
)
Net earnings (loss)
40,791

12,840

(10,198
)

43,433

Net loss attributable to noncontrolling interests
(67
)
—

—


(67
)
Net earnings (loss) attributable to Caleres, Inc.
$
40,858

$
12,840

$
(10,198
)

$
43,500

 
 
 
 
 
 
Basic earnings per common share attributable to Caleres, Inc. shareholders
$
0.95

 
 
 
$
1.01

 
 
 
 
 
 
Diluted earnings per common share attributable to Caleres, Inc. shareholders
$
0.94

 
 
 
$
1.01

 
 
 
 
 
 
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders
41,937

 
 
 
41,937

 
 
 
 
 
 
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders
42,057

 
 
 
42,057

See accompanying notes to the unaudited pro forma condensed combined financial statements.


3

CALERES, INC.
 
 
 
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FISCAL YEAR ENDED FEBRUARY 3, 2018
 
 
 
($ thousands)
Historical Caleres

Historical Vionic

Pro Forma Adjustments

 
Pro Forma Combined

Net sales
$
2,785,584

$
157,167

$
(1,134
)
(l)
$
2,941,617

Cost of goods sold
1,616,935

87,955

—

 
1,704,890

Gross profit
1,168,649

69,212

(1,134
)
 
1,236,727

Selling and administrative expenses
1,036,050

52,755

7,516

(m)
1,096,321

Restructuring and other special charges, net
4,915

—

—

 
4,915

Operating earnings (loss)
127,684

16,457

(8,650
)

135,491

Interest expense, net
(17,325
)
(1,608
)
(11,705
)
(n)
(30,638
)
Other income, net
12,347

83

—

 
12,430

Earnings (loss) before income taxes
122,706

14,932

(20,355
)

117,283

Income tax (provision) benefit
(35,475
)
—

2,023

(o)
(33,452
)
Net earnings (loss)
87,231

14,932

(18,332
)

83,831

Net earnings attributable to noncontrolling interests
31

—

—

 
31

Net earnings (loss) attributable to Caleres, Inc.
$
87,200

$
14,932

$
(18,332
)

$
83,800

 
 
 
 
 
 
Basic earnings per common share attributable to Caleres, Inc. shareholders
$
2.03

 
 
 
$
1.95

 
 
 
 
 
 
Diluted earnings per common share attributable to Caleres, Inc. shareholders
$
2.02

 
 
 
$
1.94

 
 
 
 
 
 
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders
41,801

 
 
 
41,801

 
 
 
 
 
 
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders
41,980

 
 
 
41,980

See accompanying notes to the unaudited pro forma condensed combined financial statements.


4

Notes to Pro Forma Condensed Combined Financial Statements

Note 1
Basis of Presentation

The historical condensed consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are directly attributable to the business combination, factually supportable and, with respect to the pro forma condensed combined statements of earnings, expected to have a continuing impact on the combined results following the business combination. The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated on a preliminary basis the fair value of Vionic’s assets acquired and liabilities assumed and conformed the accounting policies of Vionic to its own accounting policies. The pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or earnings would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and earnings of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The combined pro forma financial information does not reflect the realization of any synergies from the acquisition of Vionic as a result of potential cost savings initiatives following the completion of the business combination.

In March 2017, the Financial Accounting Standards Board issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU amended Accounting Standards Codification ("ASC") 715, Compensation — Retirement Benefits, to require employers that present a measure of operating income in their statements of earnings to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net periodic benefit cost are to be included in non-operating expenses. The ASU was effective for the Company at the beginning of the 2018 fiscal year. The Company adopted the ASU during the first quarter of 2018 on a retrospective basis using the practical expedient permitted by the ASU. As a result of the retrospective adoption of the ASU, the Company reclassified $12.3 million of non-service cost components of net periodic benefit income for the fiscal year ended February 3, 2018 from selling and administrative expenses to other income, net in the "Historical Caleres" column in the condensed combined statement of earnings.

Note 2
Financing of Acquisition

The Company completed the acquisition of Vionic for approximately $360.7 million (or $352.2 million, net of $8.5 million of cash received). The purchase was funded with borrowings from the Company's revolving credit agreement. In connection with the acquisition, Vionic’s existing debt was extinguished at the transaction date.


5

Note 3
Preliminary Purchase Price Allocation

The Company has preliminarily allocated the purchase price as follows: 
($ thousands)
 
August 4, 2018

ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
 
$
6,840

Receivables
 
35,307

Inventories
 
54,129

Prepaid expense and other current assets
 
1,650

Total current assets
 
97,926

Goodwill
 
143,069

Intangible assets
 
144,700

Property and equipment
 
6,989

Total assets
 
$
392,684

 
 
 
LIABILITIES AND EQUITY
 
 
Current liabilities:
 
 
Trade accounts payable
 
$
21,464

Other accrued expenses
 
10,530

Total current liabilities
 
31,994

Net assets
 
$
360,690


This preliminary purchase price allocation is on a pro forma basis, giving effect to the transaction as if it had occurred on August 4, 2018. The allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statements of earnings. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments and may result in changes in allocations to the intangible assets, goodwill and other assets and liabilities.

Note 4
Pro Forma Adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial statements:

Balance Sheet Adjustments

(a)     Cash and cash equivalents
Reflects the following:
($ thousands)
 
August 4, 2018

Additional borrowings under Caleres' revolving credit facility to fund the Transaction
 
$
360,000

First payment of purchase price of Vionic (1)
 
(353,444
)
Capital contribution from Vionic owners
 
5,212

Incremental transaction costs associated with the Transaction (2)
 
(4,108
)
 
 
$
7,660

(1)  The aggregate purchase price of Vionic was $360.7 million, of which $353.4 million was funded on the Transaction date and $7.3 million was funded in early November.
(2) The incremental transaction costs are not reflected in the pro forma condensed combined statements of earnings because they do not have a continuing impact on operating results.


6




(b)     Receivables, net
Represents the reclassification of the allowance for future returns totaling $2.3 million from receivables, net to other accrued expenses, to conform with Caleres' current presentation.

(c)     Inventories, net
Represents the estimated fair value adjustment of $16.3 million to the inventory acquired as of the Transaction date. The fair value adjustment would likely be different as of August 4, 2018. The fair value calculation is preliminary and subject to change. The fair value of the inventory was determined based on the estimated selling price of the inventory, less selling costs, a normal profit margin on the selling costs and the royalty to the trademarks. After the acquisition, the inventory fair value adjustment will increase cost of goods sold over approximately nine months as the inventory is sold. This increase in cost of goods sold is not reflected in the pro forma condensed combined statements of earnings because it does not have a continuing impact on operating results.

(d)     Prepaid expenses and other current assets
Reflects the elimination of $0.3 million of Vionic's deferred borrowing costs, as borrowings were extinguished in connection with the Transaction.

(e)     Goodwill
Reflects the excess of the actual purchase price over the estimated fair value of Vionic's net assets as of August 4, 2018, after consideration of the pro forma adjustments outlined herein. The allocation of the purchase price is preliminary and is based on our estimates of the fair value of the assets acquired and liabilities assumed. The final purchase price allocation will be completed after asset and liability valuations are finalized. This final valuation will be based on the actual assets and liabilities of Vionic that exist as of the date of the Transaction and goodwill may be different than the balance reflected in the pro forma condensed combined balance sheet. Any final adjustments may change the allocation of the purchase price, which could affect the fair value assigned to the assets and liabilities and could result in significant changes to the unaudited pro forma condensed combined financial data.

(f)     Intangible assets, net
Reflects the adjustment of historical intangible assets acquired by the Company to their estimated fair values. The Company identified intangible assets, including trademarks and customer relationships, as part of the preliminary valuation analysis. The fair value of identifiable intangible assets was determined primarily using the "income approach", which requires a forecast of all expected future cash flows. The estimated fair values of Vionic's identifiable intangible assets and estimated useful lives are as follows:
 
 
 
Pro Forma Amortization
($ thousands)
Estimated Fair Value

Estimated Useful Lives
Twenty-Six Weeks Ended August 4, 2018

Fiscal Year Ended February 3, 2018

Trademarks
$
112,400

20 years
$
2,810

$
5,620

Customer relationships
32,300

15 years
1,120

2,423

 
$
144,700

 
$
3,930

$
8,043

Historical intangibles net book value
2,554

 
—

—

Pro forma adjustments
$
142,146

 
$
3,930

$
8,043



(g)     Borrowings under revolving line of credit agreement
Reflects the following:
($ thousands)
August 4, 2018

Additional borrowings under Caleres' revolving line of credit agreement to fund the Transaction
$
360,000

Extinguishment of Vionic's borrowings under its revolving credit agreement upon closing of the Transaction
(33,354
)
 
$
326,646


7



(h)     Other accrued expenses
Reflects the following:
($ thousands)
August 4, 2018

Accrual for the second payment of the purchase price of Vionic, as discussed in adjustment (a) above
$
7,246

Accrual for Vionic transaction bonuses
5,212

Reclassification of the allowance for future returns from receivables to other accrued expenses, as discussed in adjustment (b) above
2,250

Extinguishment of Vionic's capital lease obligation of $0.8 million upon closing of the Transaction
(772
)
Income tax benefit related to the $4.1 million of incremental transaction costs associated with the Transaction
(616
)
 
$
13,320



(i)        Long-term debt
Represents the extinguishment of Vionic's long-term debt of $20.7 million upon closing of the Transaction.

(j)     Other liabilities
Reflects the repayment of the related party liability of $4.9 million upon closing of the Transaction.

(k)     Shareholders' equity
Reflects the following:
($ thousands)
August 4, 2018

Elimination of historical Vionic owners’ equity for combined presentation
$
222

Estimated retained earnings impact of incremental transaction costs associated with the Transaction of $4.1 million, net of $0.6 million of income tax benefit
(3,492
)
 
$
(3,270
)


Statements of Earnings Adjustments
(l)     Net sales
Reflects the reclassification of co-op advertising of $0.9 million and $1.1 million for the twenty-six weeks ended August 4, 2018 and fiscal year ended February 3, 2018, respectively, from selling and administrative expenses to net sales to conform to Caleres' presentation.

(m)     Selling and administrative expenses
Reflects the following:
($ thousands)
Twenty-Six Weeks Ended August 4, 2018

Fiscal Year Ended February 3, 2018

Estimated amortization expense of intangible assets, as described in adjustment (f)
$
3,930

$
8,043

Reclassification of co-op advertising to net sales, as described in adjustment (l)
(898
)
(1,134
)
Incremental stock-based compensation expense for Vionic officers
313

607

 
$
3,345

$
7,516


8


(n)     Interest expense, net
Represents the net increase to interest expense on the revolving credit agreement to fund the Transaction as follows:
($ thousands)
Twenty-Six Weeks Ended August 4, 2018

Fiscal Year Ended February 3, 2018

Elimination of Vionic's interest expense
$
1,115

$
1,608

Estimated interest expense on additional borrowings under Caleres' revolving credit agreement to fund the Transaction at our current interest rate of 3.75%. Assumes paydown of revolver borrowings during the fourth quarter of fiscal 2017 from $360 million to $330 million at February 3, 2018 and gradual paydown to $300 million at August 4, 2018.
(5,859
)
(13,313
)
 
$
(4,744
)
$
(11,705
)


(o)     Income tax (provision) benefit
Reflects the tax effect of the historical Vionic earnings before income taxes and pro forma adjustments based on the estimated statutory tax rate in effect during the respective periods. The tax effect of the pro forma interest expense adjustments for borrowings under Caleres' revolving credit agreement were calculated at 38.9% and 25.74% for the fiscal year ended February 3, 2018 and twenty-six weeks ended August 4, 2018, respectively, reflecting the Caleres effective tax rates. The tax effect of the other pro forma adjustments for the fiscal year ended February 3, 2018 and twenty-six weeks ended August 4, 2018 was calculated utilizing an estimated effective tax rate of 40% and 28%, respectively.

($ thousands)
Twenty-Six Weeks Ended August 4, 2018

Fiscal Year Ended February 3, 2018

Tax effect of historical Vionic earnings before income taxes
$
(3,595
)
$
(5,973
)
Tax effect of pro forma adjustments
2,384

7,996

 
$
(1,211
)
$
2,023





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