CALERES INC — Interim / Quarterly Report 2000

Jun 9, 2000

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 April 29, 2000 [ ] 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 ______ BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter) New York 43-0197190 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 8300 Maryland Avenue St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) (314) 854-4000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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 [x] No [ ] As of May 27, 2000, 18,216,190 shares of the registrant's common stock were outstanding. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands)

See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Thousands, except per share)

See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands)

See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation - ------------------------------ The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals and the effect on LIFO inventory valuation of estimated annual inflationary cost increases and year-end inventory levels) to present fairly the results of operations. These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's financial position, results of operations and cash flow in conformity with generally accepted accounting principles. The Company's business is subject to seasonal influences, and 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. For further information refer to the consolidated financial statements and footnotes included in the Company's Annual Report and Form 10-K for the period ended January 29, 2000. Note B - Earnings Per Share - --------------------------- The following table sets forth the computation of basic and diluted earnings per share for the periods ended April 29, 2000 and May 1, 1999 (000's, except per share data): Thirteen Weeks Ended -------------------- April 29, May 1, 2000 1999 --------- ------- Numerator: Net earnings - Basic and Diluted $ 6,548 $ 6,316 ======== ======== Denominator: Weighted average shares outstanding-Basic 17,919 17,765 Effect of potentially dilutive securities 141 211 -------- -------- Weighted average shares outstanding-Diluted 18,060 17,976 ======== ======== Basic earnings per common share $ .37 $ .36 ======== ======== Diluted earnings per common share $ .36 $ .35 ======= ======== Note C - Comprehensive Income - ----------------------------- Comprehensive Income includes all changes in equity except those resulting from investments by shareholders and distributions to shareholders. The following table sets forth the reconciliation from Net Earnings to Comprehensive Income for the periods ended April 29, 2000 and May 1, 1999 (000's): Thirteen Weeks Ended -------------------- April 29, May 1, 2000 1999 --------- ------- Net Earnings $6,548 $6,316 Foreign Currency Translation Adjustment (777) 1,806 ------ ------ Comprehensive Income $5,771 $8,122 ====== ====== Note D - Business Segment Information - ------------------------------------- Applicable business segment information is as follows for the periods ended April 29, 2000 and May 1, 1999 (000's):

Reconciliation of operating profit to consolidated earnings before income taxes (000's): Thirteen Weeks Ended --------------------------- April 29, 2000 May 1, 1999 -------------- ----------- Total operating profit $14,128 $16,309 Interest expense 4,265 4,683 Non-operating other (income) expense (77) 1,446 ------- ------- Earnings before income taxes $ 9,940 $10,180 ======= ======= Operating profit represents gross profit less general and administrative expenses and other operating income or expense. The "Other" segment includes Corporate general and administrative expenses, which are not allocated to the operating units. Results from the Scholze Tannery business are also included in the "Other" segment in fiscal 1999. At the end of fiscal 1999, the Company sold the Scholze Tannery business at approximately book value. Note E - Stock Repurchase Program - --------------------------------- On May 4, 2000, the Company announced the approval by the Board of Directors of a stock repurchase program which allows the Company to repurchase up to 2 million shares of the Company's outstanding common stock. Note F - Condensed Consolidated Financial Information - ----------------------------------------------------- Certain of the Company=s debt is unconditionally and jointly and severally guaranteed by certain wholly-owned domestic subsidiaries of the Company. Accordingly, condensed consolidating balance sheets as of April 29, 2000 and May 1, 1999, and the related condensed consolidating statements of earnings and cash flows for the quarters ended April 29, 2000 and May 1, 1999, are provided. These condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that this information, presented in lieu of complete financial statements for each of the guarantor subsidiaries, provides meaningful information to allow investors to determine the nature of the assets held by, and the operations and cash flows of, each of the consolidating groups. CONDENSED CONSOLIDATING BALANCE SHEET AS OF APRIL 29, 2000 (Thousands)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTEEN WEEKS ENDED APRIL 29, 2000 (Thousands)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTEEN WEEKS ENDED APRIL 29, 2000 (Thousands)

CONDENSED CONSOLIDATING BALANCE SHEET AS OF MAY 1, 1999 (Thousands)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTEEN WEEKS ENDED MAY 1, 1999 (Thousands)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTEEN WEEKS ENDED MAY 1, 1999 (Thousands)

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------- Results of Operations - --------------------- Quarter ended April 29, 2000 compared to the Quarter ended May 1, 1999 - ----------------------------------------------------------------------- Consolidated net sales for the fiscal quarter ended April 29, 2000 were $394.3 million compared to $396.8 million in the quarter ended May 1, 1999. Net earnings of $6.5 million for the first quarter of 2000 compares to net earnings of $6.3 million in the first quarter of 1999. Famous Footwear achieved a sales increase of 6.0% during the first quarter of 2000 to $237.0 million. The increase was driven by 36 more stores, reflecting a total of 870 stores in operation, slightly offset by a 1.0% same-store sales decline. Operating earnings for the first quarter of 2000 decreased 3.1% to $11.0 million from $11.4 million last year, due to the combination of lower same-store sales and competitive pressure on margins. The Company's wholesale operations - the Brown Branded, Brown Pagoda and Brown Canada divisions - had net sales of $110.3 million during the first quarter of 2000 compared to $126.3 million last year. This sales decrease was primarily due to significant sales of Star Wars movie-related children's shoes in the first quarter last year. Operating earnings of $8.1 million decreased from $9.9 million in the first quarter of 1999 primarily as a result of the lower sales. In the Company's Naturalizer Retail operations, which includes both the United States and Canadian stores, net sales increased 6.5% to $47.0 million in the first quarter of 2000. Same-store sales in the first quarter of 2000 increased 3.1% in the United States while decreasing 4.2% in Canada. Domestically, the Company had 11 more stores in operation in 2000; Canada had 5 more stores in operation. At the end of the first quarter of 2000, 480 stores were in operation including 339 stores in the United States and 141 stores in Canada. Total Naturalizer retail operations incurred an operating loss of $1.7 million in the first quarter of fiscal 2000 compared to a $1.2 million loss in 1999. The higher operating loss resulted from increased marketing costs to support the new Naturalizer brand image, and the same-store sales decline at the Canadian stores. Consolidated gross profit as a percent of sales increased to 41.0% from 39.8% during the same period last year. This increase was primarily due to higher margins at the Company's wholesale operations and a higher mix of retail sales, which historically earn higher margins than wholesale sales. Selling and administrative expenses as a percent of sales increased to 37.5% from 35.7% during the same period last year. This increase was due to the lower level of sales within the wholesale operations, higher expenses within the retail operations, and a higher mix of retail sales, which carry a higher expense rate. Other income in the first quarter of 2000 primarily represents interest and royalty income. In 1999, other expense included additional provisions for environmental remediation costs associated with an owned facility in Colorado as well as other legal matters. The consolidated tax rate was 34.1% of consolidated pre-tax income for the first quarter of 2000 compared to 38.0% for last year. The fiscal 1999 effective rate was higher due to losses at the now discontinued Pagoda International marketing division on which no tax benefit was recorded. Financial Condition - ------------------- A summary of key financial data and ratios at the dates indicated is as follows: April 29, May 1, January 29, 2000 1999 2000 ---------- ------ ----------- Working Capital (millions) $274.3 $254.2 $270.0 Current Ratio 2.1:1 2.0:1 2.2:1 Total Debt as a Percentage of Total Capitalization 42.6% 48.4% 40.8% Cash flow from operating activities for the first quarter of fiscal 2000 was a net usage of $11.4 million versus a net usage of $21.7 million last year. In the first quarter of 2000, cash flow improved primarily as a result of lower accounts receivable and higher accounts payable offset by higher inventories. The increase in the ratio of total debt as a percentage of total capitalization at April 29, 2000, compared to the end of fiscal 1999, is due to the cash usage in the first quarter. In addition, the Company did not have any notes payable outstanding at the end of fiscal 1999. At April 29, 2000, $14.0 million was borrowed and $9.1 million of letters of credit were outstanding under the Company=s $155.0 million revolving bank Credit Agreement. On May 4, 2000, the Company announced the approval by the Board of Directors of a stock repurchase program which allows the Company to repurchase up to 2 million shares of the Company's outstanding common stock. Forward-Looking Statements - -------------------------- This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. In Item 1 of the Company=s fiscal 1999 Annual Report on Form 10-K, detailed risk factors that could cause variations in results to occur are listed and further described. Such filing is incorporated herein by reference. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS - ------------------------------------------------------------------- No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. PART II - OTHER INFORMATION --------------------------- Item 1 - Legal Proceedings - -------------------------- There have been no material developments during the quarter ended April 29, 2000, in the legal proceedings described in the Company's Annual Report on Form 10-K for the period ended January 29, 2000. Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ At the Annual Meeting of Shareholders held on May 25, 2000, one proposal described in the Notice of Annual Meeting of Shareholders dated April 19, 2000, was voted upon. 1. The shareholders elected three directors, Mr. Joseph L. Bower, Mr. W. Patrick McGinnis and Mr. Jerry E. Ritter for terms of three years each. The voting for each director was as follows: Directors For Withheld --------- ---------- -------- Mr. Jospeh L. Bower 15,947,852 225,326 Mr. W. Patrick McGinnis 15,952,976 220,202 Mr. Jerry E. Ritter 15,887,009 286,169 Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Listing of Exhibits (3) (a) Certificate of Incorporation of the Company as amended through February 16, 1984, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended November 1, 1986. (a)(i) Amendment of Certificate of Incorporation of the Company filed February 20, 1987, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended January 30, 1988. (a)(ii) Amendment of Certificate of Incorporation of the Company filed May 27, 1999, incorporated herein by references to Exhibit 3 to the Company's report on Form 10-Q for the quarter ended May 1, 1999. (b) Bylaws of the Company as amended through March 2, 2000, incorporated herein by reference to Exhibit 3 to the Company=s Report on Form 10-K for the fiscal year ended January 29, 2000. (27) Financial Data Schedule (Page 15) (b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the quarter ended April 29, 2000. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BROWN SHOE COMPANY, INC. Date: June 9, 2000 /s/ Andrew M. Rosen --------------------------------------- Andrew M. Rosen Chief Financial Officer and Treasurer On Behalf of the Corporation as the Principal Financial Officer