CALERES INC — Interim / Quarterly Report 2002

Jun 14, 2002

10-Q 1 bs10q1st02.htm FORM 10-Q html PUBLIC "-//w3c//dtd html 4.0 transitional//en"

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 May 4, 2002 |
| --- | --- |
| [ ] | 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 (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) | |
| 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 June 1, 2002, 17,613,467 shares of the registrant's common stock were outstanding.

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands)

	(Unaudited) — May 4, 2002	May 5, 2001		February 2, 2002
ASSETS
Current Assets
Cash and
Cash Equivalents	$ 26,609	$	35,971	$	22,712
Receivables	61,407		54,605		68,305
Inventories	360,545		452,170		396,227
Other Current Assets	35,565		20,375		39,666
Total Current Assets	484,126		563,121		526,910
Other Assets	73,213		64,949		69,192
Goodwill and Intangible
Assets, Net	19,124		21,473		19,050
Property and Equipment	253,728		249,821		251,650
Allowances
for Depreciation and Amortization	(169,467	)	(159,683	)	(165,904	)
	84,261		90,138		85,746
	$ 660,724	$	739,681	$	700,898
LIABILITIES
AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable	$ 50,700	$	75,000	$	64,250
Accounts
Payable	97,872		128,469		122,360
Accrued Expenses	88,927		76,556		85,743
Income Taxes	3,009		3,345		550
Current Maturities
of Long-Term Debt	13,550		25,000		28,550
Total Current Liabilities	254,058		308,370		301,453
Long-Term Debt and Capitalized Lease Obligations	123,491		137,039		123,491
Other Liabilities	19,021		21,138		19,298
Shareholders' Equity
Common Stock	65,859		65,434		65,564
Additional
Capital	48,742		47,488		47,948
Unamortized
Value of Restricted Stock	(2,060	)	(2,655	)	(1,909	)
Accumulated
Other Comprehensive Loss	(9,303	)	(7,999	)	(9,975	)
Retained
Earnings	160,916		170,866		155,028
	264,154		273,134		256,656
	$ 660,724	$	739,681	$	700,898

See Notes to Condensed Consolidated Financial Statements.

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BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(Thousands, except per share)

	Thirteen Weeks Ended — May 4, 2002	May 5, 2001
Net Sales	$ 446,738	$ 436,138
Cost of Goods
Sold	266,132	261,090
Gross Profit	180,606	175,048
Selling &
Administrative Expenses	165,561	160,049
Interest Expense	3,628	5,517
Other Expense	284	55
Earnings Before
Income Taxes	11,133	9,427
Income Tax
Provision	3,500	3,016
NET EARNINGS	$ 7,633	$ 6,411
BASIC EARNINGS
PER COMMON SHARE	$ .44	$ .37
DILUTED EARNINGS
PER COMMON SHARE	$ .43	$ .36
DIVIDENDS PER COMMON SHARE	$ .10	$ .10

See Notes to Condensed Consolidated Financial Statements.

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BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Thousands)

	Thirteen Weeks Ended — May 4, 2002	May 5, 2001
Operating Activities:
Net earnings	$ 7,633	$	6,411
Adjustments
to Reconcile Net Earnings to
Cash Provided (Used) by Operating Activities:
Depreciation and amortization	5,834		6,086
Changes in Operating Assets and Liabilities:
Receivables	6,898		9,798
Inventories	35,682		(24,340	)
Trade payables and accrued expenses	(21,304	)	(12,816	)
Other, net	3,372		663
Net Cash Provided (Used)
by Operating Activities	38,115		(14,198	)
Investing Activities:
Capital expenditures	(4,422	)	(6,147	)
Other	-		101
Net Cash Used by Investing
Activities	(4,422	)	(6,046	)
Financing Activities:
Increase
(decrease) in short-term notes payable	(13,550	)	8,500
Principal
payments of long-term debt	(15,000	)	-
Payments
for purchase of treasury stock	-		(2,198	)
Proceeds
from stock options exercised	773		1,169
Debt issuance
costs	(265	)	-
Dividends
paid	(1,754	)	(1,747	)
Net Cash Provided (Used)
by Financing Activities	(29,796	)	5,724
Increase (Decrease) in
Cash and Cash Equivalents	3,897		(14,520	)
Cash and Cash Equivalents
at Beginning of Period	22,712		50,491
Cash and Cash Equivalents
at End of Period	$ 26,609		35,971

See Notes to Condensed Consolidated Financial Statements.

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BROWN SHOE COMPANY, 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 and reflect all adjustments which management believes necessary (which include only normal recurring accruals) to present fairly the Company's financial condition, results of operations, and cash flows. 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 flows in conformity with accounting principles generally accepted in the United States.

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 on Form 10-K for the year ended February 2, 2002.

Note 2 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share for the periods ended May 4, 2002 and May 5, 2001 (000's, except per share data):

	Thirteen Weeks Ended — May 4, 2002	May 5, 2001
Numerator:
Net earnings - Basic and Diluted	$ 7,633	$ 6,411
Denominator:
Weighted average shares outstanding - Basic	17,284	17,145
Effect of potentially dilutive securities	424	501
Weighted average shares outstanding - Diluted	17,708	17,646
Basic earnings
per common share	$ .44	$ .37
Diluted
earnings per common share	$ .43	$ .36

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Note 3 - 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 May 4, 2002 and May 5, 2001 (000's):

	Thirteen Weeks Ended — May 4, 2002	May 5, 2001
Net Earnings	$ 7,633	$ 6,411
Other Comprehensive
Income:
Foreign
Currency Translation Adjustment	621	(906	)
Unrealized
Gains on Derivative Instruments	51	45
	672	(861	)
Comprehensive
Income	$ 8,305	$ 5,550

Note 4 - Business Segment Information

Applicable business segment information is as follows for the periods ended May 4, 2002 and May 5, 2001 (000's):

	Famous Footwear	Wholesale Operations	Naturalizer Retail
Thirteen
Weeks Ended May 4, 2002
External
Sales	$ 267,606	$ 128,822	$ 49,272	$	1,038	$	446,738
Intersegment
Sales	-	29,215	-		-		29,215
Operating
profit (loss)	10,791	11,898	(1,322	)	(5,995	)	15,372
Thirteen
Weeks Ended May 5, 2001
External
Sales	$ 255,728	$ 129,422	$ 50,985	$	3	$	436,138
Intersegment
Sales	-	32,633	-		-		32,633
Operating
profit (loss)	9,854	11,362	(561	)	(5,403	)	15,252

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Reconciliation of operating profit to earnings before income taxes (000's):

	Thirteen Weeks Ended — May 4, 2002	May 5, 2001
Total operating
profit	$ 15,372	$ 15,252
Interest
expense	3,628	5,517
Non-operating
other expense	611	308
Earnings before income taxes	$ 11,133	$ 9,427

Operating profit represents gross profit less selling 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, and the Company's investment in Shoes.com, Inc., a footwear e-commerce company.

Note 5 - Restructuring Reserves

In the fourth quarter of fiscal 2001, the Company recorded charges and reserves to close 97 Naturalizer retail stores. As of May 4, 2002, 50 of the 97 Naturalizer retail stores were closed, and $4.0 million of the $15.5 million yearend reserve balance was utilized during the first quarter of fiscal 2002.

During the first quarter of fiscal 2002, the Company utilized approximately $0.3 million of the $3.1 million yearend reserve balance, which was established during the fourth quarter of fiscal 2001, for severance costs related to the elimination of 117 positions as the Company moves to a new Shared Services platform.

Note 6 - Goodwill and Other Intangible Assets

Effective at the beginning of fiscal 2002, the Company adopted Statement of Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." This statement requires goodwill and intangible assets with indefinite lives no longer be amortized but instead be tested for impairment at least annually. Under SFAS No. 142, all goodwill and intangible asset amortization ceased effective February 3, 2002. The Company has completed the required impairment tests and found no impairment. On an ongoing basis, the Company expects to perform impairment tests during the fourth quarter.

In the first quarter of fiscal 2001, goodwill and intangible amortization was $0.3 million, aftertax, or $.02 per share.

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As of May 4, 2002, goodwill of $18.1 million (net of $10.7 million accumulated amortization) and intangible assets of $1.0 million (net of $0.3 million accumulated amortization) were attributable to the Company's operating segments as follows: $3.5 million for Famous Footwear, $10.2 million for Wholesale operations, $4.5 million for Naturalizer Retail and $0.9 million for the "Other" segment.

Note 7 - Long-Lived Assets

At the beginning of fiscal 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 did not have a significant effect on the Company's earnings or financial position.

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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Quarter ended May 4, 2002 compared to the Quarter ended May 5, 2001

Consolidated net sales for the quarter ended May 4, 2002 were $446.7 million compared to $436.1 million in the quarter ended May 5, 2001. Net earnings of $7.6 million for the first quarter of 2002 compares to net earnings of $6.4 million in the first quarter of 2001. Diluted earnings per share were $.43 in the first quarter of 2002 compared to $.36 in the first quarter of 2001.

Famous Footwear 's sales increased 4.6% during the first quarter of 2002 to $267.6 million. The increase was driven by a 0.4% same-store sales increase partially offset by two less stores resulting in a total of 917 stores in operation. Famous Footwear had operating earnings for the first quarter of 2002 of $10.8 million compared to $9.9 million for the same period last year. The increase in operating profitability was due to improved leveraging of the expense base and better margin rates on new spring footwear.

The Company's wholesale operations had net sales of $128.8 million during the first quarter of 2002 compared to $129.4 million in the comparable quarter last year. This sales decrease was primarily due to lower sales of women's private label footwear, partially offset by higher sales of Naturalizer branded products and children's footwear. Operating earnings of $11.9 million increased from $11.4 million in the first quarter of 2001 primarily as a result of higher margins.

In the Company's Naturalizer Retail operations, which includes stores in both the United States and Canada, net sales decreased 3.4% to $49.3 million in the first quarter of 2002. Same-store sales in the first quarter of 2002 increased 3.1% in the United States but decreased 5.1% in Canada. The Company had 46 less stores in operation in the United States in 2002 and 11 more stores in operation in Canada than in the first quarter of 2001. At the end of the first quarter of 2002, 440 stores were in operation including 274 stores in the United States and 166 stores in Canada. Total Naturalizer Retail operations incurred operating losses of $1.3 million in the first quarter of fiscal 2002 compared to losses of $0.6 million for the same period in 2001. The decline was primarily due to lower same-store sales in Canada due to unseasonably cool weather.

Consolidated gross profit as a percent of sales for the first quarter of 2002 increased to 40.4% from 40.1% during the same period last year. This increase was primarily due to higher margins in the Company's wholesale operations.

Selling and administrative expenses as a percent of sales for the first quarter of 2002 increased to 37.1% from 36.7% for the same period last year. This increase was due to higher marketing expenses in the Company's wholesale operations and additional consulting costs associated with Project IMPACT.

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The consolidated tax rate was 31.4% of pre-tax income for the first quarter of 2002 compared to 32.0% last year. The decrease from last year's effective rate reflects a higher mix of offshore operating income, which is taxed at lower rates.

Financial Condition

A summary of key financial data and ratios at the dates indicated is as follows:

	May 4, 2002	May 5, 2001	February 2, 2002
Working Capital (millions)	$230.1	$254.8	$225.5
Current Ratio	1.9:1	1.8:1	1.8:1
Total Debt
as a Percentage of Total Capitalization	41.5%	46.5%	45.7%

Cash provided from operating activities for the first quarter of fiscal 2002 was $38.1 million versus cash usage of $14.2 million for the same period last year. This increase resulted mainly from lower inventories, primarily at the Famous Footwear division where inventories were $80.6 million lower than at the end of the first quarter of fiscal 2001.

The decrease in the ratio of total debt as a percentage of total capitalization at May 4, 2002, compared to the end of fiscal 2001, is due to the cash provided and principal payments of long-term debt. At May 4, 2002, $150.7 million was borrowed and $9.6 million of letters of credit were outstanding under the Company's revolving bank Credit Agreement, which leaves additional borrowing availability of approximately $90 million.

In May 2000, the Company announced a stock repurchase program under which the Company was authorized to repurchase up to 2 million shares of the Company's outstanding common stock. In the first quarter of fiscal 2002, no shares were purchased under this authorization. Since the inception of this program, the Company has repurchased a total of 928,900 shares for approximately $11.3 million.

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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 2001 Annual Report on Form 10-K, detailed risk factors that could cause variations in results to occur are listed and further described. Such description 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. For further information, see Item 7A of the Company's Annual Report on Form 10-K for the year ended February 2, 2002.

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PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

There have been no material developments during the quarter ended May 4, 2002 in the legal proceedings described in the Company's Annual Report on Form 10-K for the year ended February 2, 2002. Item 4 - Submission of Matters to a Vote of Security Holders

Item 6 - Exhibits and Reports on Form 8-K

| (a) | Certificate of Incorporation
of the Company, filed herewith. |
| --- | --- |
| (b) | Bylaws of the Company as
amended through March 2, 2000, incorporated herein by reference to Exhibit
3 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000. |

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| | (b) (ii) | Second Amendment to Credit
Agreement, dated as of February 5, 2002, between the Company as Borrower,
Bank of America, National Association, as administration agent, Fleet Retail
Finance, Inc., as syndication agent, and the other financial institutions
party thereto, as lenders, incorporated herein by reference to the Company's
Form 10-K dated February 2, 2002. |
| --- | --- | --- |
| (10) | (j) | Severance Agreement, dated
April 30, 2002, between the Company and Byron Douglas Norfleet, filed herewith. |
| | (m) | Incentive and Stock Compensation
Plan of 2002, incorporated herein by reference to Exhibit C of the Company's
Definitive Proxy Statement dated April 16, 2002. |

(b)
The Company filed no reports
on Form 8-K during the quarter ended May 4, 2002.

• Denotes management contract or compensatory plan arrangements.

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 14, 2002	/s/ Andrew M. Rosen
	Chief Financial Officer and Treasurer On Behalf of the Corporation as the Principal Financial Officer

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