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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 1, 2004
[  ] 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)
 

Indicate by checkmark 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 [  ]

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  [X]    No [  ]

As of May 29, 2004, 18,171,166 common shares were outstanding.
 
 

1


 
PART I
FINANCIAL INFORMATION

 
ITEM 1
FINANCIAL STATEMENTS

 
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
     
($ thousands)
May 1, 2004
May 3, 2003
January 31, 2004
Assets                  
Current Assets                  
   Cash and cash equivalents
$
66,422
  
$
40,025
  
$
55,657
  
   Receivables  
88,072
    
64,753
    
81,930
  
   Inventories  
366,902
    
369,237
    
376,210
  
   Prepaid expenses and other current assets
19,275
24,450
15,888
Total current assets
540,671
498,465
529,685
Other assets  
83,851
    
83,723
    
83,692
  
Goodwill and intangible assets, net  
20,222
    
18,931
    
20,405
  
Property and equipment  
277,667
    
261,402
    
272,151
  
   Allowances for depreciation and amortization
(191,854
)
(176,030
)
(186,603
)
Total property and equipment
85,813
85,372
85,548
Total assets
$
730,557
$
686,491
$
719,330
Liabilities and Shareholders' Equity                
Current Liabilities                  
   Notes payable
$
43,000
  
$
24,500
  
$
19,500
  
   Trade accounts payable  
100,902
    
108,974
    
116,677
  
   Accrued expenses  
90,489
    
82,484
    
96,707
  
   Income taxes  
5,189
    
8,450
    
2,960
  
   Current maturities of long-term debt
-
20,000
-
Total current liabilities
239,580
244,408
235,844
Other Liabilities                  
   Long-term debt and capitalized lease obligations  
100,000
    
103,493
    
100,000
  
   Other liabilities
27,756
31,109
28,358
Total other liabilities
127,756
134,602
128,358
Shareholders' Equity                  
   Common stock  
68,002
    
66,745
    
67,787
  
   Additional capital  
64,851
    
52,051
    
62,772
  
   Unamortized value of restricted stock  
(3,648
 )  
(2,853
 )  
(3,408
 )
   Accumulated other comprehensive loss  
(5,651
 )  
(8,872
 )  
(4,934
 )
   Retained earnings
239,667
200,410
232,911
Total shareholders' equity
363,221
307,481
355,128
Total liabilities and shareholders' equity
$
730,557
$
686,491
$
719,330
See notes to condensed consolidated financial statements.

2


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
     
(Unaudited)
 
     
Thirteen Weeks Ended
 
($ thousands, except per share amounts)
May 1, 2004
May 3, 2003
                         
Net sales            
$
491,832
  
$
446,444
  
Cost of goods sold
292,468
261,317
Gross profit
199,364
185,127
Selling and administrative expenses
184,447
169,790
Operating earnings
14,917
15,337
Interest expense              
2,479
    
2,906
  
Interest income
(126
)
(96
)
Earnings before income taxes
12,564
12,527
Income tax provision
(3,997
)
(3,524
)
Net earnings
$
8,567
$
9,003
                 
Basic net earnings per common share
$
0.48
$
0.51
                 
Diluted net earnings per common share
$
0.45
$
0.49
                 
Dividends per common share
$
0.10
$
0.10
See notes to condensed consolidated financial statements.
 
 

3


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
 
Thirteen Weeks Ended
 
($ thousands)
May 1, 2004
May 3, 2003
Operating Activities:            
Net earnings
$
8,567
  
$
9,003
  
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:            
   Depreciation  
5,767
    
6,121
  
   Amortization  
4
    
4
  
   Share-based compensation expense  
1,405
    
1,039
  
   Loss on disposal of facilities and equipment  
315
    
348
  
   Impairment charges for facilities and equipment  
409
    
350
  
   Provision for (recoveries from) doubtful accounts  
(167
 )  
161
  
   Changes in operating assets and liabilities:            
      Receivables  
(5,975
 )  
17,572
  
      Inventories  
9,308
    
23,347
  
      Prepaid expenses and other current assets  
(3,387
 )  
(3,472
 )
      Trade accounts payable and accrued expenses  
(21,993
 )  
(39,400
 )
      Income taxes  
2,229
    
3,098
  
   Other, net 
(1,121
)
1,565
Net cash provided (used) by operating activities
(4,639
)
19,736
Investing Activities:            
Capital expenditures  
(7,049
 )  
(6,856
 )
Other
115
125
Net cash used by investing activities
(6,934
)
(6,731
)
Financing Activities:            
Increase (decrease) in short-term notes payable  
23,500
    
(4,500
 )
Proceeds from stock options exercised  
649
    
1,174
  
Dividends paid
(1,811
)
(1,775
)
Net cash provided (used) by financing activities
22,338
(5,101
)
Increase in cash and cash equivalents
10,765
7,904
Cash and cash equivalents at beginning of period
55,657
32,121
Cash and cash equivalents at end of period
$
66,422
$
40,025
See notes to condensed consolidated financial statements.

4


BROWN SHOE COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

 
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 position, 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.

Certain prior period amounts on the condensed consolidated balance sheets, statements of earnings and statements of cash flows have been reclassified to conform to current period presentation. These reclassifications did not affect net earnings.

The Company's business is subject to seasonal influences, particularly the back-to-school selling season at Famous Footwear which falls in the Company's third quarter. 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 January 31, 2004.
 
 
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 1, 2004 and May 3, 2003:
 

   
Thirteen Weeks Ended
 
($ thousands, except per share data)
May 1, 2004
May 3, 2003
NUMERATOR              
Net earnings
$
8,567
$
9,003
DENOMINATOR (thousand shares)              
Denominator for basic earnings per common share    
17,841
    
17,510
  
Dilutive effect of unvested restricted stock and stock options
1,078
883
Denominator for diluted earnings per common share
18,919
18,393
Basic earnings per common share
$
0.48
$
0.51
Diluted earnings per common share
$
0.45
$
0.49

Options to purchase 236,167 and 38,745 shares of common stock at May 1, 2004 and May 3, 2003, respectively, were not included in the denominator for diluted earnings per common share because their effect would be antidilutive.
 
 
Note 3.
Comprehensive Income

Comprehensive Income includes changes in equity related to foreign currency translation adjustments and unrealized gains/losses from derivatives used for hedging activities.

5

The following table sets forth the reconciliation from Net Earnings to Comprehensive Income for the periods ended May 1, 2004 and May 3, 2003:
 

   
Thirteen Weeks Ended
 
($ Thousands)
May 1, 2004
May 3, 2003
Net Earnings  
$
8,567
  
$
9,003
  
Other Comprehensive Income (Loss), net of tax:              
   Foreign currency translation adjustment    
(1,310
 )  
2,697
  
   Unrealized gains (losses) on derivative instruments    
102
    
(767
 )
   Net loss reclassified into earnings    
491
    
345
  
     
(717
 )  
2,275
  
Comprehensive Income
$
7,850
$
11,278

 
Note 4.
Business Segment Information

Applicable business segment information is as follows for the periods ended May 1, 2004 and May 3, 2003:
 
($ thousands)
Famous
Footwear
Wholesale
Operations
Naturalizer
Retail
Other
Totals
Thirteen Weeks Ended May 1, 2004                    
External Sales $
272,124
   $
171,545
   $
45,331
   $
2,832
   $
491,832
  
Intersegment Sales  
-
    
38,378
    
-
    
-
    
38,378
  
Operating earnings (loss)  
12,384
    
12,805
    
(2,220
 )  
(8,052
 )  
14,917
  
Operating segment assets  
329,856
    
197,855
    
70,730
    
132,116
    
730,557
  
Thirteen Weeks Ended May 3, 2003                    
External Sales $
261,115
   $
140,985
   $
42,834
   $
1,510
   $
446,444
  
Intersegment Sales  
-
    
32,401
    
-
    
-
    
32,401
  
Operating earnings (loss)  
10,582
    
13,012
    
(1,356
 )  
(6,901
 )  
15,337
  
Operating segment assets  
353,661
    
153,945
    
73,718
    
105,167
    
686,491
  

The "Other" segment includes Corporate administrative and other expenses, which are not allocated to the operating units, and the Company's investment in its majority-owned subsidiary, Shoes.com, Inc., a footwear e-commerce company.

Effective February 1, 2004, the Company began accounting for its Irish financing subsidiary, Brown Group Dublin Limited, which holds cash earned offshore other than in Canada, within the Other segment. Brown Group Dublin Limited had previously been accounted for within the Wholesale Operations segment. Prior year amounts have been reclassified to conform to current year presentation. This reclassification had no effect on operating earnings, but resulted in a transfer of assets of $57.9 million and $34.3 million in 2004 and 2003, respectively, to the "Other" segment.
 
 
Note 5.
Restructuring Reserves

Closure of Canadian Manufacturing Facility

In the fourth quarter of fiscal year 2003, the Company announced the closing of its last Canadian footwear manufacturing facility located in Perth, Ontario, and recorded a pretax charge of $4.5 million, the components of which were as follows:

6

Following is a summary of the activity in the reserve, by category of costs:
 
($ millions)
Employee
Severance
Inventory
Markdowns
Lease
Buyouts
Total
Original charge and reserve balance
$
2.3
  
$
1.6
  
$
0.6
  
$
4.5
  
Adjustments  
(0.3
 )  
0.4
    
(0.1
 )  
-
  
Expenditures in quarter ending May 1, 2004
(1.8