Caleres (CAL) 10-Q 2003 Q1 Quarterly report

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			Other			Totals
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

At the Annual Meeting of Shareholders held on May 23, 2002, three proposals described in the Notice of Annual Meeting of Shareholders dated April 16, 2002, were voted upon.

1.    The shareholders elected two directors, Ronald A. Fromm and Patricia G. McGinnis for terms of three years each. The voting for each director was as follows:
 

Directors	For	Withheld
Ronald A. Fromm	16,003,399	135,704
Patricia G. McGinnis	15,988,993	150,110

2.    The proposal to make certain amendments to the Restated Certificate of Incorporation of the Company was approved by the vote of 13,828,627 in favor to 254,587 against, with 52,505 abstaining and 2,003,384 non-votes.

3.    The proposal to approve the Brown Shoe Company, Inc. Incentive and Stock Compensation Plan of 2002 and the allocation of 1,500,000 of the Corporation's shares thereto was approved by a vote of 9,678,715 in favor to 3,315,651 against, with 1,141,353 abstaining and 2,003,384 non-votes.

Item 6 - Exhibits and Reports on Form 8-K
 

(a)	(3)	(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)	Reports on Form 8-K:
	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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