[PHOTO]
ANNUAL REPORT 2000
THE LEADER IN FOOTWEAR
[BROWN SHOE LOGO]
2000 was the year of the boot. From department stores to mass merchants, boots
kicked up the shoe business. Tall or short, dressy or casual, women wanted them
all!
[PHOTO]
We read the trend early, and had ample inventories for our 1,400 retail stores
and wholesale customers. With a little help from cold winter weather, we
finished up the year with strong boot sales.
[PHOTO]
Brown Shoe is uniquely positioned in the footwear industry as we operate both
retail and wholesale businesses. Seventy-three percent of our revenues come from
our 1,400 Famous Footwear and Naturalizer footwear retail stores. Through our
wholesale division we delivered 60 million pairs of shoes in fiscal 2000 to all
channels of distribution -- from better-grade department stores to the most
successful mass merchants.
FINANCIAL HIGHLIGHTS
[BAR GRAPH]
SALES BREAKDOWN
RETAIL 73%
WHOLESALE 27%
[BAR GRAPH]
SALES ($ millions)
1998 1,540
1999 1,594
2000 1,685
[BAR GRAPH]
EARNINGS PER SHARE
1998 1.32
1999 1.96
2000 2.04
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR 2000 FISCAL YEAR 1999 FISCAL YEAR 1998
OPERATING RESULTS
Net sales $1,684,859 $1,594,131 $1,539,907
Net earnings 36,365 35,501 23,669
PER SHARE OF COMMON STOCK
Diluted net earnings $ 2.04 $ 1.96 $ 1.32
Dividends paid .40 .40 .40
Shareholders' equity 15.46 13.69 11.95
FINANCIAL POSITION
Total assets $ 740,069 $ 650,338 $ 655,232
Working capital 266,541 270,005 250,939
Shareholders' equity 269,972 249,945 217,174
Return on beginning shareholders' equity 14.5% 16.3% 11.9%
[PHOTO]
DEAR FELLOW INVESTORS:
Fiscal 2000 was an important year for Brown Shoe. It was a year marked by
significant progress in pursuing our strategic directions. We expanded our
industry-leading Famous Footwear chain. We aggressively built market share for
our flagship Naturalizer brand in better-grade department stores. And, by
designing the right product at the right price, our women's private label
business had a record year. Just as important, we withdrew from less successful
product line initiatives and poor performing store locations.
It was also a year where we were modestly successful in growing both our top
line sales and our bottom line profits. Brown Shoe's earnings per share
increased 4 percent to $2.04 from $1.96 in fiscal 1999, and net earnings reached
$36.4 million compared to $35.5 million the year before. Sales were up 6
percent, to nearly $1.7 billion.
In 2000, we acquired the 26-store Milwaukee-based Mil-Mar chain, and have
assimilated it into Famous Footwear, increasing our market penetration. We also
acquired a controlling interest in Shoes.com, Inc., with plans to relaunch this
e-tailing site in spring 2001.
TARGETING EARNINGS GROWTH.
As we enter fiscal 2001, we remain focused on achieving growth across all
divisions and winning market share. Our plan is to reshape Brown Shoe so that we
can deliver consistent double-digit growth in sales and earnings over the
long-term. I'm proud of the progress made by our team to date, but we still have
much work to do.
3
CHAIRMAN'S LETTER CONTINUED
To articulate our strategy and explain how we'll concentrate resources going
forward:
- - We will focus our resources on profitably growing our highest profile
businesses -- Famous Footwear and Naturalizer.
- - We will continue to nurture the strategic retail partnerships that are the
catalyst for building our wholesale division, with its strong portfolio of
brands and licenses.
- - We will improve our operating margin by dramatically improving inventory
utilization, eliminating infrastructure redundancy, and implementing
enterprise-wide processes, thereby capitalizing on the unique synergy that
our retail and wholesale businesses afford us.
Brown Shoe, with its retail/wholesale mix, is uniquely positioned in the shoe
industry. Through our retail division, we monitor the shopping patterns of 120
million consumers. Our wholesale business analyzes fashion trends across all
channels of distribution. When we talk about synergy, we mean using this wealth
of consumer information to identify emerging footwear trends for both our own
stores and our retail partners. It also means being able to test and launch new
styles within our retail stores.
Growth is our mission, and profit improvement is our yardstick. In the following
review of our businesses I will describe how our strategies are working,
evidence of tangible progress, and plans for continued growth in 2001 and
beyond.
RETAIL.
Our highest priority is to continue to grow Famous Footwear. It's our largest
division. In fiscal 2000, Famous Footwear posted yet another year of record
sales and earnings, topping the $1 billion sales mark and returning operating
earnings of $58.0 million, a 7 percent increase over last year.
Looking ahead, we are convinced that Famous Footwear has the ability to grow by
up to 50 percent over the next five years. To grow the 925-store chain and
continue to increase its productivity, we have been aggressively repositioning
its real estate, honing its operations, and attracting new talent.
In 2000, our Famous Footwear team took on significant challenges. They opened 92
stores, assimilated an additional 26 stores from the acquisition of the Mil-Mar
chain, and closed 60 lesser-performing stores, to finish the year with 925.
Famous Footwear also is stepping-up its real estate repositioning strategy to
transform the chain over time, from 5,000 square-foot locations to 10,000
square-foot "destinations." In 2001, we anticipate opening 100 mostly
larger-format stores, 84 of which are planned for high-traffic, power strip-mall
centers where American families like to shop. At the same time, we'll close 90
of the chain's smaller, lower-volume stores. In 2001, total square footage will
grow by about 7 percent.
4
[PHOTO]
FAMOUS FOOTWEAR / LAFAYETTE, INDIANA
We will focus resources on profitably growing our two highest profile branded
businesses -- Famous Footwear and Naturalizer.
5
[PHOTO]
NATURALIZER
We are dedicated to having the right product, at the right price for the right
tier of distribution to drive both our retail and wholesale businesses.
6
CHAIRMAN'S LETTER CONTINUED
To better communicate Famous Footwear's value proposition to our customers, our
new stores will use high-profile exteriors and large interiors merchandised with
brand focus shops and key lifestyle areas (e.g., outdoors or sports). These
prominently display the most sought-after brands at prices that beat the
competition. Early indicators show these new stores to be more productive and
profitable than our smaller stores.
While the Naturalizer brand continued to win market share in department store
accounts, our 331-store domestic Naturalizer Retail chain struggled in 2000.
Improving this chain's performance remains a top priority. We therefore are
expanding its real estate repositioning program, enhancing the talent level
within its management, and intensifying our drive to merchandise the stores with
compelling product.
In addition to being an important channel of distribution, these stores serve as
valuable brand-building vehicles for our Naturalizer wholesale business. In
2001, we will continue to right-size the chain, closing 30 more stores and
opening only 10 -- in locations that closely match the demographics of our new
Naturalizer customer.
Naturalizer's Canadian operation, which posted a strong 5.9 percent same-store
increase in fiscal 2000, will open an additional six new stores in the coming
year.
FAMOUS FOOTWEAR OPERATING EARNINGS
[BAR GRAPH]
($ millions)
1995 19.8
1996 25.0
1997 32.0
1998 47.2
1999 54.0
2000 58.0
Famous Footwear had its fifth year of increased operating earnings, setting
records in 1998, 1999 and 2000.
WHOLESALE.
In the wholesale business, Naturalizer is our flagship brand and we are
intensely focused on growing this business. The brand had an excellent year in
2000, increasing its sales to department stores by 25 percent over fiscal 1999.
We expect to build on this momentum and continue to increase market share.
Progress for Naturalizer also can be seen in the highly prized brand focus areas
it was awarded in department stores during year 2000, including five in Macy's
metropolitan New York stores. Research says our customer base is improving too.
Women in the 35-54 age group, with greater spending power and fashion sense, are
rediscovering the Naturalizer brand.
This is only the beginning. We look to grow Naturalizer further as we continue
to build our business in partnership with major department store chains and
specialty footwear retailers. We will continue to market the brand through
high-impact
7
CHAIRMAN'S LETTER CONTINUED
point-of-purchase displays, consumer catalogs, national advertising and the
support of our Naturalizer Retail chain.
LifeStride, where sales had declined along with the dress shoe market in recent
years, has turned the corner and is starting to grow again -- and do so at a
good margin. Wholesale sales of LifeStride were up 5 percent over 1999. We set
out to invigorate this brand 18 months ago by focusing on affordably priced,
fashion-right shoes for women who buy footwear to accessorize their new clothes.
And it's working.
I am pleased to report that our LifeStride team is also forging new retail
partnerships, and placing greater assortments of LifeStride shoes into key
accounts. Plus, we've introduced the brand into Canada's largest department
stores, where it's been well received by consumers.
The other real strength in the wholesale business is our women's private
label/license business. We've built strategic relationships with great retailers
like Payless ShoeSource, Target and Wal-Mart, where our private label and
licensed footwear brands help drive their footwear businesses. In addition, we
design and source shoes for Nordstrom's catalog, nordstrom.com, Talbots and
other retailers. Year after year, we've proven our ability to make timely
deliveries of great product at the right price points.
In early 2001, our wholesale team created a beautiful collection of women's
fashion shoes under a license agreement with legendary guitarist Carlos Santana.
Due to the excitement surrounding the Santana name and the quality of the
design, the new Carlos brand was awarded premier floor space for its initial
placement, including 25 stores in the Macy's West and Burdines chains. Needless
to say, we're optimistic about its expansion.
Finally, our children's wholesale business had a mixed year. Understandably, we
could not match 1999's sales of children's footwear from our Star Wars movie
license. However, the groundwork we've laid in 2000 will drive meaningful sales
and earnings growth in 2001 and beyond.
In 2000, we launched an umbrella branding strategy that placed the name of our
children's division, Buster Brown & Co., on all kids' footwear boxes as well as
on the soles of many shoes. This leverages the trust, authenticity and quality
associated with the Buster Brown name, and is receiving praise from retailers
and moms alike.
Looking ahead we have several new license agreements in place to capture the
imagination of young consumers and their parents. For two- to eight-year-olds,
we'll introduce kids' shoes featuring such popular characters as Spider-Man,
8
[PHOTO]
NATURALIZER STORE / NEW YORK CITY
Naturalizer stores serve as valuable brand-building vehicles for our wholesale
business.
9
[PHOTO]
BUSTER BROWN
We've built partnerships with key retailers through our timely deliveries of
great product at the right price points -- making us their provider of choice
for footwear.
10
CHAIRMAN'S LETTER CONTINUED
Dragon Tales and Bob the Builder. What's more, we've again reached agreement
with Lucasfilms Ltd. to design and market kids' shoes for the next Star Wars
film, due out in 2002.
RESHAPING THE WAY WE DO BUSINESS
Although this past year's sluggish retail environment made business difficult,
it was an important catalyst for change. There is a renewed sense of urgency at
Brown Shoe Company and a desire to truly reshape the way we do business today
and into the future. As you may remember, the old Brown Group was a
mini-conglomerate -- a loose federation of unrelated specialty retail businesses
that maintained their own infrastructures. During the 1990s, we shifted to a
single-purpose footwear company, and many of those businesses were divested,
taking their infrastructures with them. But a fair amount of redundancy
remained.
As a company dedicated to footwear, we now have an opportunity to build
enterprise-wide systems to support our businesses. In addition, our goal is to
raise operating margins. Starting with improving inventory utilization and our
logistics network, we're building solutions to support our entire retail and
wholesale businesses today and into the future. We also see opportunities to
eliminate redundant infrastructure. By next year's letter, I'll be able to
outline our achievements.
E-INITIATIVES.
As I stated last year, we believe that Brown Shoe is well positioned to turn
e-initiatives into vehicles to grow sales and add profits. Our
naturalizeronline.com site, for example, is merchandised just like one of our
stores, taking advantage of existing inventory and existing order fulfillment
capability to ship shoes to consumers. The site functions as a retail outlet for
the online consumer, another brand-building vehicle for Naturalizer, and a
profit center for the company.
In November 2000, we purchased a controlling interest in Shoes.com, Inc., an
existing e-tailing company that was ready for expansion. Again, using our
existing inventory, distribution network and information systems, we are
relaunching the shoes.com site as a mega-brand footwear site. In addition, we're
introducing famousfootwear.com as an e-tailing Famous Footwear store -- both are
due to go live in spring 2001.
11
CHAIRMAN'S LETTER CONTINUED
CONTINUING THE PROGRESS.
We've made solid progress over the past year. Yet, we have much more work to do
in 2001 and beyond in order to meet our commitment to consistently deliver
double-digit growth in earnings.
First and foremost, our strategy is product leadership. At Brown Shoe we're
building a culture dedicated to having the right product, at the right price,
for the right tier of distribution to drive both our retail and wholesale
businesses. This dedication to creating compelling footwear will continue to
increase market share in all our businesses. To this end, I extend a special
thanks to our many talented line builders who are designing great-looking shoes,
to our buying teams who are identifying and selecting the best styles, and to
our international sourcing employees who delivered a record on-time shipment
performance while setting a new benchmark for quality.
From the day I took over as Chairman in January 1999, I have said that we have
yet to see the performance that Brown Shoe is truly capable of achieving. With
our strategy that focuses resources on our growth areas, targets improvements in
operating margin, and seeks greater synergies between our retail and wholesale
businesses, we can succeed in delivering greater value to our shareholders and
customers alike.
Thank you for your continued support.
/s/ Ronald A. Fromm
Ronald A. Fromm, Chairman, President and Chief Executive Officer
12
RETAIL
1,400 RETAIL LOCATIONS
120 MILLION CUSTOMERS
We are committed to growing market share for our retail businesses - bringing
our consumers "must-have" footwear, in a dynamic shopping environment, at
outstanding values that draw them back again and again.
[PHOTO]
[PHOTO]
FAMOUS FOOTWEAR ALSO OPERATES STORES UNDER THE NAMES SUPERMARKET OF SHOES AND
FACTORY BRAND SHOES.
FAMOUS FOOTWEAR
[PHOTO]
FAMOUS FOOTWEAR / COLUMBUS, OHIO
[PHOTO]
MULTI-BRAND FOCUS WALL
[PHOTO]
FRIENDLY, EXPERIENCED SALES PEOPLE
NUMBER 1 AND GROWING.
Great brands, great selection, great service and great prices once again earned
Famous Footwear its Number 1 position as the leading retailer of brand-name,
value-priced footwear for the American family. In fiscal 2000, Famous Footwear
opened in its 50th state and passed the $1 billion sales mark for the first time
in its 40-year history.
With 925 stores, Famous Footwear continues to aggressively reposition its real
estate for greater profitability. In fiscal 2000, the chain added 118 new stores
in high-traffic locations, like power strip-mall centers, and closed 60
lesser-performing stores.
Fiscal 2000 also brought new storefront designs to many Famous Footwear stores.
These eye-catching facades help Famous Footwear stand out as an exciting
shopping destination.
As Famous Footwear expands into more productive locations, it's also opening
larger-format stores. Most are 8,000 to 10,000 sq. ft. in size, compared to the
chain's current average of 5,900 sq. ft.
These larger Famous Footwear stores offer consumers a fun, feel-good shopping
experience. Special brand focus areas reinforce the chain's ability to offer the
"best" brands, and help customers quickly find the shoes they want. More than 40
percent of Famous Footwear's sales are athletics. Key brands like Nike,
Skechers, New Balance, Vans, Adidas and Reebok are well featured at outstanding
values. Famous Footwear also grew its junior brand offering in 2000, doing
record volume with the "tween" through 20s set.
15
[PHOTO]
COLUMBUS AVE / NEW YORK CITY
NATURALIZER RETAIL
[PHOTO]
NATURALIZER / ST. LOUIS, MISSOURI
[PHOTO]
NATURALIZER / LONDON, ONTARIO
[PHOTO]
FX LASALLE / MONTREAL, QUEBEC
A SHOWCASE FOR THE BRAND.
The Naturalizer Retail chain's 331 U.S. and 150 Canadian store locations provide
a showcase for the growing Naturalizer brand.
Filled with images from the Naturalizer advertising campaign and supported by
sophisticated direct marketing, Naturalizer stores are attracting new customers
to the brand. Stores are merchandised to display the breadth of the Naturalizer
line, with great-looking, great-feeling shoes for all occasions. Plus, customers
can count on Naturalizer to have the full range of sizes and widths.
In fiscal 2000, real estate repositioning efforts extended to Naturalizer.
Forty-nine new stores opened in locations frequented by target customers.
In 2000, Naturalizer also redesigned its online store,
www.naturalizeronline.com. Backed by existing inventory and the retail stores,
the site is attracting its own loyal following.
Naturalizer Canada operates 129 Naturalizer stores in nine provinces and also
runs a small number of shoe stores under the F.X. LaSalle and Exalt names.
17
RETAIL STORES
FAMOUS FOOTWEAR Family footwear stores that feature "brand names for less,"
located in shopping centers, regional malls and outlet centers
in the U.S.
[GRAPHIC/MAP]
NUMBER OF STORES
2000 925
1999 867
1998 827
1997 815
1996 794
NATURALIZER Stores selling the Naturalizer brand of women's footwear,
located in regional malls and outlet centers in the U.S. and
Canada.
[GRAPHIC/MAP]
NUMBER OF STORES
2000 481
1999 486
1998 462
1997 464
1996 424
UNITED STATES
FAMOUS
FOOTWEAR NATURALIZER
ALABAMA 8 3
ALASKA 3
ARIZONA 30 7
ARKANSAS 2
CALIFORNIA 97 34
COLORADO 26 3
CONNECTICUT 5 7
DELAWARE 4 1
FLORIDA 53 33
GEORGIA 34 11
HAWAII 4
IDAHO 7 1
ILLINOIS 71 15
INDIANA 10 7
IOWA 16
KANSAS 15 1
KENTUCKY 2
LOUISIANA 4 5
MAINE 4 2
MARYLAND 13 11
MASSACHUSETTS 17 7
MICHIGAN 36 19
MINNESOTA 31 11
MISSISSIPPI 4 1
MISSOURI 37 8
MONTANA 2
NEBRASKA 8 1
NEVADA 7 4
NEW HAMPSHIRE 6 2
NEW JERSEY 10 11
NEW MEXICO 4
NEW YORK 38 16
NORTH CAROLINA 4 7
NORTH DAKOTA 1
OHIO 52 12
OKLAHOMA 21 3
OREGON 11 5
PENNSYLVANIA 44 14
RHODE ISLAND 1
SOUTH CAROLINA 7 4
SOUTH DAKOTA 2
TENNESSEE 8 3
TEXAS 78 29
UTAH 12
VERMONT 1
VIRGINIA 13 15
WASHINGTON 19 8
WEST VIRGINIA 1 3
WISCONSIN 37 7
WYOMING 3
GUAM 1
PUERTO RICO 1
CANADA
NATURALIZER
ALBERTA 15
BRITISH COLUMBIA 15
MANITOBA 5
NEW BRUNSWICK 2
NEW FOUNDLAND 3
NOVA SCOTIA 7
ONTARIO 41
QUEBEC 56
SASKATCHEWAN 6
18
WHOLESALE
[PHOTO]
60 MILLION PAIRS
We are intensely focused on product - having the right shoes, at the right
price, for the right tier of distribution. This philosophy drives our business.
You'll find our shoes in department stores, specialty stores, mass merchants and
in our own Famous Footwear and Naturalizer stores.
[PHOTO]
NEW FROM NATURALIZER / MODERN SPORT CASUALS
NATURALIZER
[PHOTO]
FOCUS SHOP / MACY'S / KINGS PLAZA, BROOKLYN, NY
[PHOTO]
NATIONAL ADVERTISING
TAKE A FRESH LOOK.
At Naturalizer, fashion is in full swing -- exceeded only by the brand's
legendary comfort features.
Now in its second year, Naturalizer's new brand image campaign continues to
attract younger women to the brand. These women have more disposable income,
greater purchasing power and love to buy shoes! Their desire for fashion-right,
yet comfortable, shoes is answered by Naturalizer's new image and footwear
collection.
As a result, Naturalizer is expanding its market share within the better
footwear segment. The brand is also growing its presence in department store
chains, gaining highly prized brand focus areas like the one at Macy's, shown at
left.
Naturalizer also is taking the lead on certain fashion trends, like the
retro-inspired sport-chic shoe pictured, opposite page. Naturalizer spotted the
trend and tested it in Naturalizer Retail stores, where the shoes quickly became
top sellers. In 2001, the brand introduces this new category, called "modern
sport casuals," into department stores.
21
[PHOTO]
LIFESTRIDE
LIFESTRIDE
[PHOTO]
NATIONAL ADVERTISING
[PHOTO]
POINT-OF-PURCHASE DISPLAY
FASHION-RIGHT AT A GREAT PRICE.
LifeStride is the industry's premier entry-level department store brand --
affordably priced and fashion-right -- for the woman who buys footwear to
accessorize her new clothes.
Repositioning LifeStride to match seasonal ready-to-wear clothing has the brand
growing again. Retailers and consumers alike are delighted with the brand's
innovative colors and revolutionary materials. By offering beautifully styled
shoes, like the tweed and patent sling-back, opposite page, or the strappy
sandals featured in the brand advertising, left, LifeStride has strengthened its
reputation for the right fashion at the right price point.
Advertising and point-of-purchase displays, left, reinforce the link between
today's fashion and LifeStride footwear.
23
[PHOTO]
PRIVATE LABEL
The women's private label group delivered more than 20 million pairs of
right-styled women's shoes into all tiers of distribution in fiscal 2000. From
strategic partnerships with Payless ShoeSource and Wal-Mart to better footwear
for Nordstrom's catalogs and Talbots, they've proven their ability to make
on-time delivery of great product at the right price.
LICENSED BRANDS
[PHOTO]
MACY'S / LAS VEGAS, NEVADA
[PHOTO]
POINT-OF-PURCHASE DISPLAY
IT'S ALL IN THE NAME.
CARLOS BY CARLOS SANTANA is our newest line of women's shoes, produced under a
licensing agreement with the legendary guitarist. These high-styled shoes were
showcased at the World Shoe Association show in 2000, and launched in select
department stores in early 2001.
A portion of the proceeds from each sale goes to the Milagro Foundation, a
nonprofit organization that supports educational efforts to help children
throughout the world.
DR. SCHOLL'S FOOTWEAR has been designed and marketed by Brown Shoe since 1991.
We have grown the licensed brand from the well-known exercise sandals to a
complete line of comfort shoes that incorporate Dr. Scholl's footcare
technologies. In 2000, we introduced shoes with the Dr. Scholl's DynaStep
Inserts, which are clinically proven to relieve movement-related pain and
fatigue in the foot, knee, leg and lower back.
The line is sold through mass merchants and catalog companies in the U.S. and
Canada.
25
[PHOTO]
KIDS' CHARACTER-RELATED SHOES
BUSTER BROWN & CO.
[PHOTO]
NATIONAL ADVERTISING
[PHOTOS]
BARBIE TRADE ADVERTISING
[PHOTO]
WAL-MART / "CLUBHOUSE" POINT-OF-PURCHASE DISPLAY
A LEADER AMONG KIDS.
Buster Brown & Co., Brown Shoe's children's division, is one of the leading
providers of non-athletic children's footwear, and the licensee of choice for
children's character- and movie-related shoes.
Buster Brown, our flagship kids' brand, did national advertising in 2000
featuring kids and their look-alike dogs, left. The ad campaign capitalized on
the authenticity and reputation of the Buster Brown brand, which is featured at
Famous Footwear as well as many fine department stores.
Barbie footwear continues to rank among the top girls' shoe brands in the United
States and Canada. Marketed under our long-standing partnership with Mattel,
Barbie shoes are sold through mass merchants and specialty footwear stores
everywhere. In 2000, our trade advertising promoted the latest Barbie footwear
styles, left.
In 2000, Buster Brown & Co. launched a co-branding program to increase its name
recognition. Now, kids' footwear featuring well-known licensed names like
Barbie, Bob the Builder, Dragon Tales and Spider-Man are co-branded with the
Buster Brown & Co. name and pledge of quality. Many shoes have the paw print of
Buster Browns dog, Tige, etched into the soles.
Buster Brown & Co. also opened "clubhouse" displays at Wal-Mart stores, bottom
left. These 10-14 foot-long displays carry T.R.E.A.T.S. and Airborne brand
footwear for kids ages two to eight.
27
FOOTWEAR BRANDS
[PHOTO]
[PHOTO]
[PHOTO]
As denoted, these brands are under license from, and in most cases, are
registered trademarks of:
1 Guts & Grace Records, Inc.
2 Schering-Plough Healthcare Products, Inc.
3 Mattel, Inc.
4 HIT Entertainment PLC
5 Saban Merchandising, Inc.
6 Sesame Workshop
7 Sanrio, Inc.
8 Dualstar Consumer Products L.L.C.
9 Sony Pictures Consumer Products, Inc. as agent for Aselaide Productions, Inc.
10 Nintendo of America, Inc. (for Canada only)
11 MTV Networks
12 K.K.S.M. Inc.
13 Marvel Characters, Inc.
14 Dimension Films
15 Lucasfilm Ltd.
16 Head / Penn Racquet Sports
All other brands are owned by, and in most cases, are registered trademarks of
Brown Shoe Company, Inc.
WOMEN'S
AirStep
Basswood
Bootalinos
Carlos by Carlos Santana (1)
Connie
Connie Too
Dr. Scholl's (2)
Eurosole
Fanfares
LifeStride
LS Studio
Marquise
Maserati
Naturalizer
NaturalSport
NightLife
Original Dr. Scholl's (2)
TX Traction
CHILDREN'S
Airborne
Basswood
Barbie (3)
Bob the Builder (4)
Buster Brown
Chill Chasers by Buster Brown
Digimon: Digital Monsters (5)
Dragon Tales (6)
Hello Kitty (7)
Kipper (4)
Live Wires
Mary-Kate and Ashley (8)
Max Steel (9)
NASCAR Racers (5)
Pokemon (10)
Red Goose
Rugrats (11)
Sammy Sosa (12)
Spider-Man (13)
Spy Kids (14)
Star Wars (15)
Tige
T.R.E.A.T.S.
MEN'S AND ATHLETIC
Basswood
Big Country
Brown Shoe
Dr. Scholl's (2)
Nature Sole
Penn (16)
Regal
TX Traction
28
ANNUAL REPORT 2000 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION 30
FIVE-YEAR SUMMARY OF KEY FINANCIAL INFORMATION 34
CONSOLIDATED FINANCIAL STATEMENTS 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39
REPORTS ON FINANCIAL STATEMENTS 55
SUPPLEMENTARY FINANCIAL INFORMATION 56
SAFE HARBOR STATEMENT: This Annual Report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those projected as they are subject
to various risks and uncertainties. These include general economic conditions,
competition, consumer apparel and footwear trends, and political and economic
conditions in Brazil and China, which are significant footwear sourcing
countries. These factors are listed and further discussed in the Company's
Annual Report on Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
In fiscal 2000, Brown Shoe Company, Inc. achieved a 5.7% increase in sales and a
4.1% increase in diluted earnings per share compared to fiscal 1999. These
results reflect another year of record sales and earnings at the Famous Footwear
division and a strong sales gain by the flagship Naturalizer brand at wholesale.
At the same time, these sales and earnings gains fell short of planned levels as
2000 presented an overall difficult retail environment, which contributed to the
relatively flat same-store sales levels at our Famous Footwear and Naturalizer
Retail stores.
Net sales of $1.685 billion for the 53-week fiscal 2000 were 5.7% higher than
the $1.594 billion in fiscal 1999, which included 52 weeks. Net earnings in
fiscal 2000 reached $36.4 million compared to net earnings of $35.5 million in
fiscal 1999, an increase of 2.5%. Diluted earnings per share of $2.04 were 4.1%
higher than the $1.96 per share earned in fiscal 1999.
Famous Footwear achieved its fifth consecutive year of improved operating
earnings. For the first time, Famous surpassed the $1 billion mark in sales,
reporting sales of $1.034 billion in fiscal 2000, an increase of 11.4% over
fiscal 1999's sales of $927.6 million. In fiscal 2000, on a comparable 52-week
basis, same-store sales decreased .6%, but sales per square foot increased .6%
reflecting the addition of more productive stores. In fiscal 2000, 92 new stores
were opened, 26 stores were acquired with the Mil-Mar chain of stores primarily
located in the Greater Milwaukee area, and 60 stores were closed. This resulted
in the net addition of 58 stores. At the end of fiscal 2000, Famous operated 925
stores compared to 867 at the end of fiscal 1999. Operating earnings for fiscal
2000 were $58.0 million compared to $54.0 million in fiscal 1999, an increase of
7.4%, reflecting the higher sales and improved margins, partially offset by an
increase in expenses as a percent of sales. The increased expense rate was
driven by higher inventory distribution costs as a result of increasing
inventory levels in the stores to meet customer demand and drive sales, and the
addition of new, larger stores in power strip-malls.
In fiscal 2001, Famous Footwear intends to continue to reposition its real
estate portfolio by opening 8,000-10,000 square-foot strip-mall stores, and
replacing certain of its current 5,000-6,000 square-foot stores, leading to a
gradual increase in the average size of the chain's stores. Famous expects to
open approximately 100 new stores and close 90 in fiscal 2001.
The Company's Wholesale operations had net sales of $447.6 million in fiscal
2000, which was 4.9% lower than the $470.8 million in fiscal 1999. The decrease
reflects lower sales of children's footwear compared to 1999, during which the
Company had the Star Wars movie license, and lower sales of the discontinued
NaturalSport brand. These declines were partially offset by an 18.6% increase in
sales of the Naturalizer brand and a 12.4% increase in private label women's
footwear. Operating earnings declined from $32.8 million in fiscal 1999 to $31.0
million in fiscal 2000 reflecting lower sales.
Sales at the Company's Naturalizer Retail operations, including stores in both
the United States and Canada, of $203.5 million in fiscal 2000 were up 9.1% from
the $186.6 million achieved in 1999. Same-store sales, on a comparable 52-week
basis, increased .5% in the United States and 5.9% in Canada. An operating loss
of $3.8 million was incurred in fiscal 2000, compared to a $3.7 million loss in
fiscal 1999. Higher store operating costs in fiscal 2000 offset the impact of
the higher sales. At the end of fiscal 2000, 481 stores were in operation
including 331 in the United States and 150 in Canada.
Consolidated gross profit as a percent of sales of 40.5% in fiscal 2000 improved
from 39.3% in fiscal 1999. This improvement reflects a higher margin rate at
Famous Footwear and the Wholesale operations, and a higher proportion of the
Company's sales being at retail, which carries a higher gross profit rate than
wholesale.
Selling and administrative expenses as a percent of sales increased from 35.0%
in fiscal 1999 to 36.3% in fiscal 2000. This was the result of the higher
proportion of sales being at retail, and a higher expense rate at Famous
Footwear and the Wholesale operations.
Interest expense increased from $17.3 million in fiscal 1999 to $18.8 million in
fiscal 2000 due to higher average short-term borrowings and higher interest
rates. The increased borrowings resulted from increased inventories at Famous
Footwear, the acquisition of the 26 Mil-Mar stores in August 2000, and the
purchase of treasury stock.
Other expense of $0.2 million in fiscal 2000 compared to other income in fiscal
1999 of $0.6 million. The variance reflects higher environmental costs in fiscal
2000.
The Company's tax provision of $16.0 million in fiscal 2000 represented an
effective tax rate of 30.5%, which is slightly lower than the fiscal 1999 rate
of 31.4%. The Company's effective tax rate is below the statutory United States
federal rate because of earnings in the Far
30 BROWN SHOE COMPANY, INC. 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
East, which are taxed at lower rates, as disclosed further in Note 4 to the
consolidated financial statements.
1999 COMPARED TO 1998
Brown Shoe Company, Inc. had an impressive year in fiscal 1999, posting a 48%
increase in earnings per share compared to fiscal 1998.
Net sales of $1.594 billion in fiscal 1999 were 3.5% higher than the $1.540
billion in fiscal 1998. The increased net sales reflected higher sales at Famous
Footwear and the Wholesale operations. Net earnings in fiscal 1999 were $35.5
million compared to net earnings of $23.7 million in fiscal 1998. Net earnings
in fiscal 1999 included a $0.7 million loss related to the withdrawal from the
Pagoda International marketing division compared to a $7.5 million loss in
fiscal 1998. Excluding the Pagoda International results, net earnings of the
Company increased 16.0% to $36.2 million in fiscal 1999 versus $31.2 million in
fiscal 1998.
Famous Footwear achieved its fourth consecutive year of improved operating
earnings. Net sales of $927.6 million in fiscal 1999 increased 7.7% from $861.3
million in fiscal 1998. In fiscal 1999, same-store sales increased 2.2% and 40
net new stores were added, while sales per square foot increased 4.2%,
reflecting improved store productivity from the newly opened stores versus those
stores closed in the past year. Operating earnings for fiscal 1999 increased
14.4% to $54.0 million as a result of increased sales, stable gross margins,
aggressive expense control and strong execution. At the end of fiscal 1999, 867
stores were in operation compared to 827 stores in fiscal 1998. During the year,
77 stores were opened and 37 stores were closed.
The Company's Wholesale operations had net sales of $470.8 million in fiscal
1999, representing a 3.0% increase over fiscal 1998. Sales of the Naturalizer
brand increased 5.0% in fiscal 1999, reflecting good customer acceptance of the
rejuvenated product line. In addition, fiscal 1999 sales included a strong
performance of Barbie, Star Wars, and Dr. Scholl's licensed products. Operating
earnings of $32.8 million in fiscal 1999 were slightly lower than the $33.5
million in fiscal 1998 due to a change in the method of determining the level of
profit earned on intersegment sales to the Naturalizer Retail operations.
Excluding the impact of this change, operating earnings for the Wholesale
operations would have increased 5.2% in fiscal 1999, primarily due to the sales
gains and improved execution in the developing and sourcing of footwear.
In the Company's Naturalizer Retail operations net sales of $186.6 million in
fiscal 1999 declined slightly from $187.2 million in fiscal 1998. Same-store
sales in fiscal 1999 decreased 4.1% and 2.7% in the United States and Canada,
respectively. An operating loss of $3.7 million was incurred in fiscal 1999
compared to an operating profit of $0.8 million in fiscal 1998.The decrease in
operating earnings resulted from the same-store sales declines and increased
marketing expenses to promote the Naturalizer brand's new image. At the end of
fiscal 1999, 486 stores were in operation including 347 stores in the United
States and 139 stores in Canada. Domestically, the Company had a net increase of
16 stores in fiscal 1999, while Canada had a net increase of eight stores.
Consolidated gross profit as a percent of sales was 39.3% in fiscal 1999, lower
than the 39.9% achieved in fiscal 1998. The decrease reflected competitive
pressures at both retail and wholesale, and higher markdowns.
Selling and administrative expenses as a percent of sales improved to 35.0% in
fiscal 1999 versus 35.8% in fiscal 1998 due to strong expense control throughout
the Company and additional leverage of the expense base at Famous Footwear.
Interest expense of $17.3 million in fiscal 1999 decreased from $19.4 million in
fiscal 1998 due to lower average borrowings and the payments of $25.0 million
due on long-term debt. The lower average borrowings resulted from positive cash
flow from operations and foreign cash repatriation of approximately $26 million
in fiscal 1999.
Other income of $0.6 million in fiscal 1999 primarily resulted from the gain
recognized from the sale of the le coq sportif business. This compared to an
expense of $5.9 million in fiscal 1998, primarily from the write-off of $1.9
million in intangible assets, additional charges of $2.0 million associated with
the withdrawal from the Pagoda International business, and $1.8 million of
environmental costs.
The Company's tax provision of $16.3 million in fiscal 1999 represented an
effective tax rate of 31.4% as compared to 37.1% in fiscal 1998. Fiscal 1998
results included a higher level of International losses on which no tax benefit
was realized.
2000 BROWN SHOE COMPANY, INC. 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
IMPACT OF INFLATION
The effects of inflation on the Company have been minor over the last several
years and are not expected to have a significant impact in the foreseeable
future.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000, the Company's borrowing level increased as a result of
increased investment in inventories at Famous Footwear, the acquisition of the
Mil-Mar chain of footwear stores, treasury stock purchases, and a slightly
higher level of capital expenditures. As a result, total debt increased from
$172.0 million at the end of fiscal 1999 to $228.5 million at the end of fiscal
2000. The Company's ratio of debt-to-capital increased from 40.8% at the end of
fiscal 1999 to 45.8% at the end of fiscal 2000.
Working capital at the end of fiscal 2000 was $266.5 million, which was $3.5
million lower than at the end of fiscal 1999. The Company's current ratio, the
relationship of current assets to current liabilities, decreased from 2.2 to 1
at the end of fiscal 1999 to 1.9 to 1 at the end of fiscal 2000.
Cash provided by operating activities in fiscal 2000 was $6.4 million, compared
to $39.1 million in fiscal 1999. The decrease in fiscal 2000, compared to fiscal
1999, was due to higher inventories at Famous Footwear from the opening of
larger stores in power strip-mall centers and the presentation of greater
product assortment in existing stores.
Cash used for investing activities in fiscal 2000 of $29.5 million included
capital expenditures of $30.5 million. In fiscal 1999, capital expenditures of
$28.7 million were partially offset by the proceeds received from the sale of
the le coq sportif business. In both years capital expenditures were primarily
for new store openings and remodelings at Famous Footwear and Naturalizer
Retail.
In May 2000, the Company announced a stock repurchase program authorizing the
repurchase of up to 2 million shares of the Company's outstanding common stock.
In fiscal 2000 the Company repurchased 783,000 shares at a cost of $8.7 million.
In November 2000, the Company entered into a new revolving bank Credit
Agreement, which provides $165.0 million in committed working capital and letter
of credit financing, subject to certain borrowing base tests. The new agreement
expires November 2003. As of February 3, 2001, $66.5 million was drawn under
this agreement.
The Company's debt agreements contain various covenants that, among other
things, require the maintenance of certain financial ratios related to fixed
charge coverage and debt-to-total capitalization, establish minimum levels of
net worth, and limit the sale of assets and the level of liens and certain
investments. The Company was in compliance with all of its covenants during
fiscal 2000 and at fiscal year-end, and expects to continue to be in compliance
based on current estimates for fiscal 2001. The Company's current borrowing
capacity under the revolving bank Credit Agreement is believed to be adequate to
fund its operational needs and long-term debt maturities in fiscal 2001.
The Company's long-term debt is rated Ba2 by Moody's Investors Service and BB by
Standard & Poor's Corporation.
Brown Shoe Company, Inc. paid a dividend of $0.40 per share in fiscal 2000 and
fiscal 1999. The 2000 dividend marked the 78th year of consecutive quarterly
dividends.
FINANCIAL INSTRUMENTS
The market risk inherent in the Company's financial instruments and positions
represents the potential loss arising from adverse changes in foreign currency
exchange rates and interest rates. To address these risks, the Company enters
into various hedging transactions to the extent described below. All decisions
on hedging transactions are authorized and executed pursuant to the Company's
policies and procedures, which do not allow the use of financial instruments for
trading purposes. The Company also is exposed to credit-related losses in the
event of nonperformance by counterparties to these financial instruments.
Counterparties to these agreements, however, are major international financial
institutions, and the risk of loss due to nonperformance is believed to be
minimal.
A description of the Company's accounting policies for derivative instruments is
included in Note 9 to the consolidated financial statements.
FOREIGN CURRENCY EXCHANGE RATES
In the normal course of business, the Company is exposed to foreign currency
exchange rate risks as a result of having assets, liabilities and inventory
purchase commitments outside the United States. The Company employs an
established foreign currency hedging strategy to protect earnings and cash flows
from the adverse impact of exchange rate movements.
32 BROWN SHOE COMPANY, INC. 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
A substantial portion of inventory sourced from foreign countries is purchased
in United States dollars and, accordingly, is not subject to exchange rate
fluctuations. However, where the purchase price is to be paid in a foreign
currency, the Company enters into foreign exchange contracts or option
contracts, with maturity periods normally less than one year, to reduce its
exposure to foreign exchange risk. The level of outstanding contracts during the
year is dependent on the seasonality of the Company's business and demand for
footwear from various locations throughout the world. The changes in market
value of foreign exchange contracts have a high correlation to the price changes
in the currency of the related hedged transactions. The potential loss in fair
value of the Company's net currency positions at February 3, 2001 resulting from
a hypothetical 10% adverse change in all foreign currency exchange rates would
not be material.
Assets and liabilities outside the United States are primarily located in Canada
and Hong Kong. The Company's investments in foreign subsidiaries with a
functional currency other than the United States dollar are generally considered
long-term, and thus are not hedged. The net investment in foreign subsidiaries
translated into dollars using the year-end exchange rates was approximately $36
million at February 3, 2001. The potential loss in fair value resulting from a
hypothetical 10% adverse change in foreign exchange rates would be approximately
$3.6 million. Any loss in fair value would be reflected as a cumulative
translation adjustment in Other Comprehensive Income and would not impact
earnings.
INTEREST RATES
The Company's financing arrangements include both fixed and variable rate debt
in which changes in interest rates will impact the fixed and variable rate debt
differently. A change in the interest rate on fixed rate debt will only impact
the fair value of the debt, whereas a change in the interest rates on variable
rate debt will impact interest expense and cash flows. The Company had no
interest rate derivative instruments outstanding at year-end and has not elected
to enter into derivative instruments based on cost/benefit considerations.
Under the revolving bank Credit Agreement, the Company's only variable rate
debt, outstanding borrowings as of February 3, 2001 totaled $66.5 million. A
hypothetical 10% adverse change in interest rates on the average outstanding
borrowings during fiscal 2000 would not be material to the Company's net
earnings and cash flows.
At February 3, 2001, the fair value of the Company's long-term debt is estimated
at approximately $157 million, based upon the borrowing rate currently available
to the Company for financing arrangements with similar terms and maturities.
Market risk is viewed as the potential change in fair value of the Company's
debt resulting from a hypothetical 10% adverse change in interest rates and
would be approximately $4 million at February 3, 2001.
ENVIRONMENTAL MATTERS
The Company is involved in environmental remediation and ongoing maintenance at
several sites, including its closed New York tannery and its owned facility in
Colorado. In addition, various federal and state authorities have identified the
Company as a potentially responsible party for remediation at certain landfills
from the sale or disposal of solvents and other by-products from the closed
tannery. While the Company currently operates no domestic manufacturing
facilities, prior operations included numerous manufacturing and other
facilities for which the Company may have responsibility under various
environmental laws for the remediation of conditions that may be identified in
the future. In fiscal 2000, a class-action lawsuit was filed against the Company
related to the Colorado site. The Company does not believe that the ultimate
outcome of this lawsuit will have a materially adverse effect on its results of
operations or financial condition. At February 3, 2001, the accrued
environmental liabilities for all sites total approximately $5.3 million. See
Note 12 to the consolidated financial statements for a further description of
specific properties.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results could differ
materially from those projected as they are subject to various risks and
uncertainties. These include general economic conditions, competition, consumer
apparel and footwear trends, and political and economic conditions in Brazil and
China, which are significant footwear sourcing countries. These factors are
listed and further discussed in the Company's Annual Report on Form 10-K.
BROWN SHOE COMPANY, INC. 2000 33
FIVE-YEAR SUMMARY OF KEY FINANCIAL INFORMATION
FIVE-YEAR SUMMARY
2000 1999 1998 1997 1996
THOUSANDS, EXCEPT PER SHARE AMOUNTS (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net sales $1,684,859 $ 1,594,131 $1,539,907 $ 1,569,329 $1,527,754
Cost of goods sold 1,002,727 967,161 925,190 988,530 958,288
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 682,132 626,970 614,717 580,799 569,466
====================================================================================================================================
Selling and administrative expenses 610,788 558,436 551,877 559,536 521,553
Interest expense 18,823 17,349 19,383 21,756 19,327
Other (income) expense, net 164 (580) 5,854 1,675 1,361
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 52,357 51,765 37,603 (2,168) 27,225
Income tax provision 15,992 16,264 13,934 18,728 6,910
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 36,365 $ 35,501 $ 23,669 $ (20,896) $ 20,315
====================================================================================================================================
RETURNS FROM OPERATIONS
Return on net sales 2.2% 2.2% 1.5% (1.3%) 1.3%
Return on beginning shareholders' equity 14.5% 16.3% 11.9% (8.8%) 8.8%
Return on average invested capital 7.5% 7.9% 5.3% (4.2%) 4.1%
DIVIDENDS PAID $ 7,202 $ 7,295 $ 7,223 $ 15,323 $ 17,956
CAPITAL EXPENDITURES 30,528 28,688 22,747 21,727 21,044
PER COMMON SHARE
Basic net earnings (loss) $ 2.06 $ 1.99 $ 1.34 $ (1.19) $ 1.16
Diluted net earnings (loss) 2.04 1.96 1.32 (1.19) 1.15
Dividends paid .40 .40 .40 .85 1.00
Shareholders' equity 15.46 13.69 11.95 11.04 13.19
FINANCIAL POSITION
Receivables, net $ 64,403 $ 68,236 $ 67,815 $ 77,355 $ 90,246
Inventories, net 427,830 365,989 362,274 380,177 398,803
Working capital 266,541 270,005 250,939 260,437 301,020
Property and equipment, net 90,605 84,600 82,178 82,744 85,380
Total assets 740,069 650,338 655,232 694,988 722,375
Long-term debt and capitalized lease obligations 152,037 162,034 172,031 197,027 197,025
Shareholders' equity 269,972 249,945 217,174 199,190 237,037
Average common shares outstanding--Basic 17,670 17,859 17,692 17,591 17,531
Average common shares outstanding--Diluted 17,846 18,125 17,943 17,841 17,725
- ------------------------------------------------------------------------------------------------------------------------------------
All data presented reflects the fiscal year ended on the Saturday nearest to
January 31.
34 BROWN SHOE COMPANY, INC. 2000
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS FEBRUARY 3, 2001 JANUARY 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 50,491 $ 34,158
Receivables, net of allowance of $5,863 in 2000 and $8,088 in 1999 64,403 68,236
Inventories, net of adjustment to last-in, first-out cost of $11,433 in 2000 and $11,709 in 1999 427,830 365,989
Deferred income taxes 5,630 9,376
Prepaid expenses and other current assets 14,378 10,015
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 562,732 487,774
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension costs 39,936 39,028
Other assets 46,796 38,936
Property and equipment, net 90,605 84,600
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 740,069 $ 650,338
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 66,500 $ --
Trade accounts payable 127,887 113,820
Employee compensation and benefits 36,057 35,727
Other accrued expenses 53,897 53,820
Income taxes 1,850 4,402
Current maturities of long-term debt 10,000 10,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 296,191 217,769
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt, including capitalized lease obligations 152,037 162,034
Deferred income taxes 7,678 8,416
Other liabilities 14,191 12,174
- ------------------------------------------------------------------------------------------------------------------------------------
Total other liabilities 173,906 182,624
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000 shares authorized; no shares outstanding
Common stock, $3.75 par value, 100,000,000 shares authorized; 17,460,772 and -- --
18,262,990 shares outstanding 65,477 68,486
Additional capital 46,578 49,153
Unamortized value of restricted stock (2,386) (3,566)
Accumulated other comprehensive loss (7,138) (6,034)
Retained earnings 167,441 141,906
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 269,972 249,945
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 740,069 $ 650,338
====================================================================================================================================
See notes to consolidated financial statements.
2000 BROWN SHOE COMPANY, INC. 35
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS
THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
NET SALES $ 1,684,859 $ 1,594,131 $ 1,539,907
Cost of goods sold 1,002,727 967,161 925,190
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 682,132 626,970 614,717
- ------------------------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 610,788 558,436 551,877
Interest expense 18,823 17,349 19,383
Other (income) expense, net 164 (580) 5,854
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 52,357 51,765 37,603
Income tax provision 15,992 16,264 13,934
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 36,365 $ 35,501 $ 23,669
====================================================================================================================================
BASIC NET EARNINGS PER COMMON SHARE $ 2.06 $ 1.99 $ 1.34
====================================================================================================================================
DILUTED NET EARNINGS PER COMMON SHARE $ 2.04 $ 1.96 $ 1.32
====================================================================================================================================
See notes to consolidated financial statements.
36 BROWN SHOE COMPANY, INC. 2000
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOWS
THOUSANDS 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 36,365 $ 35,501 $ 23,669
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 23,953 25,547 26,943
Loss on disposal or impairment of facilities and equipment 2,117 1,567 961
Provision for losses on accounts receivable 1,554 2,234 2,772
Changes in operating assets and liabilities:
Receivables 2,279 (3,769) 6,768
Inventories (61,841) (3,715) 17,903
Prepaid expenses and other current assets (617) 2,761 9,100
Trade accounts payable and accrued expenses 14,474 (12,627) 2,904
Income taxes (2,552) (4,949) (5,553)
Other, net (9,301) (3,410) (6,587)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,431 39,140 78,880
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (30,528) (28,688) (22,747)
Proceeds from sale of le coq sportif 1,007 9,538 --
Proceeds from sales of fixed assets -- 14 58
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (29,521) (19,136) (22,689)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in short-term notes payable 66,500 -- (54,000)
Debt issuance costs (1,203) -- --
Repayments of long-term debt (10,000) (25,000) --
Payments for purchase of treasury stock (8,699) --
Proceeds from issuance of common stock 27 917 428
Dividends paid (7,202) (7,295) (7,223)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 39,423 (31,378) (60,795)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 16,333 (11,374) (4,604)
Cash and cash equivalents at beginning of year 34,158 45,532 50,136
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 50,491 $ 34,158 $ 45,532
====================================================================================================================================
See notes to consolidated financial statements.
2000 BROWN SHOE COMPANY, INC. 37
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED SHAREHOLDERS' EQUITY
UNAMORTIZED ACCUMULATED
COMMON STOCK VALUE OF OTHER TOTAL
THOUSANDS, EXCEPT NUMBER OF SHARES -------------------- ADDITIONAL RESTRICTED COMPREHENSIVE RETAINED SHAREHOLDERS'
AND PER SHARE AMOUNTS SHARES DOLLARS CAPITAL STOCK INCOME (LOSS) EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1998 18,049,327 $ 67,685 $ 47,036 $ (4,358) $ (8,427) $ 97,254 $ 199,190
===================================================================================================================================
Net earnings 23,669 23,669
Currency translation adjustment (415) (415)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 23,254
Dividends ($0.40 per share) (7,223) (7,223)
Stock issued under employee
benefit plans 27,138 102 326 428
Stock issued under restricted
stock plan, net 91,875 344 881 (1,225) --
Amortization of deferred
compensation under
restricted stock plan 1,525 1,525
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 30, 1999 18,168,340 $ 68,131 $ 48,243 $ (4,058) $ (8,842) $113,700 $ 217,174
===================================================================================================================================
Net earnings 35,501 35,501
Currency translation adjustment 2,808 2,808
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 38,309
Dividends ($0.40 per share) (7,295) (7,295)
Stock issued under employee
benefit plans 56,150 210 707 917
Stock issued under restricted
stock plan, net 38,500 145 203 (348) --
Amortization of deferred
compensation under
restricted stock plan 840 840
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 29, 2000 18,262,990 $ 68,486 $ 49,153 $ (3,566) $ (6,034) $141,906 $ 249,945
===================================================================================================================================
Net earnings 36,365 36,365
Currency translation adjustment (1,104) (1,104)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 35,261
Dividends ($0.40 per share) (7,202) (7,202)
Treasury stock acquired (783,000) (2,936) (2,135) (3,628) (8,699)
Stock issued under employee
benefit plans 2,282 9 18 27
Stock issued (forfeited) under
restricted stock plan, net (21,500) (82) (458) 540 --
Amortization of deferred
compensation under
restricted stock plan 640 640
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE FEBRUARY 3, 2001 17,460,772 $ 65,477 $ 46,578 $ (2,386) $ (7,138) $167,441 $ 269,972
===================================================================================================================================
See notes to consolidated financial statements.
38 BROWN SHOE COMPANY, INC. 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Brown Shoe Company, Inc. ("the Company"), founded in 1878, is a footwear
retailer and wholesaler. The Company's shares trade under the "BWS" symbol on
the New York and Chicago Stock Exchanges.
The Company provides a broad offering of branded, licensed and private label
casual, athletic and dress footwear products to women, children and men.
Footwear is sold at a variety of price points through multiple distribution
channels both domestically and internationally. The Company currently operates
1,406 retail shoe stores in the United States and Canada primarily under the
Famous Footwear, Naturalizer and F. X. LaSalle names. In addition, through its
Wholesale divisions, the Company designs, sources and markets footwear to retail
stores domestically and internationally, including department stores, mass
merchandisers and specialty shoe stores. In fiscal 2000, approximately 73% of
the Company's sales were at retail, compared to 70% in 1999 and 68% in 1998. See
Note 5 for additional information regarding the Company's business segments.
CONSOLIDATION
The consolidated financial statements include the accounts of Brown Shoe
Company, Inc. and its wholly-owned and majority-owned subsidiaries, after the
elimination of intercompany accounts and transactions. The accounts of the Brown
Pagoda division are consolidated as of December 31.
ACCOUNTING PERIOD
The Company's fiscal year is the 52- or 53-week period ending the Saturday
nearest to January 31. Fiscal years 2000, 1999 and 1998 ended on February 3,
2001, January 29, 2000, and January 30, 1999, respectively. Fiscal year 2000
included 53 weeks and fiscal years 1999 and 1998 each included 52 weeks.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with maturities of three months
or less when purchased to be cash equivalents.
INVENTORIES
All inventories are valued at the lower of cost or market, with 94% of
consolidated inventories using the last-in, first-out (LIFO) method. If the
first-in, first-out (FIFO) method had been used, inventories would have been
$11.4 million and $11.7 million higher at February 3, 2001, and January 29,
2000, respectively.
COMPUTER SOFTWARE COSTS
The Company capitalizes in Other Assets certain costs, including internal
payroll costs, incurred in connection with the development or acquisition of
software for internal use.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided over the estimated useful lives of the
assets, or the remaining term of leases where applicable, using the
straight-line method.
REVENUE RECOGNITION
Retail sales are recorded, net of returns, and exclude sales tax. Wholesale
sales are recorded, net of returns, when the merchandise has been shipped and
legal title has passed to the customer.
INCOME TAXES
Provision is made for the tax effects of timing differences between financial
and tax reporting. These differences relate principally to employee benefit
plans, bad debt reserves and inventory.
EARNINGS PER SHARE
Basic earnings per share is calculated using only the outstanding shares of
common stock. Diluted earnings per share is calculated using all outstanding
shares, unvested restricted stock and the dilutive effect, if any, of stock
options.
COMPREHENSIVE INCOME
Comprehensive Income includes all changes in equity except those resulting from
investments by owners and distributions to owners. The Accumulated Other
Comprehensive Loss for the Company is comprised solely of cumulative foreign
currency translation adjustments.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and accordingly recognizes
compensation expense related to stock appreciation units, the stock performance
plan and restricted stock grants. No compensation
2000 BROWN SHOE COMPANY, INC. 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expense is recorded for stock options granted at market value. The Company has
elected to apply the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), by making pro
forma disclosures of net earnings and earnings per share to reflect the fair
value of stock options as if SFAS No. 123 had been adopted.
RECLASSIFICATIONS
In fiscal 2000, the Company began reporting royalty income, previously reflected
in Other Income, in Net Sales. Accordingly, royalty income reflected in Other
Income in 1999 and 1998 of $1.6 million and $1.4 million, respectively, has been
reclassified to Net Sales.
[2] EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
2000 1999 1998
- ------------------------------------------------------------------------------
NUMERATOR
Net earnings $36,365 $35,501 $23,669
==============================================================================
DENOMINATOR (SHARES)
Denominator for basic
earnings per
common share 17,670 17,859 17,692
Dilutive effect of
unvested restricted
stock and stock
options 176 266 251
- ------------------------------------------------------------------------------
Denominator for diluted
earnings per
common share 17,846 18,125 17,943
==============================================================================
Basic earnings per
common share $ 2.06 $ 1.99 $ 1.34
==============================================================================
Diluted earnings per
common share $ 2.04 $ 1.96 $ 1.32
==============================================================================
[3] RETIREMENT AND OTHER BENEFIT PLANS
The Company's pension plans cover substantially all full-time United States
employees. Under the plans, salaried, management and certain hourly employees'
pension benefits are based on the employee's highest consecutive five years of
compensation during the 10 years before retirement; hourly employees' and union
members' benefits are based on stated amounts for each year of service. The
Company's funding policy for all plans is to make the minimum annual
contributions required by applicable regulations.
In addition to providing pension benefits, the Company sponsors unfunded defined
benefit postretirement health and life insurance plans that cover both salaried
and hourly employees who had become eligible for benefits by January 1, 1995.
The postretirement health care plans are offered on a shared-cost basis only to
employees electing early retirement. This coverage ceases when the employee
reaches age 65 and becomes eligible for Medicare. The retirees' contributions
are adjusted annually and the Company intends to continue to increase retiree
contributions in the future. The life insurance plans provide coverage ranging
from $1,000 to $50,000 for qualifying retired employees.
The following table sets forth the plans' changes in benefit obligations and
plan assets as well as amounts recognized in the Company's Consolidated Balance
Sheets at February 3, 2001, and January 29, 2000 (in thousands):
40 BROWN SHOE COMPANY, INC. 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
---------------- -----------------------------
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 99,356 $ 120,904 $ 5,666 $ 6,691
Service cost 4,431 4,626 4 5
Interest cost 7,497 7,316 354 378
Plan participants' contributions -- -- 323 329
Plan amendments -- 47 (731) --
Actuarial (gain) loss 6,405 (18,737) 153 (682)
Gross benefits paid (7,763) (14,800) (807) (1,055)
- -----------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 109,926 $ 99,356 $ 4,962 $ 5,666
- -----------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 151,114 $ 157,707 $ -- $ --
Actual return on plan assets 17,667 3,982 -- --
Employer contributions 371 4,225 484 727
Plan participant's contributions -- -- 323 328
Gross benefits paid (7,763) (14,800) (807) (1,055)
- -----------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 161,389 $ 151,114 $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Funded status at end of year $ 51,463 $ 51,758 $ (4,962) $ (5,666)
Unrecognized net actuarial gain (12,924) (13,238) (1,092) (1,708)
Unrecognized prior service cost 458 508 (523) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year $ 38,997 $ 39,028 $ (6,577) $ (7,375)
===================================================================================================================================
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost $ 45,340 $ 43,769 $ -- $ --
Accrued benefit cost (6,343) (4,741) (6,577) (7,375)
- -----------------------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year $ 38,997 $ 39,028 $ (6,577) $ (7,375)
===================================================================================================================================
Net periodic benefit cost (income) for 2000, 1999 and 1998 included the
following components (in thousands):
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
------------------------------------- ------------------------------------
2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Service cost $ 4,431 $ 4,626 $ 4,009 $ 4 $ 5 $ 4
Interest cost 7,497 7,316 7,300 354 378 447
Expected return on assets (11,709) (12,859) (11,884) -- -- --
Amortization of:
Actuarial (gain) loss 133 108 -- (462) (562) (939)
Prior service cost 50 80 16 (209) (1) (9)
Transition asset -- -- (547) -- -- --
Settlement cost -- 750 700 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total net periodic benefit cost (income) $ 402 $ 21 $ (406) $ (313) $ (180) $ (497)
============================================================================================================================
2000 BROWN SHOE COMPANY, INC. 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
-----------------------------------------------
2000 1999 2000 1999
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE
ASSUMPTIONS
Discount rate 7.00% 7.75% 7.00% 7.75%
Expected return on
plan assets 9.50% 9.50% n/a n/a
Rate of compensation
increase 4.50% 4.75% n/a n/a
- --------------------------------------------------------------------------------
For measurement purposes, a 6.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed. A one-percentage-point change in
assumed health care cost trend rates would not have a material impact on service
and interest cost and the postretirement benefit obligation.
The Company also maintains an unfunded supplemental Executive Retirement Plan.
The projected benefit obligation was $10.7 million and the accumulated benefit
obligation was $6.3 million as of February 3, 2001 and $7.9 million and $4.7
million, respectively, as of January 29, 2000.
The Company's defined contribution 401(k) plan covers salaried and certain
hourly employees. Company contributions represent a partial matching of employee
contributions generally up to a maximum of 3.5% of the employees salary. The
Company's expense for this plan was $2.6 million in 2000, $2.7 million in 1999
and $2.8 million in 1998.
[4] INCOME TAXES
The components of earnings before income taxes consisted of domestic earnings
before income taxes of $28.7 million, $28.8 million and $25.2 million, in 2000,
1999 and 1998, respectively, and foreign earnings before income taxes of $23.7
million, $23.0 million, and $12.4 million in 2000, 1999 and 1998, respectively.
The components of income tax expense (benefit) were as follows (in thousands):
2000 1999 1998
- ----------------------------------------------------------------------------
FEDERAL
Currently payable $ 8,346 $ 9,391 $ 9,373
Deferred 1,836 1,920 (662)
- ----------------------------------------------------------------------------
10,182 11,311 8,711
STATE 2,342 913 1,626
FOREIGN 3,468 4,040 3,597
- ----------------------------------------------------------------------------
Total income tax
expense $ 15,992 $ 16,264 $ 13,934
============================================================================
The Company made federal, state and foreign tax payments of $13.9 million, $15.4
million and $13.7 million in fiscal 2000, 1999 and 1998, respectively.
The differences between the tax expense reflected in the financial statements
and the amounts calculated at the federal statutory income tax rate of 35% were
as follows (in thousands):
2000 1999 1998
- --------------------------------------------------------------------------------
Income taxes at
statutory rate $ 18,325 $ 18,117 $ 13,161
State income taxes,
net of federal
tax benefit 1,522 593 1,057
Foreign tax less
than domestic rate (4,790) (4,843) (2,913)
Foreign operating
losses with no
benefit provided 172 603 2,347
Provision for foreign
cash repatriation -- 1,200 --
Other 763 594 282
- --------------------------------------------------------------------------------
Total income tax
expense $ 15,992 $ 16,264 $ 13,934
================================================================================
42 BROWN SHOE COMPANY, INC. 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred income tax assets and
liabilities were as follows (in thousands):
FEBRUARY 3, JANUARY 29,
2001 2000
- ------------------------------------------------------------------------
DEFERRED TAX ASSETS
Employee benefits, compensation
and insurance $ 6,077 $ 5,943
Allowance for doubtful accounts 1,682 2,835
Inventory capitalization and
inventory reserves 3,531 4,365
Postretirement and postemployment
benefit plans 2,746 3,095
Other 9,863 9,232
- ------------------------------------------------------------------------
Total deferred tax assets 23,899 25,470
DEFERRED TAX LIABILITIES
Retirement plans (14,159) (13,833)
LIFO inventory valuation (9,711) (8,978)
Other (2,077) (1,699)
- ------------------------------------------------------------------------
Total deferred tax liabilities (25,947) (24,510)
- ------------------------------------------------------------------------
Net deferred tax asset (liability) $ (2,048) $ 960
========================================================================
As of February 3, 2001, no deferred taxes have been provided on the
undistributed earnings of the Company's Canadian subsidiary. It is anticipated
no additional United States tax would be incurred if the accumulated Canadian
earnings were distributed given the current United States and Canadian income
tax rates. No deferred taxes have been provided on the accumulated unremitted
earnings of the Company's other foreign subsidiaries as of February 3, 2001. The
Company's intention is to reinvest these earnings indefinitely or to repatriate
the earnings only when it is tax effective to do so. In the event these other
foreign entities' earnings were distributed, it is estimated U.S. taxes, net of
available foreign tax credits, of approximately $7.5 million would be due.
[5] BUSINESS SEGMENT INFORMATION
The Company's reportable segments include Famous Footwear, Wholesale operations,
and Naturalizer Retail.
Famous Footwear, which represents the Company's largest division, operated 925
stores at the end of fiscal 2000, selling branded footwear for the entire
family.
Wholesale operations source and market branded, licensed and private label
footwear primarily to department stores, mass-merchandisers and company-owned
Naturalizer Retail stores and Famous Footwear.
Naturalizer Retail specialty store operations included 331 stores in the United
States and 150 stores in Canada at year-end.
The "Other" segment includes the corporate assets and general and administrative
expenses, which are not allocated to the operating units. Fiscal 2000 also
included the Company's investment in Shoes.com, Inc., a footwear e-commerce
company. Fiscal 1999 and 1998 included the Scholze Tannery business, which was
sold at the end of fiscal 1999, and Pagoda International, the Company's
international marketing division, which was liquidated in fiscal 1999.
The Company's reportable segments are operating units that market to different
customers and are each managed separately as they distribute their products on a
retail or wholesale basis. An operating segment's performance is evaluated and
resources allocated based on operating profit. Operating profit represents gross
profit less selling and administrative expenses and other operating income or
expense. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies. Intersegment
sales are generally recorded at a profit to the selling division. All
intersegment profits related to inventory on hand at the purchasing division
are eliminated against the earnings of the selling division.
In fiscal 1999, the Company revised its method of determining the level of
profit to be earned on intersegment sales from the Wholesale operations to
Naturalizer Retail. The change resulted in an increase to operating profit of
$2.4 million in fiscal 1999 for Naturalizer Retail and a corresponding decrease
to operating profit for the Wholesale operations.
2000 BROWN SHOE COMPANY, INC. 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAMOUS WHOLESALE NATURALIZER
THOUSANDS FOOTWEAR OPERATIONS RETAIL OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------
FISCAL 2000
External sales $1,033,747 $ 447,588 $ 203,524 $ -- $1,684,859
Intersegment sales -- 187,842 -- -- 187,842
Depreciation and amortization 14,864 2,860 4,701 1,528 23,953
Operating profit (loss) 58,032 30,986 (3,765) (13,680) 71,573
Operating segment assets 403,520 199,708 86,371 50,470 740,069
Capital expenditures 18,683 1,859 8,672 1,314 30,528
- ----------------------------------------------------------------------------------------------------------------
FISCAL 1999
External sales $ 927,626 $ 470,787 $ 186,621 $ 9,097 $1,594,131
Intersegment sales -- 170,834 -- -- 170,834
Depreciation and amortization 16,030 3,464 4,340 1,713 25,547
Operating profit (loss) 54,022 32,791 (3,655) (15,487) 67,671
Operating segment assets 332,680 194,910 76,334 46,414 650,338
Capital expenditures 18,287 1,762 8,309 330 28,688
- ----------------------------------------------------------------------------------------------------------------
FISCAL 1998
External sales $ 861,329 $ 457,312 $ 187,201 $ 34,065 $1,539,907
Intersegment sales -- 188,969 -- -- 188,969
Depreciation and amortization 13,902 5,961 3,972 3,108 26,943
Operating profit (loss) 47,235 33,480 784 (20,600) 60,899
Operating segment assets 316,628 208,779 76,896 52,929 655,232
Capital expenditures 14,794 1,968 5,864 121 22,747
- ----------------------------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------
RECONCILIATION OF
OPERATING PROFIT TO
EARNINGS BEFORE
INCOME TAXES:
Total operating profit $ 71,573 $ 67,671 $ 60,899
Interest expense 18,823 17,349 19,383
Non-operating other
(income) expense 393 (1,443) 3,913
- --------------------------------------------------------------------------
Earnings before
income taxes $ 52,357 $ 51,765 $ 37,603
==========================================================================
For geographic purposes, the domestic operations include the wholesale
distribution of branded, licensed and private label footwear to a variety of
retail customers, and nationwide operation of the Famous Footwear and
Naturalizer chains of footwear stores.
The Company's foreign operations primarily consist of wholesale distribution
operations in the Far East, and wholesaling and retailing in Canada. The Far
East operations include "first-cost" operations, where footwear is sold at
foreign ports to customers who then import the footwear into the United States.
44 BROWN SHOE COMPANY, INC. 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's net sales and long-lived assets by geographic area
were as follows (in thousands):
2000 1999 1998
- --------------------------------------------------------------------------
NET SALES
United States $ 1,397,536 $ 1,282,067 $ 1,223,281
Far East 215,079 236,451 223,986
Canada 74,127 75,340 74,503
Latin America,
Europe and other 25 1,980 25,728
Inter-area transfers (1,908) (1,707) (7,591)
- --------------------------------------------------------------------------
$ 1,684,859 $ 1,594,131 $ 1,539,907
==========================================================================
LONG-LIVED ASSETS
United States $ 153,910 $ 138,651 $ 127,636
Far East 11,628 12,045 12,622
Canada 11,664 11,709 10,894
Latin America,
Europe and other 135 159 6,697
- --------------------------------------------------------------------------
$ 177,337 $ 162,564 $ 157,849
==========================================================================
Long-lived assets consisted primarily of property and equipment, prepaid pension
costs, goodwill, trademarks and other assets.
[6] PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
FEBRUARY 3, JANUARY 29,
2001 2000
- ----------------------------------------------------------------
Land and buildings $ 31,004 $ 30,493
Leasehold improvements 67,543 57,458
Furniture, fixtures and equipment 147,061 143,121
- ----------------------------------------------------------------
245,608 231,072
Allowances for depreciation
and amortization (155,003) (146,472)
- ----------------------------------------------------------------
$ 90,605 $ 84,600
================================================================
Under the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," charges included in selling and administrative expense for
impaired assets of $1.1 million, $1.3 million and $0.1 million were recognized
in fiscal 2000, 1999 and 1998, respectively. Fair value was based on estimated
future cash flows to be generated by retail stores, discounted at a market rate
of interest.
[7] LONG-TERM AND SHORT-TERM FINANCING ARRANGEMENTS
Long-term debt, including capitalized lease obligations, net of unamortized
discounts, consisted of the following (in thousands):
FEBRUARY 3, JANUARY 29,
2001 2000
- ------------------------------------------------------------------
9.5% Senior Notes due 2006 $100,000 $100,000
7.36% Senior Notes, payments of
$10,000 due annually through 2003 30,000 40,000
7.07%-8.83% Debentures due 2002 18,548 18,547
7.125% Debentures due 2003 10,000 10,000
Capitalized lease obligations 3,489 3,487
- ------------------------------------------------------------------
$162,037 $172,034
==================================================================
Maturities of long-term debt and capitalized lease obligations for 2001 through
2005 are: 2001--$10.0 million; 2002--$28.6 million; 2003--$20.0 million;
2004--$0.5 million, and 2005--$0.6 million.
The Company's 9.5% Senior Notes are due in 2006. These Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after October
15, 2001.
In November 2000, the Company entered into a new revolving bank Credit
Agreement, which provides $165.0 million in committed working capital and letter
of credit financing. The new agreement expires November 2003. Interest on
borrowings under the Credit Agreement is at varying rates and at the Company's
option based on one of the following: the LIBOR rate, the BankOne, N.A.
corporate base rate, or the federal funds rate. A facility fee, 0.375% at
February 3, 2001, based on the Company's leverage ratio, is payable on the
entire amount of the facility. At February 3, 2001, the Company had $66.5
million of short-term borrowings outstanding and approximately $14.3 million in
letters of credit outstanding under the revolving bank Credit Agreement.
The Company's Canadian operations maintain uncommitted lines of credit totaling
approximately $5.3 million, with letters of credit outstanding of approximately
$3.0 million as of February 3, 2001.
The Company's debt agreements contain various covenants that, among other
things, require the maintenance of certain financial ratios related to fixed
charge coverage, EBITDA to total indebtedness and total debt to capital,
establish minimum levels of net worth, establish limitations on indebtedness,
certain types of payments including dividends, liens and
2000 BROWN SHOE COMPANY, INC. 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investments, and limit the use of proceeds of asset sales. The 9.5% Senior
Notes, the revolving bank Credit Agreement, and the 7.36% unsecured Senior Notes
are guaranteed by certain wholly-owned domestic subsidiaries and the Canadian
subsidiary of the Company.
The maximum amount of short-term borrowings under the revolving bank credit
arrangements at the end of any month was $86.0 million in 2000 and $38.0 million
in 1999. The average short-term borrowings during the year were $36.1 million in
2000 and $15.8 million in 1999. The weighted average interest rates approximated
8.3% in 2000 and 6.8% in 1999.
Cash payments of interest for fiscal 2000, 1999 and 1998 were $18.3 million,
$18.0 million and $20.1 million, respectively.
[8] LEASES
The Company leases all of its retail locations and certain other equipment and
facilities. Over 60 percent of the retail store leases are subject to renewal
options for varying periods.
In addition to minimum rental payments, certain of the retail store leases
require contingent payments based on sales levels.
Rent expense from continuing operations for operating leases amounted to (in
thousands):
2000 1999 1998
- -------------------------------------------------------------
Minimum payments $ 99,107 $ 90,366 $ 87,473
Contingent payments 2,831 2,844 2,489
- -------------------------------------------------------------
$101,938 $ 93,210 $ 89,962
=============================================================
Future minimum payments under noncancelable operating leases with an initial
term of one year or more were as follows at February 3, 2001 (in thousands):
- -----------------------------------------
2001 $ 107,389
2002 94,476
2003 81,116
2004 65,663
2005 43,567
Thereafter 98,894
- -----------------------------------------
Total minimum lease payments $ 491,105
=========================================
The Company is contingently liable for lease commitments of approximately $28
million, which primarily relate to the Cloth World and Meis specialty retailing
chains, which were sold.
[9] DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in interest rates and foreign exchange rates. The
instruments primarily used are foreign exchange contracts and foreign currency
options. Periodically, interest rate swaps and interest rate futures are
utilized. The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to these financial instruments. Counterparties
to these agreements are, however, major international financial institutions,
and the risk of loss due to nonperformance is believed to be minimal.
The Company enters into foreign exchange instruments to hedge foreign currency
transactions on a continuous basis for periods consistent with its committed
exposures. The terms of these instruments are generally less than a year. The
primary purpose of the foreign currency hedging activities is to protect the
Company from the risk that the eventual cash outflows resulting from the
purchases of inventory from foreign suppliers will be adversely affected by
changes in exchange rates.
The fair value of the Company's derivative financial instruments consisted of
the following (in thousands of U.S. dollars):
FEBRUARY 3, JANUARY 29,
2001 2000
- ---------------------------------------------------------------
DELIVERABLE FINANCIAL INSTRUMENTS
Italian lira $13,000 $10,700
Canadian dollars 3,600 4,500
Spanish peseta and other currencies 2,900 1,900
NON-DELIVERABLE FINANCIAL INSTRUMENTS
New Taiwanese dollars 6,400 7,300
- ---------------------------------------------------------------
$25,900 $24,400
===============================================================
The unrealized gains or losses related to these instruments, based on
dealer-quoted prices, were a $0.5 million gain and a $0.6 million loss at
February 3, 2001, and January 29, 2000, respectively.
Realized gains and losses on financial instruments used as hedges of inventory
purchases are included in the basis of the inventory and are recognized in
income as a component of cost of goods sold in the period in which the related
inventory is sold. Material gains and losses on financial instruments hedging
forecasted
46 BROWN SHOE COMPANY, INC. 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
purchases are recorded in income in the period the value of the instruments
change.
The Company had no interest rate derivative instruments outstanding at February
3, 2001, and January 29, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The statement, which was amended in June
2000 by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," is effective for the Company beginning in fiscal 2001. SFAS
133 requires all derivative instruments be recorded on the balance sheet at
their fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in Other Comprehensive Income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be recognized immediately in earnings. Based on the Company's
derivative positions at February 3, 2001, the Company does not believe that
adoption of SFAS 133 will have a significant effect on earnings or the financial
position of the Company.
[10] FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments at
February 3, 2001, and January 29, 2000, are (in thousands):
2000 1999
--------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------
LIABILITIES
Long-term debt,
including current
maturities $162,037 $157,111 $172,034 $165,304
===========================================================================
The fair value of the Company's long-term debt was based upon the borrowing
rates currently available to the Company for financing arrangements with similar
terms and maturities.
Carrying amounts reported on the balance sheet for cash, cash equivalents and
receivables approximate fair value due to the short-term maturity of these
instruments.
[11] CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to significant
concentration of credit risk, consisted primarily of cash, cash equivalents and
trade accounts receivable.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. The financial institutions are
located throughout the world, and the Company's policy is designed to limit
exposure to any one institution or geographic region. The Company's periodic
evaluations of the relative credit standing of these financial institutions are
considered in the Company's investment strategy.
The Company's footwear wholesaling businesses sell primarily to department
stores, mass merchandisers, and independent retailers across the United States
and Canada. Receivables arising from these sales are not collateralized,
however, a portion is covered by documentary letters of credit. Credit risk is
affected by conditions or occurrences within the economy and the retail
industry. The Company maintains an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information.
[12] COMMITMENTS AND CONTINGENCIES
The Company is involved in environmental remediation and ongoing compliance
activities at several sites. The Company is remediating a residential area
adjacent to owned property in Colorado, under the oversight of Colorado
authorities. This residential area has been affected by types of solvents
previously used at the facility. The Company is also remediating the owned
property. In fiscal 2000, a class-action lawsuit was filed against the Company
related to this site. The Company does not believe that the ultimate outcome of
this lawsuit will have a materially adverse effect on its results of operations
or financial condition. During fiscal 2000 and 1999, the Company incurred
charges of $3.0 million and $1.8 million, respectively, related to this site.
The Company has completed its remediation efforts at its closed New York tannery
and two associated landfills. In 1995, state environmental authorities
reclassified the status of these sites as being properly closed and requiring
only continued maintenance and monitoring over the next 23 years. In addition,
2000 BROWN SHOE COMPANY, INC. 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
various federal and state authorities have identified the Company as a
potentially responsible party for remediation at certain landfills from the sale
or disposal of solvents and other by-products from the closed tannery and shoe
manufacturing facilities.
Based on information currently available, the Company has an accrued liability
of $5.3 million, as of February 3, 2001, to complete the clean up at all
sites. The ultimate cost may vary.
While the Company currently does not operate domestic manufacturing facilities,
prior operations included numerous manufacturing and other facilities for which
the Company may have responsibility under various environmental laws for the
remediation of conditions that may be identified in the future.
The Company is also involved in legal proceedings and litigation arising in the
ordinary course of business. In the opinion of management, after consulting with
legal counsel, the outcome of such proceedings and litigation currently pending
will not have a materially adverse effect on the Company's results of operations
or financial position.
[13] COMMON STOCK
The Company's Common Stock has a par value of $3.75 per share and 100,000,000
shares are authorized. At February 3, 2001 and January 29, 2000, there were
17,460,772 shares and 18,262,990 shares, net of 4,545,125 shares and 3,742,907
shares held in treasury, outstanding, respectively. The stock is listed and
traded on the New York and Chicago Stock Exchanges (symbol BWS). There were
approximately 5,800 shareholders of record at February 3, 2001.
The Company has a Shareholder Rights Plan under which each outstanding share of
the Company's common stock carries one Common Stock Purchase Right. The rights
may only become exercisable under certain circumstances involving acquisition of
the Company's common stock by a person or group of persons without the prior
written consent of the Company. Depending on the circumstances, if the rights
become exercisable, the holder may be entitled to purchase shares of the
Company's common stock or shares of common stock of the acquiring person at
discounted prices. The rights will expire on March 18, 2006, unless they are
earlier exercised, redeemed or exchanged.
[14] STOCK OPTION AND STOCK RELATED PLANS
The Company has stock option, stock appreciation, restricted stock and stock
performance plans under which certain officers, employees and members of the
board of directors are participants.
All stock options are granted at market value. Stock appreciation units, which
the Company discontinued issuing in 1999, also have been granted in tandem with
certain options. Such units entitle the participant to receive an amount, in
cash and/or stock, equal to the difference between the current market value of a
share of stock at the exercise date and the option price of such share of
stock. The options and appreciation units become exercisable one year from the
date of the grant at a rate of 25% per year and are exercisable for up to 10
years from date of grant. Since the stock appreciation rights are issued in
tandem with stock options, the exercise of either cancels the other. As of
February 3, 2001, 262,795 additional shares of common stock were available to be
granted in the form of options, restricted stock or stock performance.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related Interpretations
in accounting for its employee stock options instead of the alternative fair
value accounting provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2000,
1999 and 1998, respectively: risk-free interest rates of 6.6%, 5.8% and 5.2%;
dividend yields of 4.0%, 2.2% and 2.4%; volatility factors of the expected
market price of the Company's common stock of .39, .36 and .34; and a
weighted-average expected life of the option of seven years. The weighted
average fair value of options granted during 2000, 1999 and 1998 was $3.44,
$6.76 and $5.81 per share, respectively.
48 BROWN SHOE COMPANY, INC. 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for per share amounts):
2000 1999 1998
- -----------------------------------------------------------------------------
Net income
as reported $ 36,365 $ 35,501 $ 23,669
Pro forma net
income 34,564 33,666 22,641
Basic earnings per
common share
as reported 2.06 1.99 1.34
Pro forma basic
earnings per
common share 1.96 1.89 1.28
Diluted earnings per
common share
as reported 2.04 1.96 1.32
Pro forma diluted
earnings per
common share 1.94 1.85 1.26
- -----------------------------------------------------------------------------
The following summary sets forth the Company's stock option and stock
appreciation rights activity for the three years ended February 3, 2001:
NUMBER OF WEIGHTED
----------------------------- AVERAGE
OPTION APPRECIATION EXERCISE
SHARES UNITS PRICE
- ----------------------------------------------------------------------------
Outstanding
January 31, 1998 1,341,918 212,273 $ 19
Granted 371,000 82,724 17
Exercised (15,250) (22,330) 15
Terminated (252,574) (16,629) 24
- ----------------------------------------------------------------------------
Outstanding
January 30, 1999 1,445,094 256,038 17
Granted 555,300 -- 19
Exercised (50,750) -- 16
Terminated (98,399) (39,005) 21
- ----------------------------------------------------------------------------
Outstanding
January 29, 2000 1,851,245 217,033 18
Granted 603,000 -- 10
Exercised -- -- --
Terminated (267,820) -- 17
- ----------------------------------------------------------------------------
Outstanding
February 3, 2001 2,186,425 217,033 $ 16
============================================================================
Following is a summary of stock options outstanding as of February 3, 2001,
which have exercise prices ranging from $10 to $38:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING
OPTIONS PRICE LIFE (YEARS)
- ------------------------------------------------------------------
OPTIONS OUTSTANDING
Price under $15 1,027,750 $ 12 8
Price $15 or over 1,158,675 19 7
- ------------------------------------------------------------------
2,186,425 $ 16 7
==================================================================
OPTIONS EXERCISABLE
Price under $15 346,438 $ 14 6
Price $15 or over 689,768 19 6
- ------------------------------------------------------------------
1,036,206 $ 17 6
==================================================================
At January 29, 2000, 800,370 options with a weighted average exercise price of
$18 were exercisable. At January 30, 1999, 550,420 options with a weighted
average exercise price of $19 were exercisable.
Under the Company's restricted stock program, common stock of the Company may be
granted at no cost to certain officers and key employees. Plan participants are
entitled to cash dividends and to vote their respective shares. Restrictions
limit the sale or transfer of these shares during an eight-year period whereby
the restrictions lapse on 50% of these shares after 4 years, 25% after 6 years
and the remaining 25% after 8 years. Upon issuance of stock under the plan,
unearned compensation equivalent to the market value at the date of grant is
charged to shareholders' equity and subsequently amortized to expense over the
eight-year restriction period. In fiscal 2000, there were net forfeitures of
21,500 restricted shares. In 1999 and 1998, 38,500 and 91,875 restricted shares
were granted, respectively. Compensation expense was $0.6 million, $0.8 million
and $1.5 million in 2000, 1999 and 1998, respectively.
In fiscal 1999, the Company adopted a stock performance plan under which common
stock may be awarded at the end of the performance period at no cost to certain
officers and key employees if certain financial goals are met. Compensation
expense is recorded over the performance period based on the anticipated number
and market value of shares to be awarded. Compensation expense for performance
shares was $0.5 million and $0.3 million in 2000 and 1999, respectively. The
Company currently has
2000 BROWN SHOE COMPANY, INC. 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reserved 173,500 shares as eligible to be awarded to participants upon meeting
certain financial goals, however, the actual number of shares ultimately earned
may vary.
[15] SUPPLEMENTARY INFORMATION
BALANCE SHEET
Cash equivalents of $36.5 million and $31.8 million at February 3, 2001 and
January 29, 2000, respectively, are stated at cost, which approximates fair
value.
STATEMENT OF CONSOLIDATED EARNINGS
Advertising and marketing costs totaled $50.7 million, $52.5 million and $54.9
million in 2000, 1999 and 1998, respectively.
Other Expense (Income) consisted of the following (in thousands):
2000 1999 1998
- ---------------------------------------------------------------------------
Interest income $ (2,245) $ (1,884) $ (1,730)
Restructuring charges -- -- 1,950
Amortization of
intangibles 849 893 3,488
Environmental charges 2,959 1,790 2,344
Gain on sale of
le coq sportif -- (2,334) --
Other, net (1,399) 955 (198)
- ---------------------------------------------------------------------------
Total $ 164 $ (580) $ 5,854
===========================================================================
[16] CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The 9.5% Senior Notes, the revolving bank Credit Agreement, and the 7.36% Senior
Notes, described in Note 7, are unconditionally and jointly and severally
guaranteed by certain wholly-owned domestic subsidiaries and the Canadian
subsidiary of the Company. The non-guarantor subsidiaries are predominantly
foreign subsidiaries of the Company. Accordingly, condensed consolidating
balance sheets as of February 3, 2001, and January 29, 2000, and the related
condensed consolidating statements of earnings and cash flows for each of the
three years in the period ended February 3, 2001, are provided. 1999 and 1998
data has been restated to reflect the Company's Canadian subsidiary as a
guarantor of the debt, which became effective in November 2000.
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 operation and cash flow of, each of the
consolidating groups.
50 BROWN SHOE COMPANY, INC 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AS OF FEBRUARY 3, 2001
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,983 $ 14,633 $ 35,075 $ (6,200) $ 50,491
Receivables, net 31,545 11,617 21,241 -- 64,403
Inventories, net 48,905 391,138 427 (12,640) 427,830
Other current assets (7,439) 22,096 928 4,423 20,008
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 79,994 439,484 57,671 (14,417) 562,732
- --------------------------------------------------------------------------------------------------------------------------------
Other assets 51,436 32,146 3,154 (4) 86,732
Property and equipment, net 14,736 74,868 1,001 -- 90,605
Investment in subsidiaries 284,335 15,516 -- (299,851) --
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 430,501 $ 562,014 $ 61,826 $(314,272) $ 740,069
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 66,500 $ -- $ -- $ -- $ 66,500
Trade accounts payable 3,893 104,736 19,258 -- 127,887
Accrued expenses 24,658 55,733 6,795 2,768 89,954
Income taxes 1,209 (705) 1,389 (43) 1,850
Current maturities of long-term debt 10,000 -- -- -- 10,000
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 106,260 159,764 27,442 2,725 296,191
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt, including capitalized lease obligations 152,037 -- -- -- 152,037
Other liabilities 21,673 (1,183) 1,379 -- 21,869
Intercompany payable (receivable) (119,441) 117,670 17,719 (15,948) --
Shareholders' equity 269,972 285,763 15,286 (301,049) 269,972
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 430,501 $ 562,014 $ 61,826 $(314,272) $ 740,069
================================================================================================================================
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED FEBRUARY
3, 2001
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 262,978 $ 1,505,750 $ 217,256 $ (301,125) $ 1,684,859
Cost of goods sold 191,988 919,121 192,743 (301,125) 1,002,727
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 70,990 586,629 24,513 -- 682,132
- ------------------------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 69,063 531,887 11,143 (1,305) 610,788
Interest expense 18,723 66 34 -- 18,823
Intercompany interest (income) expense (14,112) 14,122 (10) -- --
Other (income) expense, net (97) 109 (1,153) 1,305 164
Equity in (earnings) of subsidiaries (38,222) (14,300) -- 52,522 --
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 35,635 54,745 14,499 (52,522) 52,357
Income tax provision (benefit) (730) 16,293 429 -- 15,992
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 36,365 $ 38,452 $ 14,070 $ (52,522) $ 36,365
====================================================================================================================================
2000 BROWN SHOE COMPANY, INC 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE FISCAL YEAR ENDED
FEBRUARY 3, 2001
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities $ 2,853 $(10,060) $ 10,693 $ 2,945 $ 6,431
Investing activities:
Capital expenditures (2,234) (27,676) (618) -- (30,528)
Proceeds from sale of le coq sportif 1,007 -- -- -- 1,007
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,227) (27,676) (618) -- (29,521)
Financing activities:
Increase in short-term notes payable 66,500 -- -- -- 66,500
Debt issuance costs (1,203) -- -- -- (1,203)
Repayments of long-term debt (10,000) -- -- -- (10,000)
Payments for purchase of treasury stock (8,699) -- -- -- (8,699)
Proceeds from issuance of common stock 27 -- -- -- 27
Dividends paid (7,202) -- -- -- (7,202)
Intercompany financing (42,917) 47,815 4,247 (9,145) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (3,494) 47,815 4,247 (9,145) 39,423
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,868) 10,079 14,322 (6,200) 16,333
Cash and cash equivalents at beginning of year 8,851 4,554 20,753 -- 34,158
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,983 $ 14,633 $ 35,075 $ (6,200) $ 50,491
====================================================================================================================================
CONDENSED CONSOLIDATING BALANCE SHEET AS OF JANUARY 29, 2000
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,851 $ 4,554 $ 20,753 $ -- $ 34,158
Receivables, net 33,265 17,107 17,864 -- 68,236
Inventories, net 48,066 329,164 280 (11,521) 365,989
Other current assets (5,429) 19,931 892 3,997 19,391
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 84,753 370,756 39,789 (7,524) 487,774
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets 52,535 25,217 216 (4) 77,964
Property and equipment, net 14,627 69,050 923 -- 84,600
Investment in subsidiaries 247,218 1,644 -- (248,862) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 399,133 $ 466,667 $ 40,928 $(256,390) $ 650,338
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 5,020 $ 88,516 $ 20,284 $ -- $ 113,820
Accrued expenses 25,684 52,724 6,688 4,451 89,547
Income taxes 1,702 1,198 1,564 (62) 4,402
Current maturities of long-term debt 10,000 -- -- -- 10,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 42,406 142,438 28,536 4,389 217,769
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt, including capitalized lease obligations 162,034 -- -- -- 162,034
Other liabilities 21,272 (705) 23 -- 20,590
Intercompany payable (receivable) (76,524) 72,602 10,725 (6,803) --
Shareholders' equity 249,945 252,332 1,644 (253,976) 249,945
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 399,133 $ 466,667 $ 40,928 $(256,390) $ 650,338
====================================================================================================================================
52 BROWN SHOE COMPANY, INC 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED JANUARY
29, 2000
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $ 253,184 $ 1,361,103 $ 243,005 $ (263,161) $ 1,594,131
Cost of goods sold 181,608 831,981 216,733 (263,161) 967,161
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 71,576 529,122 26,272 -- 626,970
- ---------------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 67,448 480,328 12,194 (1,534) 558,436
Interest expense 17,160 103 86 -- 17,349
Intercompany interest (income) expense (13,606) 13,636 (30) -- --
Other (income) expense, net 2,248 (3,546) (816) 1,534 (580)
Equity in (earnings) of subsidiaries (36,509) (13,543) -- 50,052 --
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 34,835 52,144 14,838 (50,052) 51,765
Income tax provision (benefit) (666) 15,635 1,295 -- 16,264
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 35,501 $ 36,509 $ 13,543 $ (50,052) $ 35,501
===========================================================================================================================
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE FISCAL YEAR ENDED JANUARY
29, 2000
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities $ 29,351 $ (2,614) $ 5,023 $ 7,380 $ 39,140
Investing activities:
Capital expenditures (1,376) (26,880) (432) -- (28,688)
Proceeds from sale of le coq sportif -- 9,538 -- -- 9,538
Other 10 -- 4 -- 14
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,366) (17,342) (428) -- (19,136)
Financing activities:
Repayments of long-term debt (25,000) -- -- -- (25,000)
Proceeds from issuance of common stock 917 -- -- -- 917
Dividends paid (7,295) -- -- -- (7,295)
Intercompany financing 58 10,930 (3,608) (7,380) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (31,320) 10,930 (3,608) (7,380) (31,378)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3,335) (9,026) 987 -- (11,374)
Cash and cash equivalents at beginning of year 12,186 13,580 19,766 -- 45,532
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,851 $ 4,554 $ 20,753 $ -- $ 34,158
====================================================================================================================================
2000 BROWN SHOE COMPANY, INC 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED JANUARY
30, 1999
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- --------------------------------------------------------------------------------------------------------------------------
Net sales $ 263,875 $ 1,298,218 $ 248,153 $ (270,339) $ 1,539,907
Cost of goods sold 184,622 792,211 218,696 (270,339) 925,190
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 79,253 506,007 29,457 -- 614,717
- --------------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 74,129 455,315 24,070 (1,637) 551,877
Interest expense 19,287 12 84 -- 19,383
Intercompany interest (income) expense (14,123) 14,058 65 -- --
Other (income) expense, net 1,067 (29) 3,179 1,637 5,854
Equity in (earnings) of subsidiaries (24,829) (2,253) -- 27,082 --
- --------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 23,722 38,904 2,059 (27,082) 37,603
Income tax provision (benefit) 53 14,075 (194) -- 13,934
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 23,669 $ 24,829 $ 2,253 $ (27,082) $ 23,669
==========================================================================================================================
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE FISCAL YEAR ENDED JANUARY
30, 1999
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities $ 37,645 $ 46,019 $ (973) $ (3,811) $ 78,880
Investing activities:
Capital expenditures (837) (21,010) (900) -- (22,747)
Other 13 25 20 -- 58
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (824) (20,985) (880) -- (22,689)
Financing activities:
Decrease in short-term notes payable (54,000) -- -- -- (54,000)
Proceeds from issuance of common stock 428 -- -- -- 428
Dividends paid (7,223) -- -- -- (7,223)
Intercompany financing 34,712 (29,807) (8,756) 3,851 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by financing activities (26,083) (29,807) (8,756) 3,851 (60,795)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 10,738 (4,773) (10,609) 40 (4,604)
Cash and cash equivalents at beginning of year 1,448 18,353 30,375 (40) 50,136
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,186 $ 13,580 $ 19,766 $ -- $ 45,532
====================================================================================================================================
54 BROWN SHOE COMPANY, INC 2000
REPORTS ON FINANCIAL STATEMENTS
MANAGEMENT REPORT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Brown Shoe Company, Inc. has the responsibility for preparing
the accompanying financial statements and for their integrity and objectivity.
The statements were prepared in accordance with generally accepted accounting
principles, and are not misstated due to material fraud or error. The financial
statements include amounts that are based on management's best estimates and
judgments. Management also prepared the other information in the annual report
and is responsible for its accuracy and consistency with the financial
statements.
The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors. Management has made available to Ernst & Young LLP all the
Company's financial records and related data, as well as the minutes of
shareholders' and directors' meetings. Furthermore, management believes that all
representations made to Ernst & Young LLP during its audit were valid and
appropriate.
The Audit Committee of Brown Shoe Company Inc., Board of Directors is comprised
of four outside directors. The Committee meets regularly with the Company's
independent auditors, Ernst & Young LLP, and management. The purpose of these
meetings is to review, among other things, the scope and results of the annual
audit, the internal audit activities and the system of internal accounting
control. To ensure complete independence, Ernst & Young LLP and the internal
audit staff have direct access to the Audit Committee without the presence of
management to discuss the results of their examinations.
Management of the Company has established and maintains a system of internal
control that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial reporting.
The system of internal control provides for appropriate division of
responsibility and is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process and updated as necessary. The Company maintains an internal auditing
program that independently assesses the effectiveness of the internal controls
and recommends possible improvements thereto. Management believes that the
Company's system of internal control is adequate to accomplish the objectives
discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of conduct, which is published
throughout the Company. The code of conduct addresses, among other things, the
necessity of ensuring open communication within the Company; potential conflicts
of interest; compliance with all domestic and foreign laws, including those
relating to financial disclosure; and the confidentiality of proprietary
information. The Company maintains a program to systematically assess compliance
with these policies. The results of this compliance program are discussed with
the Audit Committee.
/s/ Ronald A. Fromm /s/ Andrew M. Rosen
Ronald A. Fromm Andrew M. Rosen
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Brown Shoe Company, Inc.
We have audited the accompanying consolidated balance sheets of Brown Shoe
Company, Inc. as of February 3, 2001 and January 29, 2000, and the related
statements of consolidated earnings, shareholders' equity, and cash flows for
each of the three years in the period ended February 3, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brown Shoe
Company, Inc. at February 3, 2001 and January 29, 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended February 3, 2001, in conformity with accounting principles
generally accepted in the United States.
St. Louis, Missouri
/s/ ERNST & YOUNG LLP February 28, 2001
2000 BROWN SHOE COMPANY, INC 55
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY INFORMATION (UNAUDITED)
Following is a summary of selected quarterly information (in thousands except
per share) for fiscal years ended February 3, 2001, and January 29, 2000.
QUARTERS
-----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
(13 WEEKS) (13 WEEKS) (13 WEEKS) (14 WEEKS)
- ------------------------------------------------------------------------------------------------------------------------------------
2000
Net Sales $ 394,757 $ 419,147 $ 463,312 $ 407,643
Gross Profit 161,974 168,091 184,357 167,710
Net Earnings 6,548 9,198 15,615 5,004
Per Share of Common Stock:
Net Earnings--Basic $ .37 $ .51 $ .88 $ .29
Net Earnings--Diluted .36 .51 .88 .29
Dividends Paid .10 .10 .10 .10
Market Value:
High 13.00 14.75 14.19 17.50
Low 9.38 9.31 8.50 8.81
- ------------------------------------------------------------------------------------------------------------------------------------
(13 WEEKS) (13 WEEKS) (13 WEEKS) (13 WEEKS)
1999
Net Sales $ 397,317 $ 410,472 $ 429,465 $ 356,877
Gross Profit 158,298 161,447 172,177 135,048
Net Earnings 6,316 10,517 14,763 3,905
Per Share of Common Stock:
Net Earnings--Basic $ .36 $ .59 $ .82 $ .22
Net Earnings--Diluted .35 .58 .81 .22
Dividends Paid .10 .10 .10 .10
Market Value:
High 16.75 21.75 19.88 18.13
Low 13.13 15.50 16.88 10.75
- ------------------------------------------------------------------------------------------------------------------------------------
Directors' and Officers' Liability Insurance: The New York Business Corporation
Act requires that New York corporations provide to their shareholders
information regarding any policies of directors' and officers' liability
insurance which have been purchased or renewed. Accordingly, notice is hereby
given that on October 31, 1998, the Company purchased, for a three-year term,
policies of directors' and officers' liability insurance from Federal Insurance
Company, a member of the Chubb Insurance Group and National Union Fire Insurance
Company. These policies cover all duly elected directors and all duly elected or
appointed officers of Brown Shoe Company, Inc. and its subsidiary companies. The
policy premium for the three-year term is $312,000. In October 1999, the Company
extended the above policy for one additional year. The premium for the
additional year is $114,000. In November 2000, the Company extended the above
policy for an additional year through October 31, 2003. The premium for this
additional year is $122,900. To date, no claims have been paid under any policy
of directors' and officers' liability insurance.
56 BROWN SHOE COMPANY, INC 2000
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS
RONALD A. FROMM (1)
Chairman of the Board, President
and Chief Executive Officer
JOSEPH L. BOWER (3,4)
Donald Kirk David Professor
Harvard Business School
JULIE C. ESREY (2,4)
Director of various organizations
RICHARD A. LIDDY (1,2,4)
Chairman of the Board
GenAmerica Financial Corporation
JOHN PETERS MACCARTHY (2,3)
Retired Chairman of the Board and
Chief Executive Officer, Boatmen's
Trust Company
PATRICIA G. MCGINNIS (2)
President and Chief Executive
Officer,The Council for Excellence
in Government
W. PATRICK MCGINNIS (3)
President and Chief Executive
Officer, Ralston Purina Company
JERRY E. RITTER (1,3,4)
Director of various corporations
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Governance and Nominating Committee
- ---------------------------------------------------------------------
EXECUTIVE MANAGEMENT
RONALD A. FROMM*
Chairman of the Board, President
and Chief Executive Officer
BRIAN C. COOK*
Executive Vice President and
President, Famous Footwear division
BYRON D. NORFLEET*
President, Naturalizer division
GARY M. RICH*
President, Brown Shoe Wholesale
division
ANDREW M. ROSEN*
Chief Financial Officer and Treasurer
DAVID H. SCHWARTZ*
President, Brown Shoe International
division
- ---------------------------------------------------------------------
OFFICERS AND OPERATING MANAGEMENT
JAMES W. ANDERSON*
Vice President, Finance
Brown Shoe Wholesale division
CARL H. BENGTSON
Senior Vice President, Latin American
and European Operations
Brown Shoe International division
WILLIAM A. DANDY*
Senior Vice President
Retail Sales and Operations
Famous Footwear division
ELIZABETH A. FAGAN
Vice President, Public Affairs
EARL B. FISCHER
Vice President, Information Systems
Famous Footwear division
ROBERT D. GIBBS
Vice President, Global Logistics
KENNETH W. GILBERTSON
President, Canada Wholesale
Brown Shoe International division
CHARLES C. GILLMAN*
Senior Vice President and Director
Far East Operations
Brown Shoe International division
DENNIS F. HADICAN
Vice President and
General Manager,Westport
Brown Shoe Wholesale division
DAVID E. HANEBRINK
Vice President and General Manager
Mens and Athletics
Brown Shoe Wholesale division
DOUGLAS W. KOCH*
Senior Vice President
Human Resources
Famous Footwear division
J. MARTIN LANG*
Senior Vice President and
Chief Financial Officer
Famous Footwear division
MICHAEL I. OBERLANDER*
Vice President, General Counsel
and Corporate Secretary
RICHARD T. PRICE
Vice President, Information Systems
PHILLIP W. PUGH
Senior Vice President
Far East and Canadian Operations
Brown Shoe International division
JAMES M. ROE*
Senior Vice President, Real Estate
Famous Footwear division
JEFFREY M. SANDERS
Senior Vice President and
General Manager, LifeStride
Brown Shoe Wholesale division
MARK J. SCHAUSTER
Senior Vice President and Director
of Product Development
Naturalizer division
RICHARD C. SCHUMACHER*
Vice President and Controller
PAUL M. SHAPIRO
Vice President and General Manager
Buster Brown & Co.
Brown Shoe Wholesale division
ALAN A. SILVERSTEIN
Senior Vice President and
General Manager,Womens
Brown Shoe Wholesale division
ROBERT E. STADLER, JR.*
Vice President, Administration
Brown Shoe, and Senior Vice
President, Finance and Administration
Naturalizer division
JEFFERY E. STRUVE*
Senior Vice President
Human Resources
JEAN-GUY VAUDRY
President, Canada Retail
Brown Shoe International division
GEORGE J. ZELINSKY
Senior Vice President and
General Merchandise Manager
Famous Footwear division
SPENCER E. ZIMMERMAN
Senior Vice President and
General Manager, Naturalizer Brand
Naturalizer division
* Member of the Company's Operating Committee
2000 BROWN SHOE COMPANY, INC 57
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Brown Shoe Company, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63105-3693
Mailing Address:
Post Office Box 29
St. Louis, Missouri 63166-0029
Telephone: (314) 854-4000
Fax: (314) 854-4274
E-mail: info@brownshoe.com
INTERNET ADDRESS
www.brownshoe.com
ANNUAL MEETING
11:00 a.m. Central Daylight Time
Thursday, May 24, 2001
Brown Shoe Company, Inc.
Corporate Headquarters
STOCK LISTED
Brown Shoe stock is listed
[LOGO] on the New York Stock
Exchange and the Chicago Stock
Exchange (ticker symbol BWS).
NUMBER OF SHAREHOLDERS OF RECORD
5,800
NUMBER OF EMPLOYEES
11,900
INDEPENDENT AUDITORS
Ernst & Young LLP
St. Louis, Missouri
TRANSFER AGENT/REGISTRAR/DIVIDEND
DISBURSING AGENT
First Chicago Trust,
a division of EquiServe
Post Office Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (201) 324-0498
(800) 446-2617
Internet: www.equiserve.com
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan provides a means of automatic dividend
reinvestment and includes a provision for voluntary investment of additional
cash. For a prospectus and enrollment form, contact First Chicago Trust (address
above).
DIRECT DEPOSIT OF DIVIDENDS
Registered shareholders may have their quarterly dividend checks deposited
directly to their bank accounts. For more information or to request an
enrollment form, contact First Chicago Trust (address above).
TRUSTEE OF DEBENTURES/NOTES
State Street Bank and Trust Company of Missouri, N.A. One Metropolitan Square
Post Office Box 321 St. Louis, Missouri 63166-0321 (314) 206-3020
ADDITIONAL INFORMATION
ON THE INTERNET:
You can access financial and other information such as significant news
releases, Forms 10-K and 10-Q, and product information, on the Internet at
www.brownshoe.com
BY FAX-BACK:
Copies of Brown Shoe news releases can be transmitted at no charge via fax by
calling "Company News On-Call" at (800) 758-5804 extension 109435.
BY CALLING OR WRITING:
You can also request that any of these materials be mailed to you at no charge
by calling or writing:
Brown Shoe Company, Inc.
Investor Relations Office
Post Office Box 29
St. Louis, Missouri 63166-0029
(314) 854-4000
58 BROWN SHOE COMPANY, INC 2000
[GRAPHIC]
D E S I G N
BROWN CREATIVE
P H O T O G R A P H Y
LUCY CHEN
SCOTT FERGUSON
JAMES GARRAHAN
MARK KATZMAN
BRIAN KUHLMANN
JAY SILVERMAN
BRUCE WEBER
[LOGO/(LOGO FONT)]
Brown Shoe Company, Inc.
8300 Maryland Avenue
St. Louis, Missouri
63105