10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________ FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 29, 2000 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ ____________ Commission file number 1-2191 ____________ BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter) New York 43-0197190 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 8300 Maryland Avenue St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) (314) 854-4000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] As of August 26, 2000, 18,031,540 shares of the registrant's common stock were outstanding. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands)
(Unaudited) ------------------- July 29, July 31, January 29, 2000 1999 2000 --------- -------- ----------- ASSETS Current Assets Cash and Cash Equivalents $ 31,945 $ 34,642 $ 34,158 Receivables, net 60,832 72,975 68,236 Inventories 447,817 412,485 365,989 Other Current Assets 22,572 22,085 19,391 --------- --------- --------- Total Current Assets 563,166 542,187 487,774 Other Assets 77,119 76,066 77,964 Property and Equipment 240,945 228,750 231,072 Less allowances for depreciation and amortization (153,155) (144,168) (146,472) --------- --------- --------- 87,790 84,582 84,600 --------- --------- --------- $ 728,075 $ 702,835 $ 650,338 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable $ 14,000 $ 2,000 $ - Accounts Payable 170,303 163,404 113,820 Accrued Expenses 85,750 92,472 89,547 Income Taxes 6,500 11,897 4,402 Current Maturities of Long-Term Debt 10,000 10,000 10,000 --------- --------- --------- Total Current Liabilities 286,553 279,773 217,769 Long-Term Debt and Capitalized Lease Obligations 162,035 172,033 162,034 Other Liabilities 19,657 19,175 20,590 Shareholders' Equity Common Stock 67,882 68,436 68,486 Additional Capital 48,514 49,183 49,153 Unamortized Value of Restricted Stock (2,932) (3,882) (3,566) Accumulated Other Comprehensive Loss (6,752) (8,772) (6,034) Retained Earnings 153,118 126,889 141,906 --------- --------- --------- 259,830 231,854 249,945 --------- --------- --------- $ 728,075 $ 702,835 $ 650,338 ========= ========= =========
See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Thousands, except per share)
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 29, July 31, July 29, July 31, 2000 1999 2000 1999 -------- -------- -------- -------- Net Sales $418,709 $410,100 $812,978 $806,926 Cost of Goods Sold 251,056 249,025 483,839 488,044 -------- -------- -------- -------- Gross Profit 167,653 161,075 329,139 318,882 Selling and Administrative Expenses 150,392 141,533 298,335 283,182 Interest Expense 4,314 4,392 8,579 9,075 Other Income (771) (2,628) (1,433) (1,333) -------- -------- -------- -------- Earnings Before Income Taxes 13,718 17,778 23,658 27,958 Income Tax Provision 4,520 7,261 7,912 11,125 -------- -------- -------- -------- NET EARNINGS $ 9,198 $ 10,517 $ 15,746 $ 16,833 ======== ======== ======== ======== BASIC EARNINGS PER COMMON SHARE $ .51 $ .59 $ .88 $ .95 ======== ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE $ .51 $ .58 $ .87 $ .93 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE $ .10 $ .10 $ .20 $ .20 ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands)
Twenty-six Weeks Ended ---------------------- July 29, July 31, 2000 1999 --------- -------- Net Cash Provided by Operating Activities $ 3,158 $ 10,278 Investing Activities: Proceeds from the sale of le coq sportif 805 9,281 Capital expenditures (14,655) (14,577) --------- --------- Net Cash Used by Investing Activities (13,850) (5,296) Financing Activities: Increase in short-term notes payable 14,000 2,000 Principal payments of long-term debt - (15,000) Payments for purchase of treasury stock (1,883) - Proceeds from issuance of common stock 10 773 Dividends paid (3,648) (3,645) --------- --------- Net Cash Provided (Used) by Financing Activities 8,479 (15,872) --------- --------- Decrease in Cash and Cash Equivalents (2,213) (10,890) Cash and Cash Equivalents at Beginning of Period 34,158 45,532 --------- --------- Cash and Cash Equivalents at End of Period $ 31,945 $ 34,642 ========= =========
See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation ------------------------------ The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals and the effect on LIFO inventory valuation of estimated annual inflationary cost increases and year-end inventory levels) to present fairly the results of operations. These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's financial position, results of operations and cash flow in conformity with generally accepted accounting principles. The Company's business is subject to seasonal influences, and interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole. For further information refer to the consolidated financial statements and footnotes included in the Company's Annual Report and Form 10-K for the period ended January 29, 2000. Note B - Earnings Per Share --------------------------- The following table sets forth the computation of basic and diluted earnings per share for the periods ended July 29, 2000 and July 31, 1999 (000's, except per share data):
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 29, July 31, July 29, July 31, 2000 1999 2000 1999 -------- -------- -------- -------- Numerator: Net earnings - Basic and Diluted $ 9,198 $10,517 $15,746 $16,833 ======= ======= ======= ======= Denominator: Weighted average shares outstanding-Basic 17,863 17,861 17,891 17,812 Effect of potentially dilutive securities 194 387 167 300 ------- ------- ------- ------- Weighted average shares outstanding-Diluted 18,057 18,248 18,058 18,112 ======= ======= ======= ======= Basic earnings per common share $ .51 $ .59 $ .88 $ .95 ======= ======= ======= ======= Diluted earnings per common share $ .51 $ .58 $ .87 $ .93 ======= ======= ======= =======
Note C - Comprehensive Income ----------------------------- Comprehensive Income includes all changes in equity except those resulting from investments by shareholders and distributions to shareholders. The following table sets forth the reconciliation from Net Earnings to Comprehensive Income for the periods ended July 29, 2000 and July 31, 1999 (000's):
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 29, July 31, July 29, July 31, 2000 1999 2000 1999 -------- -------- -------- -------- Net Earnings $ 9,198 $10,517 $15,746 $16,833 Foreign Currency Translation Adjustment 59 (1,736) (718) 70 ------- ------- ------- ------- Comprehensive Income $ 9,257 $ 8,781 $15,028 $16,903 ======= ======= ======= =======
Note D - Business Segment Information ------------------------------------- Applicable business segment information is as follows for the periods ended July 29, 2000 and July 31, 1999 (000's):
Famous Wholesale Naturalizer Pagoda Footwear Operations Retail International Other Totals -------- ---------- ------------ ------------- ----- --------- Thirteen Weeks Ended July 29, 2000 External sales $254,072 $109,583 $ 55,054 $ - $ - $418,709 Intersegment sales - 43,243 - - - 43,243 Operating profit (loss) 13,482 5,507 1,711 - (2,923) 17,777 Thirteen Weeks Ended July 31, 1999 External sales $237,522 $120,348 $ 49,977 $ 93 $ 2,160 $410,100 Intersegment sales - 41,888 - - - 41,888 Operating profit (loss) 13,935 8,778 865 (206) (3,301) 20,071 Twenty-six Weeks Ended July 29, 2000 External sales $491,024 $219,917 $102,037 $ - $ - $812,978 Intersegment sales - 96,063 - - - 96,063 Operating profit (loss) 24,500 13,566 (13) - (6,149) 31,904 Twenty-six Weeks Ended July 31, 1999 External sales $461,135 $246,655 $ 94,106 $ 327 $ 4,703 $806,926 Intersegment sales - 91,031 - - - 91,031 Operating profit (loss) 25,308 18,664 (323) (676) (6,593) 36,380
Reconciliation of operating profit to earnings before income taxes (000's):
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 29, July 31, July 29, July 31, 2000 1999 2000 1999 --------- -------- -------- -------- Total operating profit $ 17,777 $ 20,071 $ 31,904 $ 36,380 Interest expense (4,314) (4,392) (8,579) (9,075) Non-operating other income 255 2,099 333 653 -------- -------- -------- -------- Earnings before income taxes $ 13,718 $ 17,778 $ 23,658 $ 27,958 ======== ======== ======== ========
Operating profit represents gross profit less selling and administrative expenses and other operating income or expense. The "Other" segment includes Corporate selling and administrative expenses, which are not allocated to the operating units. Results from the Scholze Tannery business are also included in the "Other" segment in fiscal 1999. At the end of fiscal 1999, the Company sold the Scholze Tannery business at approximately book value. Note E - Stock Repurchase Program --------------------------------- On May 4, 2000, the Company announced the approval by the Board of Directors of a stock repurchase program which allows the Company to repurchase up to 2 million shares of the Company's outstanding common stock. In the second quarter of fiscal 2000, the Company purchased 153,700 shares at a cost of $1.9 million under this authorization. Note F - Condensed Consolidated Financial Information ----------------------------------------------------- Certain of the Company's debt is unconditionally and jointly and severally guaranteed by certain wholly-owned domestic subsidiaries of the Company. Accordingly, condensed consolidating balance sheets as of July 29, 2000 and July 31, 1999, and the related condensed consolidating statements of earnings and cash flows for the twenty-six weeks ended July 29, 2000 and July 31, 1999, are provided. These condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes this information, presented in lieu of complete financial statements for each of the guarantor subsidiaries, provides meaningful information to allow investors to determine the nature of the assets held by, and the operations and cash flows of, each of the consolidating groups. CONDENSED CONSOLIDATING BALANCE SHEET AS OF JULY 29, 2000 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ------ ------------ ------------- ------------ ------------ Assets Current Assets Cash and cash equivalents $ 2,092 $ (11) $ 29,864 $ - $ 31,945 Receivables, net 29,200 11,767 19,865 - 60,832 Inventories 48,212 395,257 18,189 (13,841) 447,817 Other current assets (5,459) 21,288 2,248 4,495 22,572 -------- -------- -------- -------- -------- Total Current Assets 74,045 428,301 70,166 (9,346) 563,166 Other Assets 50,057 20,781 6,285 (4) 77,119 Property and Equipment, net 14,228 67,093 6,469 - 87,790 Investment in Subsidiaries 264,403 39,956 - (304,359) - -------- -------- -------- -------- -------- Total Assets $402,733 $556,131 $ 82,920 $(313,709) $728,075 ======== ======== ======== ========= ======== Liabilities & Shareholders' Equity Current Liabilities Notes payable $ 14,000 $ - $ - $ - $ 14,000 Accounts payable 2,994 152,395 14,914 - 170,303 Accrued expenses 22,792 54,788 10,110 (1,940) 85,750 Income taxes 3,692 1,193 1,379 236 6,500 Current maturities of long-term debt 10,000 - - - 10,000 -------- -------- -------- -------- -------- Total Current Liabilities 53,478 208,376 26,403 (1,704) 286,553 Long-Term Debt and Capitalized Lease Obligations 162,035 - - - 162,035 Other Liabilities 20,348 (1,335) 644 - 19,657 Intercompany Payable (Receivable) (92,958) 83,489 15,917 (6,448) - Shareholders' Equity 259,830 265,601 39,956 (305,557) 259,830 -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity $402,733 $556,131 $ 82,920 $(313,709) $728,075 ======== ======== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS TWENTY-SIX WEEKS ENDED JULY 29, 2000 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ------ ------------ ------------- ------------ ------------ Net Sales $127,002 $692,596 $146,004 $(152,624) $812,978 Cost of goods sold 93,923 427,191 115,349 (152,624) 483,839 -------- -------- -------- --------- -------- Gross profit 33,079 265,405 30,655 - 329,139 Selling and administrative expenses 34,759 245,670 18,543 (637) 298,335 Interest expense 8,512 3 64 - 8,579 Intercompany interest (income) expense (6,431) 6,458 (27) - - Other (income) expense (1,559) (25) (486) 637 (1,433) Equity in (earnings) of subsidiaries (17,902) (10,148) - 28,050 - -------- -------- -------- --------- -------- Earnings (Loss) Before Income Taxes 15,700 23,447 12,561 (28,050) 23,658 Income tax provision (benefit) (46) 5,545 2,413 - 7,912 -------- -------- -------- --------- -------- Net Earnings (Loss) $ 15,746 $ 17,902 $ 10,148 $ (28,050) $ 15,746 ======== ======== ======== ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS TWENTY-SIX WEEKS ENDED JULY 29, 2000 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ------ ------------ ------------- ------------ ------------ Net Cash Provided (Used) by Operating Activities $ 931 $ 2,147 $ 435 $ (355) $ 3,158 Investing Activities: Capital expenditures (540) (13,144) (971) - (14,655) Other 805 - - - 805 -------- -------- -------- --------- -------- Net Cash (Used) Provided by Investing Activities 265 (13,144) (971) - (13,850) Financing Activities: Increase in short-term notes payable 14,000 - - - 14,000 Proceeds from issuance of common stock 10 - - - 10 Payments for purchase of treasury stock (1,883) - - - (1,883) Dividends paid (3,648) - - - (3,648) Intercompany financing (16,434) 10,101 5,978 355 - -------- -------- -------- -------- -------- Net Cash Provided (Used) by Financing Activities (7,955) 10,101 5,978 355 8,479 Increase (Decrease) in Cash and Cash Equivalents (6,759) (896) 5,442 - (2,213) Cash and Cash Equivalents at Beginning of Period 8,851 885 24,422 - 34,158 -------- -------- -------- -------- -------- Cash and Cash Equivalents at End of Period $ 2,092 $ (11) $ 29,864 $ - $ 31,945 ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING BALANCE SHEET AS OF JULY 31, 1999 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ------ ------------ ------------- ------------ ------------ Assets Current Assets Cash and cash equivalents $ 1,353 $ 1,985 $ 31,304 $ - $ 34,642 Receivables, net 33,521 12,932 26,522 - 72,975 Inventories 45,341 360,123 19,552 (12,531) 412,485 Other current assets (4,958) 21,063 1,595 4,385 22,085 -------- --------- --------- --------- ---------- Total Current Assets 75,257 396,103 78,973 (8,146) 542,187 Other Assets 49,481 20,815 5,815 (45) 76,066 Property and Equipment, net 14,643 63,549 6,390 - 84,582 Investment in Subsidiaries 248,577 41,084 - (289,661) - -------- --------- --------- --------- ---------- Total Assets $387,958 $ 521,551 $ 91,178 $(297,852) $ 702,835 ======== ========= ========= ========= ========== Liabilities & Shareholders' Equity Current Liabilities Notes payable $ 2,000 $ - $ - $ - $ 2,000 Accounts payable 6,095 136,967 20,342 - 163,404 Accrued expenses 25,331 52,987 12,092 2,062 92,472 Income taxes 2,096 8,697 339 765 11,897 Current maturities of long-term debt 10,000 - - - 10,000 -------- --------- --------- --------- ---------- Total Current Liabilities 45,522 198,651 32,773 2,827 279,773 Long-Term Debt and Capitalized Lease Obligations 172,033 41 - (41) 172,033 Other Liabilities 20,312 (1,336) 199 - 19,175 Intercompany Payable (Receivable) (81,763) 75,433 17,122 (10,792) - Shareholders' Equity 231,854 248,762 41,084 (289,846) 231,854 -------- --------- --------- --------- ---------- Total Liabilities and Shareholders' Equity $387,958 $ 521,551 $ 91,178 $(297,852) $ 702,835 ======== ========= ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS TWENTY-SIX WEEKS ENDED JULY 31, 1999 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ------ ------------ ------------- ------------ ------------ Net Sales $126,104 $640,099 $173,338 $(132,615) $ 806,926 Cost of goods sold 90,963 390,655 139,041 (132,615) 488,044 -------- -------- -------- --------- ----------- Gross profit 35,141 249,444 34,297 - 318,882 Selling and administrative expenses 34,550 227,975 21,457 (800) 283,182 Interest expense 9,060 - 15 - 9,075 Intercompany interest (income) expense (6,881) 6,894 (13) - - Other (income) expense 15 (2,057) (91) 800 (1,333) Equity in (earnings) of subsidiaries (18,682) (9,788) - 28,470 - -------- -------- ------- --------- ----------- Earnings (Loss) Before Income Taxes 17,079 26,420 12,929 (28,470) 27,958 Income tax provision 246 7,738 3,141 - 11,125 -------- -------- ------- --------- ----------- Net Earnings (Loss) $ 16,833 $ 18,682 $ 9,788 $ (28,470) $ 16,833 ======== ======== ======= ========= ===========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS TWENTY-SIX WEEKS ENDED JULY 31, 1999 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ------ ------------ ------------- ------------ ------------ Net Cash Provided (Used) by Operating Activities $ 10,420 $(16,041) $ 4,530 $ 11,369 $ 10,278 Investing Activities: Capital expenditures (200) (13,397) (980) - (14,577) Proceeds from sale of le coq sportif - 9,281 - - 9,281 -------- -------- ------- -------- ---------- Net Cash Used by Investing Activities (200) (4,116) (980) - (5,296) Financing Activities: Increase in short-term notes payable 2,000 - - - 2,000 Principal payments of long-term debt (15,000) - - - (15,000) Proceeds from issuance of common stock 773 - - - 773 Dividends paid (3,645) - - - (3,645) Intercompany financing (5,181) 17,404 (854) (11,369) - ------- -------- ------- -------- ---------- Net Cash Provided (Used) by Financing Activities (21,053) 17,404 (854) (11,369) (15,872) Increase (Decrease) in Cash and Cash Equivalents (10,833) (2,753) 2,696 - (10,890) Cash and Cash Equivalents at Beginning of Period 12,186 4,738 28,608 - 45,532 ------- -------- ------- -------- ---------- Cash and Cash Equivalents at End of Period $ 1,353 $ 1,985 $31,304 $ - $ 34,642 ======= ======== ======= ======== ==========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------------------------- Results of Operations --------------------- Quarter ended July 29, 2000 compared to the Quarter ended July 31, 1999 ----------------------------------------------------------------------- Consolidated net sales for the fiscal quarter ended July 29, 2000 were $418.7 million compared to $410.1 million in the quarter ended July 31, 1999. Net earnings of $9.2 million for the second quarter of 2000 compares to net earnings of $10.5 million in the second quarter of 1999. Famous Footwear achieved a sales increase of 7.0% during the second quarter of 2000 to $254.1 million. The increase was driven by 36 more stores, reflecting a total of 875 stores in operation, slightly offset by a 1.2% same-store sales decline. Operating earnings for the second quarter of 2000 decreased 2.9% to $13.5 million from $13.9 million last year, due to the combination of lower same-store sales and competitive pressure on margins. The Company's wholesale operations - the Brown Branded, Brown Pagoda and Brown Canada divisions - had net sales of $109.6 million during the second quarter of 2000 compared to $120.3 million last year. This sales decrease was primarily due to significant sales of Star Wars movie-related children's shoes in the second quarter last year. Operating earnings of $5.5 million decreased from $8.8 million in the second quarter of 1999 primarily as a result of the lower sales. In the Company's Naturalizer Retail operations, which includes both the United States and Canadian stores, net sales increased 10.2% to $55.1 million in the second quarter of 2000. Same- store sales in the second quarter of 2000 increased 4.2% in the United States and 1.7% in Canada. Domestically, the Company had 14 more stores in operation in 2000; Canada had 6 more stores in operation. At the end of the second quarter of 2000, 485 stores were in operation including 343 stores in the United States and 142 stores in Canada. Total Naturalizer retail operations achieved operating earnings of $1.7 million in the second quarter of fiscal 2000 compared to $0.9 million in 1999. The higher operating earnings were primarily due to higher sales. Consolidated gross profit as a percent of sales increased to 40.0% from 39.3% during the same period last year. This increase was primarily due to higher margins at the Company's wholesale operations and a higher mix of retail sales, which historically earn higher margins than wholesale sales. Selling and administrative expenses as a percent of sales increased to 35.9% from 34.5% during the same period last year. This increase was due to the lower level of sales within the wholesale operations, higher expenses within the retail operations, and a higher mix of retail sales, which carry a higher expense rate. Other income in the second quarter of 2000 primarily represents interest and royalty income. In 1999, Other income included the gain from the sale of the le coq sportif brand. The consolidated tax rate was 32.9% of consolidated pre-tax income for the second quarter of 2000 compared to 40.8% for last year. The fiscal 1999 effective rate was higher due a $1.2 million tax provision to allow repatriation of the previously untaxed foreign cash generated from the sale of the le coq sportif business. Six Months ended July 29, 2000 compared to the Six Months ended July 31, 1999 --------------------------------------------------------------- Consolidated net sales for the first half of 2000 were $813.0 million, an increase of 0.8% from the first six months of 1999 total of $806.9 million. Net earnings of $15.7 million for the first half of 2000 compare to net earnings of $16.8 million for the first half of 1999, a decrease of 6.5%. Sales at Famous Footwear for the first six months of 2000 increased 6.5% from the first half of last year to $491.0 million, reflecting a 1.1% decrease in same-store sales and 36 more units in operation. Operating earnings for 2000 decreased 3.2% to $24.5 million. The Company's wholesale sales for the first six months of 2000 decreased 10.8% to $219.9 million from the same period last year. Operating earnings of $13.6 million decreased $5.1 million from last year due to the decreased sales. In the Company's Naturalizer Retail operations, net sales increased 8.4% to $102.0 million in the first six months of 2000. Same-store sales increased 3.6% in the United States while decreasing 0.9% in Canada. Domestically, the Company had 14 more stores in operation in 2000; Canada had 6 more stores in operation. Total Naturalizer retail operations broke even in the first half of 2000 compared to an operating loss of $0.3 million in 1999. The improved operating performance was primarily due to the higher sales. Consolidated gross profit as a percent of sales increased to 40.5% from 39.5% for the same period last year. This increase was primarily due to a higher mix of retail sales, which historically earn a higher gross profit rate. Selling and administrative expenses as a percent of sales increased to 36.7% from 35.1% for the same period last year. This increase was primarily due to the lower sales at the Company's wholesale operations. Other income for the first half of 2000 consisted primarily of interest and royalty income. In 1999, other income included the $2.3 million gain from the sale of the le coq sportif business, partially offset by additional provisions for environmental costs associated with an owned facility in Colorado. The consolidated tax rate was 33.4% of consolidated pre-tax income for the first six months of 2000 compared to 39.8% for last year. As previously described, the 1999 tax provision includes $1.2 million of taxes related to the repatriation of foreign cash. Financial Condition ------------------- A summary of key financial data and ratios at the dates indicated is as follows: July 29, July 31, January 29, 2000 1999 2000 --------- -------- ----------- Working Capital (millions) $276.6 $262.4 $270.0 Current Ratio 2.0:1 1.9:1 2.2:1 Total Debt as a Percentage of Total Capitalization 41.7% 44.3% 40.8% Cash flow from operating activities for the first half of fiscal 2000 provided $3.2 million versus $10.3 million last year. In the first half of 2000, cash flow declined primarily as a result of higher inventories partially offset by higher accounts payable and lower accounts receivable in the Company's wholesale operations reflecting lower sales. The increase in the ratio of total debt as a percentage of total capitalization at July 29, 2000, compared to the end of fiscal 1999, is due to the cash usage in the second quarter. In addition, the Company did not have any notes payable outstanding at the end of fiscal 1999. At July 29, 2000, $14.0 million was borrowed and $10.4 million of letters of credit were outstanding under the Company's $155.0 million revolving bank Credit Agreement. In May 2000, the Company announced a stock repurchase program under which the Company was authorized to repurchase up to 2 million shares of the Company's outstanding common stock. In the second quarter of fiscal 2000, the Company purchased 153,700 shares at a cost of $1.9 million under this authorization. Forward-Looking Statements -------------------------- This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. In Item 1 of the Company's fiscal 1999 Annual Report on Form 10-K, detailed risk factors that could cause variations in results to occur are listed and further described. Such filing is incorporated herein by reference. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS ------------------------------------------------------------------- No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. PART II - OTHER INFORMATION --------------------------- Item 1 - Legal Proceedings -------------------------- There have been no material developments during the quarter ended July 29, 2000, in the legal proceedings described in the Company's Annual Report on Form 10-K for the period ended January 29, 2000. Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ The results of the votes cast at the Annual Meeting of Shareholders held on May 25, 2000 were reported in the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 2000. Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (a) Listing of Exhibits (3)(a) Certificate of Incorporation of the Company as amended through February 16, 1984, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended November 1, 1986. (a)(i) Amendment of Certificate of Incorporation of the Company filed February 20, 1987, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended January 30, 1988. (a)(ii) Amendment of Certificate of Incorporation of the Company filed May 27, 1999, incorporated herein by references to Exhibit 3 to the Company's report on Form 10-Q for the quarter ended May 1, 1999. (b) Bylaws of the Company as amended through March 2, 2000, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended January 29, 2000. (27) Financial Data Schedule (b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the quarter ended July 29, 2000. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BROWN SHOE COMPANY, INC. ---------------------------- Date: September 11, 2000 /s/ Andrew M. Rosen ------------------------ --------------------------- Andrew M. Rosen Chief Financial Officer and Treasurer On Behalf of the Corporation as the Principal Financial Officer