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BROWN SHOE CO INC/
10-Q, 2000-12-11
FOOTWEAR, (NO RUBBER)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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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 October 28, 2000
[  ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from              to __________

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Commission file number 1-2191

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BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter)
New York (State or other jurisdiction of incorporation or organization)	43-0197190 (IRS Employer Identification Number)
8300 Maryland Avenue St. Louis, Missouri (Address of principal executive offices)	63105 (Zip Code)
(314) 854-4000 (Registrant's telephone number, including area code)
N/A (Former name, former address and former fiscal year, if changed since last report)

   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [x]   No [  ]

   As of November 25, 2000, 17,663,472 shares of the registrant's common stock were outstanding.

1

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BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands)
 

	(Unaudited)
	October 28, 2000			October 30, 1999			January 29, 2000
ASSETS
Current Assets
Cash and Cash Equivalents	$	44,634		$	47,704		$	34,158
Receivables, net		57,942			68,546			68,236
Inventories		444,355			384,400			365,989
Other Current Assets		26,979			21,341			19,391
Total Current Assets		573,910			521,991			487,774
Other Assets		80,125			76,206			77,964
Property and Equipment		247,235			231,704			231,072
Less Allowances and Depreciation       and Amortization		(156,144	)		(147,891	)		(146,472	)
		91,091			83,813			84,600
	$	745,126		$	682,010		$	650,338
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable	$	59,000		$	23,000		$	-
Accounts Payable		141,292			119,860			113,820
Accrued Expenses		85,562			92,090			89,547
Income Taxes		8,606			10,343			4,402
Current Maturities of Long-Term Debt		10,000			10,000			10,000
Total Current Liabilities		304,460			255,293			217,769
Long-Term Debt and Capitalized    Lease Obligations		152,037			162,033			162,034
Other Liabilities		19,443			18,593			20,590
Shareholders' Equity
Common Stock		66,553			68,473			68,486
Additional Capital		47,465			49,109			49,153
Unamortized Value of Restricted Stock		(2,596	)		(3,793	)		(3,566	)
Accumulated Other Comprehensive Loss		(7,915	)		(7,527	)		(6,034	)
Retained Earnings		165,679			139,829			141,906
		269,186			246,091			249,945
	$	745,126		$	682,010		$	650,338

See Notes to Condensed Consolidated Financial Statements.

2

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BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(Thousands, except per share)
 

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 28, 2000			October 30, 1999			October 28, 2000			October 30, 1999
Net Sales	$	462,945		$	429,132		$	1,275,923		$	1,236,058
Cost of Goods Sold		278,955			257,288			762,794			745,332
Gross Profit		183,990			171,844			513,129			490,726
Selling & Administrative Expenses		157,050			146,279			455,385			429,461
Interest Expense		4,747			4,236			13,326			13,311
Other Income		(535	)		(722	)		(1,968	)		(2,055	)
Earnings Before Income Taxes		22,728			22,051			46,386			50,009
Income Tax Provision		7,113			7,288			15,025			18,413
NET EARNINGS	$	15,615		$	14,763		$	31,361		$	31,596
BASIC EARNINGS PER     COMMON SHARE	$	.88		$	.82		$	1.76		$	1.77
DILUTED EARNINGS PER     COMMON SHARE	$	.88		$	.81		$	1.75		$	1.74
DIVIDENDS PER COMMON SHARE	$	.10		$	.10		$	.30		$	.30

See Notes to Condensed Consolidated Financial Statements.

3

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BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Thousands)

	Thirty-nine Weeks Ended
	October 28, 2000			October 30, 1999
Net Cash (Used)Provided by Operating Activities	$	(4,985	)	$	19,300
Investing Activities:
Proceeds from the sale of le coq sportif		906			9,410
Capital expenditures		(23,636	)		(19,983	)
Net Cash Used by Investing Activities		(22,730	)		(10,573	)
Financing Activities:
Increase in short-term notes payable		59,000			23,000
Principal payments of long-term debt		(10,000	)		(25,000	)
Payments for purchase of treasury stock		(5,380	)		-
Proceeds from issuance of common stock		13			913
Dividends paid		(5,442	)		(5,468	)
Net Cash (Used) Provided by Financing Activities		38,191			(6,555	)
Increase in Cash and Cash Equivalents		10,476			2,172
Cash and Cash Equivalents at Beginning of Period		34,158			45,532
Cash and Cash Equivalents at End of Period	$	44,634		$	47,704

See Notes to Condensed Consolidated Financial Statements.

4

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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) 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 flows 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 October 28, 2000 and October 30, 1999 (000's, except per share data):
 

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 28, 2000			October 30, 1999			October 28, 2000			October 30, 1999
Numerator:
Net earnings - Basic and Diluted	$	15,615		$	14,763		$	31,361		$	31,596
Denominator:
Weighted average shares        outstanding - Basic		17,648			17,899			17,810			17,842
Effect of potentially dilutive securities		141			307			159			302
Weighted average shares        outstanding - Diluted		17,789			18,206			17,969			18,144
Basic earnings per common share	$	.88		$	.82		$	1.76		$	1.77
Diluted earnings per common share	$	.88		$	.81		$	1.75		$	1.74

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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 October 28, 2000 and October 30, 1999 (000's):
 

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 28, 2000			October 30, 1999			October 28, 2000			October 30, 1999
Net Earnings	$	15,615		$	14,763		$	31,361		$	31,596
Foreign Currency Translation Adjustment		(1,163	)		1,245			(1,881	)		1,315
Comprehensive Income	$	14,452		$	16,008		$	29,480		$		32,911

Note D - Business Segment Information

Applicable business segment information is as follows for the periods ended October 28, 2000 and October 30, 1999 (000's):
 

	Famous Footwear			Wholesale Operations			Naturalizer Retail			Pagoda International			Other			Totals
Thirteen Weeks Ended October 28, 2000
External Sales	$	292,813		$	120,106		$	50,026		$	-		$	-		$	462,945
Intersegment Sales		-			49,841			-			-			-			49,841
Operating profit (loss)		22,257			9,798			(1,775	)		-			(2,955	)		27,325
Thirteen Weeks Ended October 30, 1999
External Sales	$	263,136		$	116,715		$	46,649		$	141		$	2,491		$	429,132
Intersegment Sales		-			47,780			-			-			-			47,780
Operating profit (loss)		23,531			8,809			(1,956	)		37			(3,067	)		27,354
Thirty-nine Weeks Ended October 28, 2000
External Sales	$	783,837		$	340,024		$	152,062		$	-		$	-		$	1,275,923
Intersegment Sales		-			145,904			-			-			-			145,904
Operating profit (loss)		46,757			23,364			(1,788	)		-			(9,104	)		59,229
Thirty-nine Weeks Ended October 30, 1999
External Sales	$	724,271		$	363,369		$	140,756		$	468		$	7,194		$	1,236,058
Intersegment Sales		-			138,809			-			-			-			138,809
Operating profit (loss)		48,839			27,472			(2,279	)		(639	)		(9,659	)		63,734

6

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

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 28, 2000			October 30, 1999			October 28, 2000			October 30, 1999
Total operating profit	$	27,325		$	27,354		$	59,229		$	63,734
Interest expense		(4,747	)		(4,236	)		(13,326	)		(13,311	)
Non-operating other income (expense)		150			(1,067	)		483			(414	)
Earnings before income taxes	$	22,728		$	22,051		$	46,386		$	50,009

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 third quarter of fiscal 2000, the Company purchased 345,300 shares at a cost of approximately $3.5 million under this authorization. Year-to-date the Company has purchased 499,000 shares at a cost of approximately $5.4 million.

Note F - Subsequent Event

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. Interest on borrowings under this new Credit Agreement is at varying rates and at the Company's option based on one of the following: the LIBOR rate, the Bank One, N.A. corporate base rate, or the Federal funds rate. A facility fee is payable on the entire amount of the facility and is based on the Company's leverage ratio; the initial rate is .375%.

This agreement contains various covenants which, among other things, require the maintenance of certain financial ratios related to fixed charge coverage and total debt to capital, establish minimum levels of net worth, establish limitations on indebtedness, certain types of payments, including dividends, liens and investments, and limit the use of proceeds of asset sales.

The revolving bank Credit Agreement as well as the Company's 9.5% Senior Notes and the 7.36% Senior Notes are guaranteed by certain wholly-owned subsidiaries of the Company.
 
 

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Note G - Condensed Consolidated Financial Information

Certain of the Company's debt is fully unconditionally and jointly and severally guaranteed by certain wholly-owned domestic subsidiaries of the Company. Accordingly, condensed consolidating balance sheets as of October 28, 2000 and October 30, 1999, and the related condensed consolidating statements of earnings and cash flows for the thirty-nine weeks ended October 28, 2000 and October 30, 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 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 operations and cash flows of, each of the consolidating groups.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF OCTOBER 28, 2000

(Thousands)	Parent			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminations			Consolidated  Totals
Assets
Current Assets
Cash and cash equivalents	$	1,458		$	6,370		$	36,806		$	-		$	44,634
Receivables, net		28,069			10,605			19,268			-			57,942
Inventories		46,564			393,854			16,810			(12,873	)		444,355
Other current assets		(4,770	)		25,021			2,223			4,505			26,979
Total Current Assets		71,321			435,850			75,107			(8,368	)		573,910
Other Assets		49,469			24,619			6,041			(4	)		80,125
Property and Equipment, net		13,936			70,707			6,448			-			91,091
Investment in Subsidiaries		278,876			44,081			-			(322,957	)		-
Total Assets	$	413,602		$	575,257		$	87,596		$	(331,329	)	$	745,126
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable	$	59,000		$	-		$	-		$	-		$	59,000
Accounts payable		4,289			122,197			14,806			-			141,292
Accrued expenses		21,813			50,007			10,919			2,823			85,562
Income taxes		5,611			1,074			1,770			151			8,606
Current maturities of        long-term debt		10,000			-			-			-			10,000
Total Current Liabilities		100,713			173,278			27,495			2,974			304,460
Long-Term Debt and        Capitalized Lease Obligations		152,037			-			-			-			152,037
Other Liabilities		20,152			(1,335	)		626			-			19,443
Intercompany Payable (Receivable)		(128,486	)		123,241			15,394			(10,149	)		-
Shareholders' Equity		269,186			280,073			44,081			(324,154	)		269,186
Total Liabilities and               Shareholders' Equity	$	413,602		$	575,257		$	87,596		$	(331,329	)	$	745,126

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CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000

(Thousands)	Parent			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminations			Consolidated  Totals
Net Sales	$	195,067		$	1,085,906		$	226,392		$	(231,442	)	$	1,275,923
Cost of goods sold		144,254			670,025			179,957			(231,442	)		762,794
Gross profit		50,813			415,881			46,435			-			513,129
Selling and administrative expenses		52,077			375,947			28,329			(968	)		455,385
Interest expense		13,258			3			65			-			13,326
Intercompany interest     (income) expense		(9,940	)		9,973			(33	)		-			-
Other (income) expense		(2,171	)		18			(783	)		968			(1,968	)
Equity in (earnings) of subsidiaries		(33,543	)		(15,438	)		-			48,981			-
Earnings (Loss) Before        Income Taxes		31,132			45,378			18,857			(48,981	)		46,386
Income tax provision (benefit)		(229	)		11,835			3,419			-			15,025
Net Earnings (Loss)	$	31,361		$	33,543		$	15,438		$	(48,981	)	$	31,361

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000

(Thousands)	Parent			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminations			Consolidated  Totals
Net Cash Provided (Used) by     Operating Activities	$	6,289		$	(23,107	)	$	8,487		$	3,346			(4,985	)
Investing Activities:
Capital expenditures		(817	)		(21,261	)		(1,558	)		-			(23,636	)
Proceeds from sale of        le coq sportif		906			-			-			-			906
Net Cash (Used) Provided by     Investing Activities		89			(21,261	)		(1,558	)		-			(22,730	)
Financing Activities:
Increase in short-term        notes payable		59,000			-			-			-			59,000
Principal payments of        long-term debt		(10,000	)		-			-			-			(10,000	)
Proceeds from issuance of        common stock		13			-			-			-			13
Payments for purchase of        Treasury stock		(5,380	)		-			-			-			(5,380	)
Dividends paid		(5,442	)		-			-			-			(5,442	)
Intercompany financing		(51,962	)		49,853			5,455			(3,346	)		-
Net Cash Provided (Used) by     Financing Activities		(13,771	)		49,853			5,455			(3,346	)		38,191
Increase (Decrease) in Cash and of     Cash Equivalents		(7,393	)		5,485			12,384			-			10,476
Cash and Cash Equivalents at     Beginning of Period		8,851			885			24,422			-			34,158
Cash and Cash Equivalents at     End of Period	$	1,458		$	6,370		$	36,806		$	-		$	44,634

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF OCTOBER 30, 1999

(Thousands)	Parent			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminations			Consolidated  Totals
Assets
Current Assets
Cash and cash equivalents	$	6,790		$	6,231		$	34,683		$	-		$	47,704
Receivables, net		34,539			12,152			21,855			-			68,546
Inventories		39,366			337,733			19,118			(11,817	)		384,400
Other current assets		(3,800	)		19,029			1,976			4,136			21,341
Total Current Assets		76,895			375,145			77,632			(7,681	)		521,991
Other Assets		51,063			19,306			5,882			(45	)		76,206
Property and Equipment, net		14,145			63,231			6,437			-			83,813
Investment in Subsidiaries		264,761			50,881			-			(315,642	)		-
Total Assets	$	406,864		$	508,563		$	89,951		$	(323,368	)	$	682,010
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable	$	23,000		$	-		$	-		$	-		$	23,000
Accounts payable		6,505			99,190			14,165			-			119,860
Accrued expenses		24,261			53,949			11,063			2,817			92,090
Income taxes		1,522			8,756			112			(47	)		10,343
Current maturities of        long-term debt		10,000			-			-			-			10,000
Total Current Liabilities		65,288			161,895			25,340			2,770			255,293
Long-Term Debt and        Capitalized Lease Obligations		162,033			41			-			(41	)		162,033
Other Liabilities		19,198			(811	)		206			-			18,593
Intercompany Payable (Receivable)		(85,746	)		77,563			13,524			(5,341	)		-
Shareholders' Equate		246,091			269,875			50,881			(320,756	)		246,091
Total Liabilities and              Shareholders' Equity	$	406,864		$	508,563		$	89,951		$	(323,368	)	$	682,010

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CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999

(Thousands)	Parent			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminations			Consolidated  Totals
Net Sales	$	192,924		$	990,051		$	253,937		$	(200,854	)	$	1,236,058
Cost of goods sold		138,569			602,428			205,189			(200,854	)		745,332
Gross profit		54,355			387,623			48,748			-			490,726
Selling and administrative expenses		52,998			345,528			32,105			(1,170	)		429,461
Interest expense		13,274			-			37			-			13,311
Intercompany interest     (income) expense		(10,179	)		10,208			(29	)		-			-
Other (income) expense		531			(3,460	)		(296	)		1,170			(2,055	)
Equity in (earnings) of subsidiaries		(33,614	)		(13,407	)		-			47,021			-
Earnings (Loss) Before        Income Taxes		31,345			48,754			16,931			(47,021	)		50,009
Income tax provision (benefit)		(251	)		15,140			3,524			-			18,413
Net Earnings (Loss)	$	31,596		$	33,614		$	13,407		$	(47,021	)	$	31,596

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999

(Thousands)	Parent			Guarantor  Subsidiaries			Non-Guarantor  Subsidiaries			Eliminations			Consolidated  Totals
Net Cash Provided (Used) by     Operating Activities	$	10,596		$	(9,211	)	$	11,997		$	5,918		$	19,300
Investing Activities:
Capital expenditures		(273	)		(18,240	)		(1,470	)		-			(19,983	)
Proceeds from the sale of        le coq sportif		-			9,410			-			-			9,410
Net Cash (Used) Provided by     Investing Activities		(273	)		(8,830	)		(1,470	)		-			(10,573	)
Financing Activities:
Increase in short-term        notes payable		23,000			-			-			-			23,000
Principal payments of        long-term debt		(25,000	)		-			-			-			(25,000	)
Proceeds from issuance of        common stock		913			-			-			-			913
Dividends paid		(5,468	)		-			-			-			(5,468	)
Intercompany financing		(9,164	)		19,534			(4,452	)		(5,918	)		-
Net Cash Provided (Used) by of     Financing Activities		(15,719	)		19,534			(4,452	)		(5,918	)		(6,555	)
Increase (Decrease) in Cash and of     Cash Equivalents		(5,396	)		1,493			6,075			-			2,172
Cash and Cash Equivalents at of     Beginning of Period		12,186			4,738			28,608			-			45,532
Cash and Cash Equivalents at     End of Period	$	6,790		$	6,231		$	34,683		$	-		$	47,704

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

Results of Operations

Quarter ended October 28, 2000 compared to the Quarter ended October 30, 1999

Consolidated net sales for the third quarter ended October 28, 2000 were $462.9 million compared to $429.1 million in the quarter ended October 30, 1999. Net earnings of $15.6 million for the third quarter of 2000 compares to net earnings of $14.8 million in the third quarter of 1999.

Famous Footwear achieved a sales increase of 11.3% during the third quarter of 2000 to $292.8 million. The increase was driven by 70 more stores (including 26 stores acquired in August 2000 located primarily in the Milwaukee, Wisconsin area), resulting in a total of 919 stores in operation, partially offset by a 2.0% same-store sales decline. Operating earnings for the third quarter of 2000 decreased 5.4% to $22.3 million from $23.5 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 $120.1 million during the third quarter of 2000 compared to $116.7 million last year. This sales increase was primarily due to higher sales of Naturalizer and Life Stride branded product as well as private label women's product. Operating earnings of $9.8 million increased from $8.8 million in the third quarter of 1999 primarily as a result of the higher sales.

In the Company's Naturalizer Retail operations, which includes both the United States and Canadian stores, net sales increased 7.2% to $50.0 million in the third quarter of 2000. Same-store sales in the third quarter of 2000 decreased 3.0% in the United States but increased 11.7% in Canada. The Company had 8 more stores in operation in the United Sates in 2000 and had 9 more stores in operation in Canada. At the end of the third quarter of 2000, 498 stores were in operation including 351 stores in the United States and 147 stores in Canada. Total Naturalizer Retail operations reported an operating loss of $1.8 million in the third quarter of fiscal 2000 compared to a loss of $2.0 million in 1999. The improvement was primarily due to the higher sales.

Consolidated gross profit as a percent of sales decreased to 39.7% from 40.0% during the same period last year. This decrease was primarily due to lower margins in both the Company's wholesaling and retailing operations.

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Selling and administrative expenses as a percent of sales decreased to 33.9% from 34.1% during the same period last year. This decrease was due to lower expenses within the wholesale operations partially offset by higher expenses within the retail operations and a higher mix of retail sales, which carry a higher expense rate.

Other income in the third quarter of 2000 primarily represents interest and royalty income, which is basically the same as the third quarter of last year.

The consolidated tax rate was 31.3% of consolidated pre-tax income for the third quarter of 2000 compared to 33.1% last year.
 

Thirty-nine weeks ended October 28, 2000 compared to the thirty-nine weeks ended October 30, 1999

Consolidated net sales for the first thirty-nine weeks of 2000 were $1.276 billion, an increase of 3.2% from the first thirty-nine weeks of 1999 total of $1.236 billion. Net earnings of $31.4 million for the first thirty-nine weeks of 2000 compare to net earnings of $31.6 million for the first thirty-nine weeks of 1999, a decrease of .6%.

Sales at Famous Footwear for the first thirty-nine weeks of 2000 increased 8.2% from the first thirty-nine weeks of last year to $783.8 million, reflecting the offsetting effect of a 1.5% decrease in same-store sales and 70 more units in operation. Operating earnings for 2000 decreased 4.3% to $46.8 million due to the same-store sales decrease and slightly lower margins.

The Company's wholesale sales for the first thirty-nine weeks of 2000 decreased 6.4% to $340.0 million from the same period last year. Operating earnings of $23.4 million decreased $4.1 million from last year due to the lower sales.

In the Company's Naturalizer Retail operations, net sales increased 8.0% to $152.1 million in the first thirty-nine weeks of 2000. Same-store sales increased 1.4% in the United States and 3.0% in Canada. The Company had 8 more stores in operation in the United States in 2000 and had 9 more stores in operation in Canada. Total Naturalizer retail operations had an operating loss of $1.8 million in the first thirty-nine weeks of 2000 compared to an operating loss of $2.3 million in 1999. The improved operating performance was primarily due to higher sales.

Consolidated gross profit as a percent of sales increased to 40.2% from 39.7% 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.

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Selling and administrative expenses as a percent of sales increased to 35.7% from 34.7% for the same period last year. This increase was primarily due to the lower sales at the Company's wholesale operations and a higher mix of retail sales, which carry a higher expense rate.

Other income for the first thirty-nine weeks 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 32.4% consolidated pre-tax income for the first thirty-nine weeks of 2000 compared to 36.8% for last year. The 1999 tax provision includes $1.2 million of taxes related to the repatriation of foreign cash generated from the sale of the le coq sportif business.
 

Financial Condition

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

	October 28, 2000		October 30,  1999		January 29, 2000
Working Capital (millions)	$269.5		$266.7		$270.0
Current Ratio	1.9:1		2.0:1		2.2:1
Total Debt as a Percentage   of Total Capitalization	45.1%		44.2%		40.8%

Cash usage from operating activities for the first thirty-nine weeks of fiscal 2000 was $5.0 million versus generating $19.3 million last year. This decline resulted from increased inventories in the Famous Footwear operations from the increased number of stores (including 26 acquired primarily in the Milwaukee, Wisconsin area) and the opening of larger stores, which required more inventory, partially offset by higher accounts payable and lower accounts receivable, reflecting lower sales, in the Company's wholesale operations.

The increase in the ratio of total debt as a percentage of total capitalization at October 28, 2000, compared to the end of fiscal 1999, is due to the cash usage in the third quarter. At October 28, 2000, $59.0 million was borrowed and $9.2 million of letters of credit were outstanding under the Company's $155.0 million revolving bank Credit Agreement.

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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 nine months of fiscal 2000, the Company purchased 499,000 shares at a cost of $5.4 million under this authorization.

In November 2000, the Company entered into a new $165 million revolving bank Credit Agreement with several banks. This agreement includes various financial covenants and restrictions, which are similar to the previous agreement. See Note F to the Company's Condensed Consolidated Financial Statements.

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 discussed. Such description is incorporated herein by reference.
 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year.
 
 

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PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

There have been no material developments during the quarter ended October 28, 2000, in the legal proceedings described in the Company's Annual Report on Form 10-K for the period ended January 29, 2000. Item 6 - Exhibits and Reports on Form 8-K
 

(a)	(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 reference 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.
	(4)	(b)		Credit Agreement dated as of November 20, 2000, between the Company as Borrower, certain of the Company's wholly owned subsidiaries as Guarantors, the Lenders named therein, Bank One, NA as Administrative Agent, and Bank of America, N.A., as Syndication Agent, filed herewith.
		(c) (iii)		Third Supplemental Indenture dated as of November 20, 2000, between the Company and State Street Bank and Trust Company, as Trustee, filed herewith.

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			(d) (iii)	Amendment No. 4, dated November 20, 2000, to the Senior Note Agreement between the Company and Prudential Insurance Company of America, as amended, filed herewith.
	(10)		(f)	Employment Agreement, dated October 5, 2000 between the Company and Ronald A. Fromm, filed herewith.
			(i)	Severance Agreement, dated October 5, 2000, between the Company and Gary M. Rich, filed herewith.
			(j)	Severance Agreement, dated October 5, 2000, between the Company and David H. Schwartz, filed herewith.
			(k)	Severance Agreement, dated October 5, 2000, between the Company and Charles C. Gillman, filed herewith.
	(27)			Financial Data Schedule
(b)	Reports on Form 8-K:
	The Company filed no reports on Form 8-K during the quarter ended October 28, 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:  December 11, 2000		/s/ Andrew M. Rosen
		Chief Financial Officer and Treasurer On Behalf of the Corporation as the  Principal Financial Officer

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