BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

($ thousands)
October 30, 2004
November 1, 2003
January 31, 2004

Assets
Current Assets
   Cash and cash equivalents $ 74,793 $ 52,750 $ 55,657
   Receivables 74,850 64,534 81,930
   Inventories 409,961 376,602 376,210
   Prepaid expenses and other current assets
17,963
24,717
15,888
Total current assets
577,567
518,603
529,685
Other assets 87,928 84,056 83,692
Goodwill and intangible assets, net 20,860 20,435 20,405
Property and equipment 291,684 271,405 272,151
   Allowances for depreciation and amortization
(201,944
)
(186,598
)
(186,603
)
Total property and equipment
89,740
84,807
85,548
Total assets
$
776,095
$
707,901
$
719,330
Liabilities and Shareholders' Equity
Current Liabilities
   Notes payable $ 43,500 $ 16,000 $ 19,500
   Trade accounts payable 108,617 107,894 116,677
   Accrued expenses 92,291 93,613 96,707
   Income taxes 11,811 14,272 2,960
   Current maturities of long-term debt
-
3,500
-
Total current liabilities
256,219
235,279
235,844
Other Liabilities
   Long-term debt 100,000 100,000 100,000
   Other liabilities
29,550
28,317
28,358
Total other liabilities
129,550
128,317
128,358
Shareholders' Equity
   Common stock 68,229 67,640 67,787
   Additional capital 62,977 55,135 62,772
   Unamortized value of restricted stock (2,935 ) (2,691 ) (3,408 )
   Accumulated other comprehensive loss (607 ) (5,366 ) (4,934 )
   Retained earnings
262,662
229,587
232,911
Total shareholders' equity
390,326
344,305
355,128
Total liabilities and shareholders' equity
$
776,095
$
707,901
$
719,330

(Unaudited)

AS RESTATED
(See Note 2)

($ thousands)
April 30, 2005 May 1, 2004 January 29, 2005
Assets

Current Assets
   Cash and cash equivalents $ 25,748 $ 66,422 $ 79,448
   Receivables 112,703 88,072 97,503
   Inventories 423,707 366,902 421,450
   Prepaid expenses and other current assets 26,167 17,049 24,438
Total current assets 588,325 538,445 622,839

Other assets 91,488 87,751 87,427
Goodwill and intangible assets, net 195,292 20,222 21,474

Property and equipment 347,215 315,987 339,138
   Allowances for depreciation and amortization (230,184 ) (210,732 ) (224,744 )
Total property and equipment 117,031 105,255 114,394
Total assets $ 992,136 $ 751,673 $ 846,134

Liabilities and Shareholders' Equity

Current Liabilities
   Current maturities of long-term debt $ 79,500 $ 43,000 $ 92,000
   Trade accounts payable 123,864 100,902 143,982
   Accrued expenses 103,777 89,556 98,096
   Income taxes 12,064 5,189 7,437
Total current liabilities 319,205 238,647 341,515

Other Liabilities
   Long-term debt 200,000 100,000 50,000
   Other liabilities 79,531 54,887 63,316
Total other liabilities 279,531 154,887 113,316

Shareholders' Equity
   Common stock 68,650 68,002 68,406
   Additional paid-in capital 62,314 64,851 62,639
   Unamortized value of restricted stock (2,443 ) (3,648 ) (2,661 )
   Accumulated other comprehensive loss (974 ) (5,651 ) (983 )
   Retained earnings 265,853 234,585 263,902
Total shareholders’ equity 393,400 358,139 391,303
Total liabilities and shareholders’ equity $ 992,136 $ 751,673 $ 846,134

BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (Unaudited)
Thirteen Weeks Ended
Thirty-nine Weeks Ended
($ thousands, except per share amounts)
October 30, 2004
November 1, 2003
October 30 , 2004
November 1, 2003

Net sales $ 514,825 $ 493,433 $ 1,465,314 $ 1,398,261
Cost of goods sold
306,782
288,721
868,661
820,557
Gross profit 208,043 204,712 596,653 577,704
Selling and administrative expenses
179,762
172,278
540,177
511,317
Operating earnings 28,281 32,434 56,476 66,387
Interest expense 1,980 2,256 6,600 7,679
Interest income
(221
)
(118
)
(517
)
(318
)
Earnings before income taxes 26,522 30,296 50,393 59,026
Income tax provision
7,702
9,096
15,192
17,267
Net earnings
$
18,820
$
21,200
$
35,201
$
41,759

Basic net earnings per common share
$
1.05
$
1.19
$
1.97
$
2.37

Diluted net earnings per common share
$
1.01
$
1.13
$
1.87
$
2.25

Dividends per common share
$
0.10
$
0.10
$
0.30
$
0.30

BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Weeks Ended

($ thousands)
October 30, 2004
November 1, 2003
Operating Activities:
Net earnings $ 35,201 $ 41,759
Adjustments to reconcile net earnings to net cash provided by operating activities:
   Depreciation and amortization 18,251 19,053
   Share-based compensation (income) expense (1,480 ) 3,299
   Tax benefit related to share-based plans 913 -
   Loss on disposal of facilities and equipment 739 1,599
   Impairment charges for facilities and equipment 1,481 2,147
   Provision for (recoveries from) doubtful accounts (342 ) 278
   Changes in operating assets and liabilities:
      Receivables 7,422 17,674
      Inventories (33,751 ) 15,982
      Prepaid expenses and other current assets (2,075 ) (3,739 )
      Trade accounts payable and accrued expenses (12,476 ) (31,198 )
      Income taxes 8,851 8,920
   Other, net
1,164
(182
)
Net cash provided by operating activities
23,898
75,592
Investing Activities:
Capital expenditures (23,880 ) (21,668 )
Other
153
368
Net cash used by investing activities
(23,727
)
(21,300
)
Financing Activities:
Increase (decrease) in short-term notes payable 24,000 (13,000 )
Principal repayments of long-term debt - (20,000 )
Debt issuance costs (1,274 ) -
Proceeds from stock options exercised 1,687 4,696
Dividends paid
(5,448
)
(5,359
)
Net cash provided (used) by financing activities
18,965
(33,663
)
Increase in cash and cash equivalents 19,136 20,629
Cash and cash equivalents at beginning of period
55,657
32,121
Cash and cash equivalents at end of period
$
74,793
$
52,750

(Unaudited)
Thirteen Weeks Ended

AS RESTATED
(See Note 2)

($ thousands)
April 30, 2005 May 1, 2004
Operating Activities:

Net earnings $ 3,779 $ 8,526
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
   Depreciation and amortization 7,826 7,130
   Share-based compensation expense 352 1,405
   Loss on disposal of facilities and equipment 184 315
   Impairment charges for facilities and equipment 590 409
   Provision for (recoveries from) doubtful accounts 165 (167 )
   Changes in operating assets and liabilities:
      Receivables 6,486 (5,975 )
      Inventories 26,524 9,308
      Prepaid expenses and other current assets (3,305 ) (3,387 )
      Trade accounts payable and accrued expenses (23,763 ) (22,193 )
      Income taxes 4,760 2,229
   Deferred rent (1,341 ) 1,621
Deferred income taxes 7,316 (116 )
   Other, net 320 (1,019 )
Net cash provided (used) by operating activities 29,893 (1,914 )

Investing Activities:

Payments on acquisition, net of cash received (206,970 ) -
Capital expenditures (8,547 ) (9,774 )
Other 105 115
Net cash used by investing activities (215,412 ) (9,659 )

Financing Activities:

Increase (decrease) in current maturities of long-term debt (12,500 ) 23,500
Proceeds from issuance of senior notes 150,000 -
Debt issuance costs (4,667 ) -
Proceeds from stock options exercised 562 649
Tax benefit related to share-based plans 254 -
Dividends paid (1,830 ) (1,811 )
Net cash provided by financing activities 131,819 22,338
Increase (decrease) in cash and cash equivalents (53,700 ) 10,765
Cash and cash equivalents at beginning of period 79,448 55,657
Cash and cash equivalents at end of period $ 25,748 $ 66,422

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals) to present fairly the ~~Company's~~ financial position, results of operations, and cash ~~flows.~~flows of Brown Shoe Company, Inc. (the “Company”). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

The Company's business is subject to seasonal influences, particularly the back-to-school selling season at Famous Footwear which falls in the ~~Company's~~Company’s third quarter. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.

For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended January ~~31, 2004.~~29, 2005.

In conjunction with the issuance of our consolidated financial statements for the year ended January 29, 2005 (fiscal 2004), the Company restated its results for the first three quarters of fiscal 2004 and prior years to correct its method of accounting for certain lease issues. Accordingly, the consolidated financial statements for the first quarter of 2004, included herein, have been restated.

Consistent with many other companies having retail operations, the Company historically accounted for construction allowances received from landlords as a reduction of property and equipment and amortized the allowances over the useful lives of the assets to which they were assigned. The Company determined that, in some cases, the lives assigned to amortize the construction allowances were shorter than the lease term, thereby understating rent expense. In its restated consolidated financial statements, the Company has treated these construction allowances as a lease incentive, as defined by FASB Technical Bulletin 88-1. The allowances are recorded as a deferred rent obligation upon receipt, rather than a reduction of property and equipment, and amortized to income over the lease term as a reduction of rent expense.

The Company also determined that its calculation of straight-line rent expense should be modified. The Company had previously recognized straight-line rent expense for leases beginning on the commencement date of the lease, which had the effect of excluding the store build-out periods from the calculation of the period over which it expensed rent. In its restated consolidated financial statements, the Company has recognized straight-line rent expense over the lease term, including any rent-free build-out periods.

The adjustment to net earnings is a noncash item. As a result of the restatement, the Company’s earnings before income taxes were reduced by $66,000 and the Company’s net earnings were reduced by $41,000 for the thirteen weeks ended May 1, 2004. The restatement had no effect on basic or diluted net earnings per common share for the period.

All data reflected in the condensed consolidated financial statements and notes thereto have been restated to correct for these lease accounting issues.

On April 22, 2005, the Company completed the acquisition of Bennett Footwear Holdings, LLC and its subsidiaries (“Bennett”) for $205 million in cash, including indebtedness of Bennett repaid by the Company at closing of $35.7 million. The purchase price is subject to a post-closing adjustment based on net equity. This post-closing adjustment, if any, has not yet been determined. In addition, the sellers may receive up to $42.5 million in contingent payments to be earned upon the achievement of certain performance targets over the three years following the acquisition. The operating results of Bennett have been included in the Company’s financial statements since April 22, 2005. The Company expects the acquisition of Bennett to complement the Company’s portfolio of wholesale footwear brands, which are primarily sold in the moderately priced range, by adding owned and licensed brands that sell primarily in the better and bridge footwear zones at department stores, including Via Spiga, Franco Sarto, Etienne Aigner and Nickels Soft.

The Company has determined that certain redundant positions at Bennett will be eliminated and has recorded a severance liability of $0.7 million in the preliminary allocation of purchase price. The Company anticipates that the entire severance liability will be funded during 2005.


	Thirteen Weeks Ended
($ thousands, except per share data)	April 30, 2005		May 1, 2004
Net sales	$	560,653	$	544,288
Net earnings (loss)		1,110		(3,862	)
Net earnings (loss) per common share:
Basic		0.06		(0.22	)
Diluted		0.06		(0.20	)

The unaudited pro forma results shown above reflect the assumption that, on January 29, 2005 and February 1, 2004, the Company would have financed the Bennett acquisition under identical terms and conditions as the actual financing, including the repatriation of $60.5 million of foreign earnings to fund a portion of the acquisition and related expenses, and the associated $9.6 million tax expense. The unaudited pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Bennett acquisition occurred as of January 30, 2005, and February 1, 2004, respectively. The unaudited pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Bennett acquisition occurred as of January 30, 2005, and February 1, 2004, respectively.

Prior to and in connection with the acquisition, the Company entered into a commitment with a lender to provide $100.0 million of short-term financing (the “Bridge Commitment”) on a senior unsecured basis. The Bridge Commitment was not utilized as a result of the issuance of the senior notes described below simultaneously with the closing of the Bennett acquisition. The Company expensed all fees and costs associated with the Bridge Commitment, totaling $1.0 million, during the quarter ended April 2005 as a component of interest expense.

To fund a portion of the acquisition and associated expenses, the Company issued $150 million aggregate principal amount of 8.75% senior notes due 2012. To fund the remaining portion of the acquisition and associated expenses, the Company repatriated $60.5 million of earnings from its foreign subsidiaries pursuant to the American Jobs Creation Act of 2004.

The following table sets forth the computation of basic and diluted net earnings per common share for the periods ended ~~October~~April 30, ~~2004~~2005, and ~~November~~May 1, ~~2003:~~2004:

Options to purchase ~~387,600~~613,433 and ~~34,921~~236,167 shares of common stock for the thirteen ~~week periods~~weeks ended April 30, 2005, and ~~284,978 and 37,216 shares of common stock for the thirty-nine week periods ended October 30,~~May 1, 2004, ~~and November 1, 2003,~~ respectively, were not included in the denominator for diluted net earnings per common share because their effect would be antidilutive.

Comprehensive income includes changes in ~~shareholders'~~shareholders’ equity related to foreign currency translation adjustments and unrealized gains or losses from derivatives used for hedging activities.

The following table sets forth the reconciliation from net earnings to comprehensive income for the ~~periods~~thirteen weeks ended ~~October~~April 30, ~~2004~~2005, and ~~November~~May 1, ~~2003:~~2004:

Applicable business segment information is as follows for the periods ended ~~October~~April 30, ~~2004~~2005, and ~~November~~May 1, ~~2003:~~2004:

($ thousands) Famous
Footwear Wholesale
Operations Naturalizer
Retail Other Totals
Thirteen Weeks Ended October 30, 2004
External sales $ 311,685 $ 148,696 $ 49,911 $ 4,533 $ 514,825
Intersegment sales 414 46,786 - - 47,200
Operating earnings (loss) 24,802 10,375 (1,491 ) (5,405 ) 28,281
Operating segment assets 359,044 188,362 79,836 148,853 776,095
Thirteen Weeks Ended November 1, 2003
External sales $ 301,588 $ 140,062 $ 49,789 $ 1,994 $ 493,433
Intersegment sales 284 35,968 - - 36,252
Operating earnings (loss) 23,427 15,460 (166 ) (6,287 ) 32,434
Operating segment assets 345,000 171,986 70,669 120,246 707,901
Thirty-nine Weeks Ended October 30, 2004
External sales $ 853,620 $ 457,125 $ 143,507 $ 11,062 $ 1,465,314
Intersegment sales 1,054 121,718 - - 122,772
Operating earnings (loss) 49,818 32,144 (6,262 ) (19,224 ) 56,476

Thirty-nine Weeks Ended November 1, 2003
External sales $ 831,634 $ 418,950 $ 142,296 $ 5,381 $ 1,398,261
Intersegment sales 693 100,718 - - 101,411
Operating earnings (loss) 46,914 41,106 (2,534 ) (19,099 ) 66,387

~~The Other segment includes corporate administrative and other expenses, which are not allocated to~~

In fiscal 2005, the ~~operating units, and the Company's investment in~~Company began reporting its majority-owned subsidiary, Shoes.com, ~~Inc.,~~ a footwear e-commerce ~~company.~~

~~Effective February 1, 2004,~~company, within the ~~Company began accounting for its Irish financing subsidiary, Brown Group Dublin Limited, which holds cash and short term investments relating to offshore earnings other than in Canada,~~Specialty Retail segment. Shoes.com, Inc., had previously been reported within the Other segment. ~~Brown Group Dublin Limited had previously been accounted for within the Wholesale Operations segment.~~ Prior year

amounts have been reclassified to conform to ~~the~~ current year presentation. This reclassification ~~had no effect on operating earnings, but~~ resulted in a transfer of sales of $6.6 million and $2.8 million in 2005 and 2004, respectively, and resulted in an immaterial transfer of operating earnings (loss) in both 2005 and 2004 to the Specialty Retail segment. This reclassification also resulted in a transfer of operating segment assets of ~~$68.0~~$7.8 million and ~~$47.1~~$4.8 million ~~at October 30,~~in 2005 and 2004, respectively.

The Other segment includes unallocated corporate administrative and ~~November 1, 2003, respectively, to the Other segment.~~other costs.

Note 5

~~Restructuring Reserves~~

~~Closure of Canadian Manufacturing Facility~~

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

~~Severance and benefit costs for approximately 300 factory employees - $2.3 million~~

~~Inventory markdowns to liquidate factory inventory - $1.6 million~~

~~Cost to buy out leases prior to their normal expiration date - $0.6 million~~

~~The following is a summary of the activity in the reserve, by category of costs:~~

($ millions)
Employee
Severance
Inventory
Markdowns
Lease
Buyouts
Total
Original charge and reserve balance
$
2.3

$
1.6

$
0.6

$
4.5

Adjustments
(0.3
)
0.4

(0.1
)
-

Expenditures in quarter ending May 1, 2004
(1.8
)
(2.0
)
(0.1
)
(3.9
)
Expenditures in quarter ending July 31, 2004
(0.1
)
-

(0.2
)
(0.3
)
Expenditures in quarter ending October 30, 2004
-
-
(0.1
)
(0.1
)
Reserve balance October 30, 2004
$
0.1
$
-
$
0.1
$
0.2

~~The Company anticipates that the restructuring activities associated with the closure of the Canadian manufacturing facility will be substantially completed by the end of fiscal 2004.~~

~~Note 6.~~
Goodwill and Other Intangible Assets

Goodwill and intangible assets were attributable to the Company's operating segments as follows:

The change between periods for the ~~Naturalizer~~Specialty Retail segment reflects changes in the Canadian dollar exchange rate. The change in the Other segment from May 1, 2004 to April 30, 2005 of $0.7 million reflects the adjustment to the Company’s minimum pension liability recorded in 2004. The change between periods in the Wholesale Operations segment reflects the Company’s preliminary purchase price allocation for the acquisition of Bennett on April 22, 2005. The Company’s preliminary purchase price allocation has resulted in acquired goodwill of $81.1 million and intangible assets of $92.9 million.

As of ~~October~~April 30, ~~2004,~~2005, the Company had four share-based compensation plans, which are described more fully in Note 16 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended January ~~31, 2004.~~29, 2005. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Compensation expense is recognized in net earnings for stock appreciation units, stock performance plans and restricted stock grants. No share-based employee compensation cost is reflected in net earnings for stock options, as all option grants had an exercise price equal to the market value of the

underlying common stock on the date of grant. The following table illustrates the effect on net earnings and net earnings per common share as if the Company had applied the fair value recognition provisions of SFAS No. 123, ~~"Accounting~~Accounting for Stock-Based Compensation", to stock options outstanding:

Thirteen Weeks Ended
Thirty-nine Weeks Ended

($ thousands, except per share amounts)
October 30,
2004
November 1,
2003
October 30,
2004
November 1,
2003
Net earnings, as reported $ 18,820 $ 21,200 $ 35,201 $ 41,759
Add: Total share-based employee compensation
   (income) expense included in reported net
   earnings, net of related tax effect (1,425 ) 931 (962 ) 2,145
Deduct: Total share-based employee
   compensation expense determined under the
   fair value based method for all awards, net of
   related tax effect
618
(1,479
)
(1,396
)
(3,877
)
Pro forma net earnings
$
18,013
$
20,652
$
32,843
$
40,027
Net earnings per common share:
   Basic - as reported $ 1.05 $ 1.19 $ 1.97 $ 2.37
   Basic - pro forma 1.00 1.16 1.83 2.27
   Diluted - as reported 1.01 1.13 1.87 2.25
   Diluted - pro forma 0.97 1.10 1.74 2.16

During December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R),Share-Based Payment, which is a revision of SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company has historically provided pro forma disclosures of stock option expense in the notes to the Company’s financial statements as previously allowed by SFAS No. 123, rather than recognizing the impact of such expense in the financial statements. As a result of the Securities and Exchange Commission’s April 15, 2005 release delaying the required date of adoption, the Company now plans to adopt the provisions of SFAS No. 123(R), utilizing the modified-prospective transition method, at the beginning of fiscal year 2006.

The Company issued ~~5,250~~64,875 and ~~88,654~~57,190 shares of common stock for the thirteen week periods ended April 30, 2005, and ~~117,827 and 354,807 shares of common stock for the thirty-nine week periods, ended October 30,~~May 1, 2004, ~~and November 1, 2003,~~ respectively, for stock options exercised, stock performance awards and restricted stock grants.

As a result of the decline in the Company's net earnings and stock price during the period and the corresponding change in estimated payouts under stock-based and other incentive plans, the Company's third quarter and year to date 2004 results reflect reduced compensation expense as compared to the same periods in 2003. The Company recognized income of $3.2 million ($2.0 million on an after tax basis, or $0.11 per diluted share) during the thirteen weeks ended October 30, 2004 related to these plans, compared to expense of $5.4 million ($3.3 million on an after tax basis) during the thirteen weeks ended November 1, 2003. For the year to date period, the Company recognized $4.2 million of expense ($2.6 million on an after tax basis, or $0.14 per diluted share) related to these plans during the thirty-nine weeks ended October 30, 2004 as compared to $13.9 million of expense ($8.6 million on an after tax basis) during the thirty-nine weeks ended November 1, 2003.

The following table sets forth the components of net periodic benefit cost or income for the Company, including all domestic and Canadian plans:

The Company has a Revolving Credit Agreement (the ~~"Agreement"~~“Agreement”) ~~effective July 21, 2004, which amended and restated its existing $350 million revolving bank credit agreement. The Agreement~~that provides for a maximum line of credit of $350 million, subject to ~~the~~a calculated borrowing base restrictions. In addition to extending the credit term, the Agreement also provides other benefits to the Company, including expanding the definition of eligible inventory in certain circumstances and reducing the interest rate spread paid on outstanding borrowings.base. Borrowing availability under the Agreement is based upon the sum of eligible accounts receivable and inventory, less outstanding borrowings, letters of credit and applicable reserves. The Agreement matures on July 21, 2009, and the ~~Company's~~Company’s obligations are secured by ~~the Company's~~its accounts receivable and inventory. Borrowings under the Agreement bear interest at a variable rate determined based upon the level of availability under the Agreement. If availability falls below specified levels, the Company would then be subject to certain financial covenants. In addition, if availability falls below $25 million and the fixed charge coverage ratio is less than 1.0 to 1, the Company would be in default. The Agreement also contains certain other covenants and restrictions.

~~In connection with~~ On March 14, 2005, the Company entered into the First Amendment to the Agreement to permit the ~~Company incurred approximately $1.3 million~~acquisition of Bennett and the issuance ~~costs, which, together with remaining unamortized debt issuance costs~~ of ~~approximately $2.7 million associated with the original bank credit agreement, will be amortized over the five-year term~~its 8.75% Senior Notes due 2012.

To fund a portion of the Bennett acquisition, Brown Shoe Company, Inc. issued $150 million aggregate principal amount of 8.75% senior notes due 2012 (“Senior Notes”). The Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of Brown Shoe Company, Inc. that is an obligor under its secured Revolving Credit Agreement. Interest is payable on May 1 and November 1 of each year, beginning on November 1, 2005. The Senior Notes will mature on May 1, 2012, but are callable any time on or after May 1, 2009, at specified redemption prices plus accrued and unpaid interest. The Senior Notes also contain certain restrictive covenants.

The Company is involved in environmental remediation and ongoing compliance activities at several sites. The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (also known as the Redfield site) and residential neighborhoods adjacent to and near the property that have been affected by solvents previously used at the facility. During the first quarter of 2005, the Company recorded $0.5 million of expense related to this remediation. The anticipated future cost of remediation activities at ~~October~~April 30, ~~2004~~2005 is ~~$6.5~~$6.0 million and is accrued within other accrued expenses and other liabilities, ~~on the condensed consolidated balance sheet,~~ but the ultimate cost may vary. The cumulative costs incurred through ~~October~~April 30, ~~2004~~2005 are ~~$14.2~~$15.4 million.

The Company assesses future recoveries from insurance companies related to remediation costs by estimating a range of probable recoveries and recording the low end of the range. Recoveries from other responsible parties are recorded when a contractual agreement is reached. As of ~~October~~April 30, ~~2004,~~2005, recorded recoveries totaled ~~$3.8~~$3.3 million and are recorded in other noncurrent assets on the ~~condensed~~ consolidated balance ~~sheet. $3.3 million~~sheet, substantially all of ~~the recorded~~which represents recoveries ~~are~~ expected from certain insurance companies as indemnification for amounts spent for remediation associated with the Redfield site. The insurance companies are contesting their indemnity obligations, and the Company has sued its insurers seeking recovery of defense costs, indemnity and other damages related to the former operations and the remediation at the site. The Company believes insurance coverage in place entitles it to reimbursement for more than the recovery recorded. The Company believes the recorded recovery is supported by the fact the limits of the insurance policies at issue exceed the amount of the recorded

recovery, and certain insurers have offered to settle these claims. The Company is unable to estimate the ultimate recovery from the insurance carriers, but is pursuing resolution of its claims.

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 2019 years. The Company has an accrued liability of $2.2 million at April 30, 2005, related to these sites, which has been discounted at 6.4%. On an undiscounted basis, this liability would be $3.7 million. The Company expects to spend approximately $0.2 million in each of the next five succeeding years and $2.7 million thereafter related to these sites. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other landfills.

Based on information currently available, the Company had an accrued liability of $8.5 million as of ~~October~~April 30, ~~2004 to complete~~2005, for the cleanup, maintenance and monitoring at all sites. Of the $8.5 million liability, $1.7 million is included in accrued expenses, and $6.8 million is included in other noncurrent liabilities onin the ~~condensed~~ consolidated balance sheet. The ultimate costs may vary, and it is possible costs may exceed the recorded amounts.

While the Company currently does not operate 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 March 2000, a class action lawsuit was filed in Colorado State Court (District Court for the City and County of Denver) related to the Redfield site described above. Plaintiffs alleged claims for trespass, nuisance, strict liability, unjust enrichment, negligence and exemplary damages arising from the alleged release of solvents contaminating the groundwater and indoor air in the areas adjacent to and near the site. In December 2003, the jury hearing the claims returned a verdict finding ~~one of~~ the ~~Company's subsidiaries~~Company’s subsidiary negligent and awarded the class plaintiffs $1.0 million in damages. The Company ~~has~~ recorded this award along with ~~pre-trial~~estimated pretrial interest on the award and estimated costs related to sanctions imposed by the court related to a ~~pre-trial~~pretrial discovery dispute between the parties. In the first quarter of 2005, the federal court hearing a cost recovery suit against other responsible parties approved a settlement agreement between us, our co-defendant in the class action lawsuit and an insurer which resolved all remaining sanctions issues related to the class action. Accordingly, the Company reversed into income $0.7 million related to accrued sanctions. The total ~~pre-tax charge~~pretax charges recorded for these matters in ~~the fourth quarter of fiscal 2003 was $3.1 million ($2.0 million after tax). The Company recorded an additional $0.6 million in expense in the first quarter of~~ 2004 related to pre-trial interest, to reflect the trial court's ruling extending the time period for which pre-judgment interest applied. In April 2004, the plaintiffs filed a motion for a new trial; the court has denied that motion.and prior were $3.7 million. The plaintiffs have appealed the judgment to the Colorado Court of Appeals and have asked for a retrial. The Company has cross-appealed the trial court's ruling as to the amount of pre-judgment interest, and has conditionally appealed a numberfiled an appeal of the ~~trial court's rulings in~~December 2003 jury verdict, and the ~~event of a retrial. The~~ ultimate outcome and cost to the Company may vary.

As described above in ~~"Environmental~~“Environmental Remediation,"” the Company has filed suit against its insurance carriers and is seeking recovery of certain defense costs, indemnity for the costs incurred for remediation related to the Redfield site and for the damages awarded in the class action and other related damages.

The Company also is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on the ~~Company's~~Company’s results of operations or financial position.

All legal costs associated with litigation are expensed as incurred.

During the fourth quarter of 2004, the Company isrecorded a ~~guarantor~~charge of $3.5 million related to its guarantee of an Industrial Development Bond financing ~~of $3.5 million~~ for a manufacturing and warehouse facility in Bedford County, Pennsylvania. ~~The outstanding principal on this Industrial Development Bond is $3.0 million.~~ These facilities and the business that operated them were sold to another party in 1985, which assumed ~~this~~the bond obligation. ~~This financing is scheduled to be paid annually in 2005 through 2009. During October 2004, the~~The current owner of the manufacturing and warehouse facility has filed for bankruptcy protection and is ~~seeking liquidation of~~liquidating its assets. ~~Management believes~~Although the ~~maximum amount~~Company will pursue recovery of ~~potential future payments under this guarantee, including interest due through maturity, is $3.5 million. While~~these costs, the ultimate outcome is ~~uncertain, management believes that the fair market value of the facility is sufficient to cover the payments due under the Industrial Development Bond.~~uncertain. Accordingly, the Company recorded its estimate of the maximum exposure, $3.5 million, as a charge in the fourth quarter of 2004. The Company made a payment under this guarantee of $0.7 million during the first quarter of 2005 and has ~~not recorded any charge~~an accrued liability of $2.8 million at April 30, 2005, related to this ~~guarantee.~~

matter.

During 2004 and 2003, the Company recorded charges totaling $2.7 million relating to the insolvency of an insurance company that insured the Company for workers’ compensation and casualty losses from 1973 to 1989. That company is now in liquidation. Certain claims from that time period are still outstanding. While management has recorded its best estimate of loss, the ultimate outcome and cost to the Company may vary.

The Company is contingently liable for lease commitments of approximately ~~$10~~$6.7 million in the aggregate, which ~~primarily~~ relate to the Cloth World and Meis specialty retailing chains and a manufacturing facility, which were sold in prior years. In order for the Company to incur any liability related to these lease commitments, the current owners would have to default. At this time, the Company does not believe this is reasonably likely to occur.

On April 22, 2005, Brown Shoe Company, Inc. issued senior notes to finance a portion of the purchase price of Bennett. The notes are fully and unconditionally and jointly and severally guaranteed by all existing and future subsidiaries of Brown Shoe Company, Inc. that are guarantors under its existing Revolving Credit Agreement. The following table presents the condensed consolidating financial information for each of Brown Shoe Company, Inc. (Issuer), the Guarantors and subsidiaries of the Issuer that are not Guarantors (the Non-Guarantors), together with consolidating eliminations, as of and for the periods indicated.

($ thousands)	Parent			Guarantors		Non-Guarantors			Eliminations			Total
ASSETS
Current Assets
Cash and cash equivalents	$	(1,458	)	$	7,046	$	20,160		$	-		$	25,748
Receivables, net		59,538			31,500		22,615			(950	)		112,703
Inventories, net		62,216			362,586		5,928			(7,023	)		423,707
Other current assets		4,135			18,577		1,152			2,303			26,167
Total current assets		124,431			419,709		49,855			(5,670	)		588,325
Other assets		78,297			206,594		2,039			(150	)		286,780
Property and equipment, net		14,755			98,744		3,532			-			117,031
Investment in subsidiaries		422,497			33,281		-			(455,778	)		-
Total assets	$	639,980		$	758,328	$	55,426		$	(461,598	)	$	992,136

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	79,500		$	-	$	950		$	(950	)	$	79,500
Trade accounts payable		13,861			87,847		22,156			-			123,864
Accrued expenses		48,290			51,018		3,811			658			103,777
Income taxes		5,898			5,377		1,285			(496	)		12,064
Total current liabilities		147,549			144,242		28,202			(788	)		319,205
Other Liabilities
Long-term debt		200,000			-		-			-			200,000
Other liabilities		35,539			44,080		(88	)		-			79,531
Intercompany payable (receivable)		(136,508	)		143,908		(2,368	)		(5,032	)		-
Total other liabilities		99,031			187,988		(2,456	)		(5,032	)		279,531
Shareholders’ equity		393,400			426,098		29,680			(455,778	)		393,400
Total liabilities and shareholders’ equity	$	639,980		$	758,328	$	55,426		$	(461,598	)	$	992,136

($ thousands)	Parent			Guarantors			Non-Guarantors			Eliminations			Total
Net cash provided (used) by operating activities	$	21,448		$	4,507		$	2,311		$	1,627		$	29,893

Investing activities
Payments on acquisition, net of cash received		-			(206,970	)		-			-			(206,970	)
Capital expenditures		(310	)		(8,113	)		(124	)		-			(8,547	)
Other		105			-			-			-			105
Net cash used by investing activities		(205	)		(215,083	)		(124	)		-			(215,412	)

Financing activities
Increase (decrease) in current maturities of long-term debt		(12,500	)		-			175			(175	)		(12,500	)
Proceeds from the issuance of Senior Notes		150,000			-			-			-			150,000
Debt issuance costs		(4,667	)		-			-			-			(4,667	)
Proceeds from stock options exercised		562			-			-			-			562
Tax benefit related to share-based plans		254			-			-			-			254
Dividends (paid) received		(1,830	)		60,464			(60,464	)		-			(1,830	)
Intercompany financing		(150,863	)		147,253			5,062			(1,452	)		-
Net cash provided (used) by financing activities		(19,044	)		207,717			(55,227	)		(1,627	)		131,819

Increase (decrease) in cash and cash equivalents		2,199			(2,859	)		(53,040	)		-			(53,700	)
Cash and cash equivalents at beginning of period		(3,657	)		9,905			73,200			-			79,448
Cash and cash equivalents at end of period	$	(1,458	)	$	7,046		$	20,160		$	-		$	25,748

($ thousands)	Parent			Guarantors		Non-Guarantors			Eliminations			Total
ASSETS
Current Assets
Cash and cash equivalents	$	(416	)	$	6,755	$	60,083		$	-		$	66,422
Receivables, net		68,247			5,394		15,431			(1,000	)		88,072
Inventories, net		66,916			301,957		2,865			(4,836	)		366,902
Other current assets		1,108			12,973		1,279			1,689			17,049
Total current assets		135,855			327,079		79,658			(4,147	)		538,445
Other assets		70,771			34,958		2,244			-			107,973
Property and equipment, net		14,595			87,158		3,502			-			105,255
Investment in subsidiaries		371,377			73,590		-			(444,967	)		-
Total assets	$	592,598		$	522,785	$	85,404		$	(449,114	)	$	751,673

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	43,000		$	-	$	1,000		$	(1,000	)	$	43,000
Trade accounts payable		10,813			73,018		17,071			-			100,902
Accrued expenses		42,658			42,207		4,398			293			89,556
Income taxes		1,454			1,686		1,409			640			5,189
Total current liabilities		97,925			116,911		23,878			(67	)		238,647
Other Liabilities
Long-term debt		100,000			-		-			-			100,000
Other liabilities		27,907			26,991		(11	)		-			54,887
Intercompany payable (receivable)		8,627			3,139		(7,686	)		(4,080	)		-
Total other liabilities		136,534			30,130		(7,697	)		(4,080	)		154,887
Shareholders’ equity		358,139			375,744		69,223			(444,967	)		358,139
Total liabilities and shareholders’ equity	$	592,598		$	522,785	$	85,404		$	(449,114	)	$	751,673

($ thousands)	Parent			Guarantors			Non-Guarantors			Eliminations			Total
Net cash provided (used) by operating activities	$	(35,465	)	$	25,515		$	6,398		$	1,638		$	(1,914	)

Investing activities
Capital expenditures		(874	)		(7,828	)		(1,072	)		-			(9,774	)
Other		115			-			-			-			115
Net cash used by investing activities		(759	)		(7,828	)		(1,072	)		-			(9,659	)

Financing activities
Increase (decrease) in current maturities of long-term debt		23,500			-			-			-			23,500
Debt issuance costs		-			-			-			-			-
Proceeds from stock options exercised		649			-			-			-			649
Dividends paid		(1,811	)		-			-			-			(1,811	)
Intercompany financing		17,008			(17,297	)		1,927			(1,638	)		-
Net cash provided (used) by financing activities		39,346			(17,297	)		1,927			(1,638	)		22,338

Increase (decrease) in cash and cash equivalents		3,122			390			7,253			-			10,765
Cash and cash equivalents at beginning of period		(3,538	)		6,365			52,830			--			55,657
Cash and cash equivalents at end of period	$	(416	)	$	6,755		$	60,083		$	-		$	66,422

Certain prior year data in “Management Discussion and Analysis of Financial Condition and Results of Operations” have been restated to correct our treatment of certain lease accounting issues. See Note 2 to the condensed consolidated financial statements for further details.

Overall, ~~the Company's third~~we are pleased with our first quarter results ~~were disappointing~~ as we posted solid gains in both net ~~earnings declined from the third quarter last year in spite of an increase in net sales.~~sales and operating earnings. Consolidated net sales rose ~~4.3%~~6.4% to ~~$514.8~~$523.3 million for the ~~third~~first quarter of fiscal ~~2004,~~2005, as compared to ~~$493.4~~$491.8 million for the ~~third~~first quarter of the prior year. Operating earnings rose 55.0% to $23.1 million in the first quarter of 2005 compared to $14.9 million in the first quarter of 2004. Net earnings were ~~$18.8~~$3.8 million, or ~~$1.01~~$0.20 per diluted share, for the ~~third~~first quarter compared to ~~$21.2~~$8.5 million, or ~~$1.13~~$0.45 per diluted share, for the ~~third~~first quarter of last year.

~~The following~~ Net earnings were negatively impacted by $9.6 million of incremental income tax expense related to the repatriation of foreign earnings and $1.0 million ($0.6 million on an after-tax basis) of interest expense related to bank commitment fees associated with the acquisition of Bennett Footwear Holdings, LLC and its subsidiaries (“Bennett”).

Following is a summary of our operating results in the first quarter of 2005 and the status of our balance sheet:

Following is a summary of the more significant factors affecting the comparability of our financial results for the first quarter of 2005 as compared to the first quarter of 2004:

During the first quarter of 2005, in connection with our acquisition of Bennett described in more detail below, we entered into a commitment letter with a lender to provide $100.0 million of short-term financing (the “Bridge Commitment”) on a senior unsecured basis. The Bridge Commitment was not utilized as a result of the issuance of the senior notes. We expensed all fees and costs associated with the Bridge Commitment, totaling $1.0 million ($0.6 million on an after-tax basis), or $0.04 per diluted share, as a component of interest expense in the first quarter of 2005.

During the first quarter of 2005, to fund a portion of the Bennett acquisition, we repatriated $60.5 million of earnings from our foreign subsidiaries under the American Jobs Creation Act of 2004. We recognized $9.6 million, or $0.51 per diluted share, of tax expense associated with the repatriation.

·	During the first quarter of 2004, we recorded $3.3 million ($2.0 million on an after-tax basis), or $0.11 per diluted share, of transition and assimilation costs related to the Bass footwear license acquired on February 2, 2004.

Announcement of Naturalizer Retail Store Closings and Related Actions

On June 6, 2005, we announced that we would be closing approximately 80 underperforming Naturalizer retail stores, of which approximately 60 are in the ~~third quarter~~United States and 20 are in Canada. We expect that these closures will be complete by April 2006. In addition, we will consolidate our Canadian retail division buying, merchandising, accounting and information services functions into the United States. We anticipate that the cost to implement this restructuring will result in expense in the range of $14 million to $17 million on a pretax basis (or $0.45 to $0.55 on a diluted per share basis) for lease buyouts, severance, and inventory markdowns. We expect that this expense will be recognized primarily over the remainder of fiscal ~~2004:~~

~~Famous Footwear's~~2005. We also anticipate that the restructuring will have an immaterial impact on cash as the costs to exit the stores and eliminate positions will be substantially offset by the cash generated from liquidating inventories carried in the stores. We believe this is a significant strategic step in improving our profitability in the Specialty Retail segment.

Acquisition of Bennett Footwear Group and Related Financing

On April 22, 2005, we completed the acquisition of Bennett for $205 million in cash, including indebtedness of Bennett repaid by us at closing of $35.7 million. The purchase price is subject to a post-closing adjustment based on net equity. In addition, the sellers may receive up to $42.5 million in contingent payments to be earned upon the achievement of certain performance targets over the next three years. The operating results of Bennett have been included in our financial statements since April 22, 2005. The acquisition of Bennett is expected to complement our portfolio of wholesale brands, which are primarily sold in the moderately priced range, by adding owned and licensed brands that sell primarily in the better and bridge footwear zones at department stores, including Via Spiga, Franco Sarto, Etienne Aigner and Nickels Soft.

To fund a portion of the acquisition, we issued $150 million aggregate principal amount of 8.75% senior notes due 2012 (“Senior Notes”). The Senior Notes are guaranteed on a senior unsecured basis by each of our subsidiaries that is an obligor under our secured Revolving Credit Agreement. Interest is payable on May 1 and November 1 of each year, beginning on November 1, 2005. The Senior Notes will mature on May 1, 2012, but are callable any time on or after May 1, 2009, at specified redemption prices plus accrued and unpaid interest. The Senior Notes also contain certain restrictive covenants.

To fund an additional portion of the acquisition, we repatriated $60.5 million of earnings from our foreign subsidiaries under the American Jobs Creation Act of 2004. We recognized $9.6 million of tax expense associated with the repatriation in the quarter ended April 30, 2005.

Net sales increased ~~3.3%~~$31.5 million, or 6.4%, to ~~$311.7~~$523.3 million in the ~~third~~first quarter of 2005 as compared to ~~$301.6 million last year. Same-store sales declined 0.4%. However, operating earnings increased to $24.8~~$491.8 million in the ~~third quarter compared to $23.4 million in the third quarter of the prior year.~~

Our Wholesale Operations segment's operating earnings declined in the third quarter to $10.4 million compared to $15.5 million in the third quarter last year. Operating earnings were negatively affected by continuing weakness in our children's business, lower sales of Naturalizer product, provisions for minimum royalty guarantees on license agreements, a higher provision for allowances to department store customers, an operating loss within the Bass division, and higher inventory markdowns.

Our Naturalizer Retail operations experienced a 0.2% increase in net sales to $49.9 million in the third quarter, compared to $49.8 million in the third quarter of the prior year. Same-store sales were down 2.8% for the quarter, reflecting overall retail weakness. As a result, we incurred an operating loss of $1.5 million in the third quarter compared to an operating loss of $0.2 million in the third quarter of the prior year.

~~As a result of our lower earnings in the third quarter, compensation costs associated with stock-based and incentive compensation plans were $8.6 million lower than last year's third quarter.~~

We maintained our strong balance sheet position. Inventories at quarter-end are $410.0 million, up from $376.6 million last year due to additional stores at Famous Footwear, higher Dr. Scholl's inventory and the addition of Bass. Our current ratio, the relationship of current assets to current liabilities, increased to 2.3 to 1 from 2.2 to 1 at year end and at the end of the third quarter of last year. Our debt-to-capital ratio, the ratio of our debt obligations to the sum of our debt obligations and shareholders' equity, at the end of the quarter increased to 26.9% from 25.8% at the end of the year-ago quarter.

~~CONSOLIDATED RESULTS~~

Thirteen Weeks Ended
Thirty-nine Weeks Ended
October 30, 2004
November 1, 2003
October 30, 2004
November 1, 2003
($ millions)
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
Net sales $
514.8

100.0%

$
493.4

100.0%
$
1,465.3

100.0%

$
1,398.3

100.0%
Cost of goods sold
306.8
59.6%
288.7
58.5%
868.6
59.3%
820.6
58.7%
Gross profit
208.0

40.4%

204.7

41.5%

596.7

40.7%

577.7

41.3%
Selling and
administrative expenses
179.7
34.9%
172.3
34.9%
540.2
36.8%
511.3
36.6%
Operating earnings
28.3

5.5%

32.4

6.6%

56.5

3.9%

66.4

4.7%
Interest expense
2.0

0.3%

2.2

0.5%

6.6

0.5%

7.7

0.5%
Interest income
(0.2
)
0.0%
(0.1
)
0.0%
(0.5
)
0.0%
(0.3
)
0.0%
Earnings before
income taxes
26.5

5.2%

30.3

6.1%

50.4

3.4%

59.0

4.2%
Income tax provision
(7.7
)
(1.5)%
(9.1
)
(1.8)%
(15.2
)
(1.0)%
(17.2
)
(1.2)%
Net earnings
$
18.8
3.7%
$
21.2
4.3%
$
35.2
2.4%
$
41.8
3.0%

~~Net Sales~~
~~Net sales increased $21.4 million, or 4.3%, to $514.8 million in the third quarter of 2004 as compared to $493.4 million in the third~~first quarter of the prior year. This increase is primarily attributable to a ~~$10.1~~$16.6 million increase at Famous Footwear and a $9.8 million increase in our Wholesale Operations segment. The improvement in the net sales of our Wholesale Operations segment were driven by the recent Bennett acquisition, which contributed $5.8 million of net sales in the ~~Bass footwear license at the beginning of fiscal 2004.~~

~~Net sales~~period.

Gross profit increased ~~$67.0~~$11.2 million, or ~~4.8%~~5.6%, to ~~$1,465.3~~$210.6 million for the first quarter of 2005 as compared to $199.4 million in the first nine months of 2004 as compared to $1,398.3 million in the first nine months of the prior year. The increase is primarily attributable to the acquisition of the Bass footwear license at the beginning of 2004, which contributed over one half of the increase. In addition, the net sales improvement was driven by sales gains within our Santana and LifeStride lines and from new Famous Footwear stores.

~~Gross Profit~~
~~Gross profit increased $3.3 million, or 1.6%, to $208.0 million for the third quarter of 2004 as compared to $204.7 million in the third~~ quarter of the prior year. As a percent of net sales, our gross profit rate decreased to ~~40.4%~~40.2% in the ~~third~~first quarter from ~~41.5%~~40.5% in the ~~third~~first quarter of the prior year as a result of ~~more aggressive promotions and pricing at Famous Footwear to capture more sales during the critical back-to-school period,~~ higher ~~provisions for allowances to our department store customers, and higher inventory~~ markdowns in our ~~wholesale operations.~~

~~Gross profit increased $19.0 million, or 3.3%,~~Specialty Retail segment, taken to $596.7 million in the first nine months of 2004 as compared to $577.7 million in the first nine months of the prior year. The overall increase in gross profit is primarily driven by the $67.0 million increase in net sales. Asclear seasonal inventory, and a percent of net sales, our gross profit rate decreased to 40.7% in the first nine months of 2004 as compared to 41.3% in the first nine months of the prior year. The decline in the gross profit rate reflects a greater mix of wholesale sales, which carry aslightly lower ~~gross~~ margin rate ~~than our retail sales, more aggressive back-to-school pricing at Famous Footwear, a higher provision for allowances to our department store customers, and higher inventory markdowns~~ in our ~~wholesale operations.~~

Wholesale Operations segment.

Selling and administrative expenses increased ~~$7.4~~$3.0 million, or ~~4.3%~~1.6%, to ~~$179.7~~$187.5 million for the ~~third~~first quarter as compared to ~~$172.3~~$184.5 million in the ~~third~~first quarter of the prior year. This increase is primarily attributable to increased selling and administrative ~~costs associated with the Bass footwear line, increased costs~~expenses related to new store openings at Famous Footwear partially offset by the non-recurrence of the Bass transition and ~~to our ongoing investments in talent, systems, and infrastructure intended to position the Company for future growth. Offsetting these factors were benefits from reduced compensation~~assimilation costs ~~associated with stock-based and incentive compensation plans of $8.6 million compared to last year.~~

~~Selling and administrative expenses increased $28.9 million, or 5.6% to $540.2~~totaling $3.3 million in the first ~~nine months~~quarter of ~~2004~~2004. As a percentage of sales, selling and administrative expenses have decreased to 35.8% from 37.5%, as ~~compared~~we have better leveraged our expense base.

Interest expense increased $0.9 million, or 37.1%, to ~~$511.3~~$3.4 million in the first nine months of the prior year. This increase is due to increased wholesale selling costs and warehousing costs, increased costs related to new store openings at Famous Footwear and transition and assimilation

costs related to the Bass footwear line of approximately $5.1 million, increased selling and administrative costs associated with the Bass footwear line, and our ongoing investments in talent, systems and infrastructure intended to position the Company for future growth. Offsetting these factors were benefits from reduced compensation costs associated with stock-based and incentive compensation plans of $9.7 million compared to last year.

~~Interest Expense~~
~~Interest expense decreased $0.2 million, or 12.2%, to $2.0 million in the third~~ quarter as compared to ~~$2.2~~$2.5 million in the ~~third~~first quarter of the prior year. The ~~decrease~~increase in interest expense is ~~due to lower interest rates. On July 21, 2004,~~a result of $1.0 million of expense for bank commitment fees incurred in funding the ~~Company amended and restated its credit agreement, which resulted in more favorable interest rates during the third quarter.~~

~~Interest expense decreased $1.1 million, or 14.1%, to $6.6 million in the first nine months~~acquisition of ~~2004 as compared to $7.7 million in the first nine months of the prior year due to more favorable interest rates.~~

Bennett.

Our consolidated effective tax rate was ~~29.0%~~81.2% in the ~~third~~first quarter of ~~2004~~2005 as compared to ~~30.0%~~31.8% in the ~~third~~first quarter of the prior ~~year, reflecting~~year. This higher tax rate reflects the $9.6 million of incremental tax expense recorded in the first quarter related to our repatriation of $60.5 million of earnings from our foreign subsidiaries to fund a ~~lower projected annual~~portion of the Bennett acquisition. Excluding the $9.6 million incremental charge, our effective tax ~~rate.~~

~~For~~rate for the first ~~nine months~~quarter was 33.7% compared to 31.8% in the first quarter of ~~2004,~~last year. This increase reflects the additional provision recorded for the additional expected repatriation in 2005.

Net earnings decreased $4.7 million, or 55.7%, to $3.8 million in the first quarter of 2005 compared to $8.5 million in the first quarter of 2004. The decrease is driven by the tax expense of $9.6 million related to our ~~consolidated effective income~~repatriation of foreign earnings and interest expense of $1.0 million ($0.7 million on an after-tax basis) related to bank commitment fees associated with funding the Bennett acquisition, partially offset by the non-recurrence of $3.3 million ($2.0 million on an after-tax basis) of transition and assimilation costs related to the acquisition of Bass footwear license recorded in the first quarter of 2004. Partially offsetting the 2005 incremental tax ~~rate was 30.1%~~and interest expenses were improved operating earnings at our Famous Footwear and Wholesale Operations segments.

Net sales increased $16.6 million, or 6.1%, to $288.7 million in the first quarter of 2005 as compared to 29.3% for the first nine months of the prior year, reflecting a greater projected annual mix of domestic income. We do not provide deferred taxes on unremitted foreign earnings, as it is our intention to reinvest those earnings indefinitely or to repatriate the earnings only when it is tax-advantageous to do so.

~~FAMOUS FOOTWEAR~~

Thirteen Weeks Ended
Thirty-nine Weeks Ended
October 30, 2004
November 1, 2003
October 30, 2004
November 1, 2004
($ millions, except per square foot)
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
Operating Results
Net sales
$
311.7

100.0%

$
301.6

100.0%

$
853.6

100.0%

$
831.6

100.0%
Cost of goods sold
174.6
56.0%
167.5
55.6%
473.7
55.5%
462.5
55.6%
Gross profit
137.1

44.0%

134.1

44.4%

379.9

44.5%

369.1

44.4%
Selling and
   administrative expenses
112.3
36.0%
110.7
36.6%
330.1
38.7%
322.2
38.8%
Operating earnings
$
24.8
8.0%
$
23.4
7.8%
$
49.8
5.8%
$
46.9
5.6%

Key Metrics
Same-store sales % change
(0.4)%

0.7%
(0.2)%
(2.5)%

Same-store sales $ change
$(1.2)

$1.9

$(1.3)

$(19.2)

Sales change from new and
   closed stores, net
$11.3

$5.2

$23.3

$17.9

Sales per square foot
$49

$48

$135

$134

Square footage
   (thousand sq. ft.)
6,394

6,274

6,394

6,274

Stores opened
16

19

54

51

Stores closed
17

20

33

61

Ending stores
914

908

914

908

~~Net Sales~~
~~Net sales increased $10.1 million, or 3.3%, to $311.7~~$272.1 million in the ~~third quarter of 2004 as compared to $301.6 million in the third~~first quarter of the prior year. This increase is attributable to higher sales from new stores ~~offset by a modest~~and the same-store sales ~~decline~~increase of ~~0.4% reflecting lower traffic counts.~~1.5%. Sales of athletic footwear were strong during the quarter; however, sandal sales have been slower than anticipated, which could result in additional markdowns. During the ~~third~~first quarter of ~~2004,~~2005, we opened 1620 new stores and closed

~~17,~~ 12, resulting in ~~914~~927 stores at the end of the ~~third~~first quarter as compared to ~~908~~897 at the end of the ~~third~~first quarter of the prior year. Sales per square foot were ~~$49, up slightly from $48 in~~$44, equal to the year ago period.

Net sales increased $22.0 million, or 2.6%, to $853.6 million in the first nine months of 2004 as compared to $831.6 million in the first nine months of the prior year. While same-store sales for the first nine months of 2004 were down 0.2% compared to the first nine months of the prior year, sales from net new stores totaled $23.3 million. We opened 54 new stores and closed 33 during the first nine months of 2004, resulting in 914 stores at the end of the third quarter.

Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. This method avoids the distorting effect that grand opening sales have in the first month of operation. Relocated stores are treated as new stores. Closed stores are excluded from the calculation. Sales change from new and closed stores, net reflects the change in net sales due to stores that have been opened or closed during the period and are thereby excluded from the same-store sales calculation.

Gross profit increased ~~$3.0~~$8.2 million, or ~~2.3%~~6.8%, to ~~$137.1~~$129.2 million in the ~~third~~first quarter of ~~2004~~2005 as compared to ~~$134.1~~$121.0 million in the ~~third~~first quarter of the prior year. As a percentage of net sales, there was a slight ~~decrease~~increase in the gross profit rate to ~~44.0%~~44.8% in the ~~third~~first quarter of ~~2004~~2005 from ~~44.4%~~44.5% in the ~~third~~first quarter of the prior year. This ~~decline~~improvement was due primarily to ~~more aggressive promotions used to drive sales during the critical back-to-school period.~~

Gross profit increased $10.8 million, or 2.9%, to $379.9 million in the first nine months of 2004 as compared to $369.1 million in the first nine months of the prior year. The gross profit increase of 2.9% is primarily attributed to the 2.6% increase in net sales. As a percent of net sales, our gross profit rate increased slightly to 44.5% in the first nine months of 2004 as compared to 44.4% in the first nine months of the prior year.

lower markdowns.

Selling and administrative expenses increased ~~$1.6~~$4.0 million, or ~~1.5%~~3.7%, to ~~$112.3~~$112.7 million for the ~~third~~first quarter of ~~2004~~2005 as compared to ~~$110.7~~$108.7 million in the ~~third~~first quarter of the prior year. This increase is primarily attributable to increased ~~marketing~~retail facilities costs ~~partially offset~~driven by ~~reduced compensation costs associated with stock-based and incentive compensation plans.~~store growth. As a percentage of net sales, selling and administrative costs decreased to ~~36.0%~~39.1% from ~~36.6%~~40.0% last year as the division ~~tightly controlled expenses.~~

~~Selling and administrative expenses~~effectively leveraged its expense base.

Operating earnings increased ~~$7.9~~$4.2 million, or ~~2.5%~~34.1%, to ~~$330.1~~$16.5 million for the first quarter of 2005 as compared to $12.3 million in the first nine months of 2004 as compared to $322.2 million in the first nine months of the prior year due to increased marketing costs and higher selling salaries, due in part to store openings during the first nine months of 2004. Reduced compensation costs associated with stock-based and incentive compensation plans partially offset the increase in selling and administrative expenses. As a percent of net sales, selling and administrative costs decreased slightly to 38.7% from 38.8% last year.

~~Operating Earnings~~
~~Operating earnings increased $1.4 million, or 5.9%, to $24.8 million for the third quarter of 2004 as compared to $23.4 million in the third~~ quarter of the prior year. This increase was driven by the ~~$10.1~~$16.6 million increase in net sales ~~partially offset by~~and the ~~decline in the~~higher gross profit rate.

~~Operating earnings~~

	Thirteen Weeks Ended
					AS RESTATED
	April 30, 2005				May 1, 2004
($ millions, except per square foot)				% of Net Sales				% of Net Sales
Operating Results
Net sales	$	53.3		100.0%	$	48.2		100.0%
Cost of goods sold		28.4		53.3%		24.1		50.1%
Gross profit		24.9		46.7%		24.1		49.9%
Selling and administrative expenses		28.4		53.3%		26.6		55.0%
Operating loss	$	(3.5	)	(6.6)%	$	(2.5	)	(5.1)%

Key Metrics
Same-store sales % change		0.1%				2.3%
Same-store sales $ change	$	0.1			$	1.0
Sales change from new and closed stores, net	$	(0.1)			$	0.1
Impact of changes in Canadian exchange rate on sales	$	1.3			$	1.4
Increase in sales of e-commerce subsidiary	$	3.8			$	1.2

Sales per square foot, excluding e-commerce subsidiary	$	76			$	75
Square footage (thousand sq. ft.)		586				578

Stores acquired upon Bennett acquisition		12				-
Stores opened		1				9
Stores closed		10				8
Ending stores		378				379

Net sales increased ~~$2.9~~$5.1 million, or ~~6.2%~~10.6%, to ~~$49.8~~$53.3 million in the first ~~nine months~~quarter of ~~2004~~2005 as compared to ~~$46.9~~$48.2 million in the first nine months of the prior year. This increase was driven by the increase in net sales and, to a lesser extent, the improvement in the gross profit rate as a percent of net sales and the reduction in selling and administrative expenses as a percent of net sales.

~~NATURALIZER RETAIL~~

Thirteen Weeks Ended
Thirty-nine Weeks Ended
October 30, 2004
November 1, 2003
October 30, 2004
November 1, 2003
($ millions, except per square foot)
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
Operating Results
Net sales
$
49.9

100.0%
$
49.8

100.0%
$
143.5

100.0%

$
142.3

100.0%
Cost of goods sold
26.0
52.1%
25.6
51.4%
75.9
52.9%
74.4
52.3%
Gross profit
23.9

47.9%

24.2

48.6%

67.6

47.1%

67.9

47.7%
Selling and
   administrative expenses
25.4
50.9%
24.4
48.9%
73.9
51.5%
70.4
49.5%
Operating loss
$
(1.5
)
(3.0)%
$
(0.2
)
(0.3)%
$
(6.3
)
(4.4)%
$
(2.5
)
(1.8)%

Key Metrics
Same-store sales % change
(2.8)%

(0.9)%

(1.6)%

(0.9)%

Same-store sales $ change
$(1.4)

$(0.3)

$(2.3)

$(1.1)

Sales change from new and
   closed stores, net
$0.5

$(2.1)

$0.8

$(11.3)

Impact of changes in
   Canadian exchange
   rate on sales
$1.0

$2.3

$2.7

$5.3

Sales per square foot
$81

$85

$236

$238

Square footage
   (thousand sq. ft.)
586

575

586

575

Stores opened
4

1

13

4

Stores transferred, net
-

-

4

-

Stores closed
3

4

14

10

Ending stores
381

383

381

383

~~Net Sales~~
~~Net sales increased $0.1 million, or 0.2%, to $49.9 million in the third quarter of 2004 as compared to $49.8 million in the third~~ quarter of the prior year. The favorable impact of the Canadian exchange rate improved net sales by ~~$1.0~~$1.3 million ~~but was offset by a same-store~~and sales ~~decline~~ of ~~2.8%~~our e-commerce subsidiary, Shoes.com, Inc., increased $3.8 million, or 135%. For our ~~Canadian~~domestic stores, same-store sales increased ~~2.4%~~1.0%, while ~~domestic~~Canadian stores experienced a same-store decline of ~~5.7%~~1.4%. During the ~~third~~first quarter of ~~2004,~~2005, we ~~opened 4 new~~acquired 12 stores with our acquisition of Bennett (8 Via Spiga retail stores and 4 leased shoe departments in department stores). We opened one new store and closed 310 resulting in ~~381~~378 stores at the end of the ~~third~~first quarter of ~~2004~~2005 as compared to ~~383~~379 at the end of the ~~third~~first quarter of the prior year. Sales per square foot ~~declined~~increased to ~~$81~~$76 from ~~$85~~$75 in the year ago period.

~~Net sales~~

Gross profit increased ~~$1.2~~$0.8 million, or ~~0.9%~~3.4%, to ~~$143.5~~$24.9 million in the first ~~nine months~~quarter of ~~2004~~2005 as compared to ~~$142.3~~$24.1 million in the first nine months of the prior year. However, same-store sales for the first nine months of 2004 declined 1.6%, led by weakness in our domestic stores. For our Canadian stores, same-store sales declined 1.6%, while domestic stores experienced a same-store decline of 1.7%. The increase in net sales is attributable to the impact of changes in the Canadian exchange rate, which improved net sales by $2.7 million during the first nine months of 2004. Sales per square foot decreased slightly to $236 for the first nine months of 2004 from $238 for the first nine months of the prior year due to lower customer traffic.

~~Gross Profit~~
~~Gross profit decreased $0.3 million, or 1.2%, to $23.9 million in the third quarter of 2004 as compared to $24.2 million in the third~~ quarter of the prior year. As a percentage of net sales, our gross profit rate declined to ~~47.9%~~46.7% in the ~~third~~first quarter from ~~48.6%~~49.9% in the year ago quarter. This decline was driven by ~~lower initial markups resulting from more promotional pricing.~~

~~Gross profit decreased $0.3 million, or 0.4%,~~higher markdowns recorded to ~~$67.6 million~~clear seasonal inventory in our stores and a relative increase in the ~~first nine months~~portion of ~~2004 as compared to $67.9 million in the first nine months of the prior year. As~~e-commerce sales, which carry a ~~percent of sales, our~~lower gross profit ~~rate decreased to 47.1% in the first nine months of 2004 as compared to 47.7% in the first nine months of the prior year, due to lower initial markups resulting from~~

15rate.

Selling and administrative expenses increased ~~$1.0~~$1.8 million, or ~~4.3%~~6.7%, to ~~$25.4~~$28.4 million for the ~~third~~first quarter of ~~2004~~2005 as compared to ~~$24.4~~$26.6 million in the ~~third~~first quarter of the prior year. Approximately ~~$0.5~~$0.7 million of the increase is due to changes in the Canadian exchange rate. The remaining ~~$0.5~~$1.1 million relates to a combination of ~~noncash asset impairment charges~~increased marketing costs and higher costs at our e-commerce subsidiary to support the sales growth.

Specialty Retail’s operating loss increased ~~consulting fees, offset by reduced compensation costs associated with incentive compensation plans.~~

~~Selling and administrative expenses increased~~to $3.5 ~~million, or 4.9%, to $73.9~~ million in the first nine months of 2004 as compared to $70.4 million in the first nine months of the prior year. Approximately $1.3 million of the increase is due to changes in the Canadian exchange rate. The remaining increase is due to a combination of increased retail facilities costs, noncash asset impairment charges and increased consulting fees, offset by reduced compensation costs associated with incentive compensation plans.

~~Operating Earnings~~
~~Naturalizer Retail's operating loss increased to $1.5 million in the third~~ quarter of ~~2004~~2005 as compared to a loss of ~~$0.2~~$2.5 million in the ~~third~~first quarter of the prior year. The higher current period loss was due to the ~~same-store sales decline,~~ lower gross profit ~~rates and higher selling and administrative expenses.~~

~~The operating loss of $6.3~~rates.

Net sales increased $9.8 million, or 5.7%, to $181.3 million in the first ~~nine months~~quarter of ~~2004 increased from an operating loss of $2.5~~2005 as compared to $171.5 million in the first ~~nine months~~quarter of the prior ~~year, due to the same-store sales decline, lower gross profit rates and the~~year. The increase in ~~selling~~sales was driven by the Bennett acquistion, which contributed $5.8 million in sales for the period. The division also experienced sales improvements in the Dr. Scholl’s, Naturalizer, LifeStride and ~~administrative expenses.~~Santana divisions, which were partially offset by declines in the Women’s private label and Bass divisions.

~~WHOLESALE OPERATIONS~~

Thirteen Weeks Ended
Thirty-nine Weeks Ended
October 30, 2004
November 1, 2003
October 30, 2004
November 1, 2003
($ millions)
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
% of
Net
Sales
Operating Results
Net sales $
148.7

100.0%
$
140.1

100.0%
$
457.1

100.0%

$
419.0

100.0%
Cost of goods sold
103.9
69.9%
94.7
67.6%
313.4
68.6%
281.2
67.1%
Gross profit
44.8

30.1%

45.4

32.4%

143.7

31.4%

137.8

32.9%
Selling and
   administrative
   expenses
34.4
23.1%
29.9
21.4%
111.6
24.4%
96.7
23.1%
Operating earnings
$
10.4
7.0%
$
15.5
11.0%
$
32.1
7.0%
$
41.1
9.8%

Key Metrics
Unfilled order position at
   End of period
$199.2

$187.9

~~Net Sales~~
~~Net sales~~

Gross profit increased ~~$8.6~~$2.2 million, or ~~6.2%~~4.1%, to ~~$148.7~~$56.5 million in the ~~third~~first quarter of ~~2004~~2005 as compared to ~~$140.1~~$54.3 million in the ~~third~~first quarter of the prior year, ~~due primarily to sales of Bass footwear. The division also experienced an~~driven by the increase ~~of 20.6%~~ in ~~its Mens & Athletics business and an increase of 19.4% in its Lifestride business~~net sales. However, as compared to the year ago quarter. These increases were offset by continued weakness in the Children's division, which declined 19.0%, and the Naturalizer business, which declined 9.8%, as compared to the year ago quarter.

Net sales increased $38.1 million, or 9.1%, to $457.1 million in the first nine months of 2004 as compared to $419.0 million in the first nine months of the prior year. This increase was primarily due to sales of Bass footwear. In addition, we have experienced solid sales gains in our Lifestride and Mens & Athletics businesses. Our Lifestride business has increased by 11.1% and our Men's and Athletics' business has posted a 4.6% sales gain. Offsetting these increases were weakness in our

~~Children's business, which experienced a 22.5% sales decline and our Naturalizer business, which experienced a 4.6% sales decline.~~

~~Gross Profit~~
~~Gross profit decreased $0.6 million, or 1.2%, to $44.8 million in the third quarter of 2004 as compared to $45.4 million in the third quarter of the prior year. As~~ a percentage of net sales, our gross profit rate declined to ~~30.1%~~31.3% in the ~~third~~first quarter from ~~32.4%~~31.7% in the ~~third~~first quarter of the prior ~~year. This~~year.This decline is primarily due to higher allowances granted to our department store customers within our Naturalizer, Bass, Dr. Scholl’s and ~~Dr. Scholl's~~Santana wholesale divisions and higher ~~markdowns~~inventory markdowns.

Selling and administrative expenses decreased $2.5 million, or ~~4.3%~~6.0%, to ~~$143.7~~$39.0 million for the first quarter of 2005 as compared to $41.5 million in the first nine months of 2004 as compared to $137.8 million in the first nine months of the prior year. As a percent of net sales, our gross profit rate decreased to 31.4% in the first nine months of 2004 as compared to 32.9% in the first nine months of the prior year. The decline in our gross profit rate is principally due to higher allowances granted to our department store customers.

~~Selling and Administrative Expenses~~
~~Selling and administrative expenses increased $4.5 million, or 15.1%, to $34.4 million for the third quarter of 2004 as compared to $29.9 million in the third~~ quarter of the prior year, due primarily to ~~increased selling~~the non-recurrence of $3.3 million of transition and ~~administrative~~assimilation costs associated with the Bass footwear ~~line. Excluding~~line, which were incurred in the first quarter of 2004. Partially offsetting these decreases were increased costs associated with ~~Bass marketing, marketing costs~~the Bennett operations of approximately $0.8 million.

Operating earnings increased ~~$2.0~~$4.7 million, or 36.7%, to $17.5 million for the first quarter of 2005 as compared to ~~the third quarter last year. Partially offsetting these increases were benefits from reduced compensation costs associated with stock-based and incentive compensation plans.~~

~~Selling and administrative expenses increased $14.9 million, or 15.4%, to $111.6~~$12.8 million in the first ~~nine months of 2004 as compared to $96.7 million in the first nine months~~quarter of the prior year. This ~~increase~~improvement is due to the increase in net sales, lower selling and administrative expenses, the addition of the Bennett operating results, which contributed $1.2 million of operating earnings during the period, and the non-recurrence of $3.3 million of transition and assimilation ~~costs related to the Bass footwear line of approximately $5.1 million and increased selling and administrative~~ costs associated with the Bass footwear ~~line. Partially offsetting these factors~~line, which were ~~benefits from reduced compensation costs associated with stock-based and incentive compensation plans.~~

~~Operating Earnings~~
Operating earnings decreased $5.1 million, or 32.9%, to $10.4 million for the third quarter of 2004 as compared to $15.5 million in the third quarter of the prior year. This decrease is due to weakness in our Children's and Naturalizer products, lower gross profit rates and the operating loss within the Bass division.

~~Operating earnings decreased $9.0 million, or 21.8%, to $32.1 million~~incurred in the first ~~nine months~~quarter of 2004 as compared to $41.1 million in the first nine months of the prior year. This decrease is due to weakness in our Children's and Naturalizer businesses, Bass transition and assimilation costs and the operating loss within the Bass division.2004.

The Other segment includes ~~our majority-owned subsidiary, Shoes.com, Inc., a footwear e-commerce company, and~~ unallocated corporate administrative and other costs.

~~Net Sales~~
~~Net sales of~~ Effective January 30, 2005, we began reporting Shoes.com, ~~increased $2.5 million to $4.5 million in~~Inc. within the ~~third quarter of 2004 as compared to $2.0 million in~~Specialty Retail segment. Shoes.com, Inc. had previously been accounted for within the third quarter of the prior year. Net sales increased $5.7 million to $11.1 million in the first nine months of 2004 as compared to $5.4 million in the first nine months of the prior year. This increase reflects continuing strong sales growth due to increased Web site traffic and improved conversion rates.

~~Operating Earnings~~
The Shoes.com business generated an operating loss of $0.2 million in the third quarter of 2004, even with the third quarter of the prior year. For the first nine months of 2004, the Shoes.com business generated an operating loss of $0.3 million compared to an operating loss of $0.5 million for the prior year. The earnings improvement is due to a favorable settlement to discontinue operation of a former affiliate's Web site of $0.5 million received in the second quarter of 2004, offset by increased warehouse and distribution expenses.

Other ~~Corporate Expenses~~
segment.

Unallocated corporate administrative and other costs were ~~$5.3~~$7.4 million in the ~~third~~first quarter of ~~2004~~2005 as compared to ~~$6.1~~$7.8 million in the ~~third~~first quarter of the prior ~~year. Corporate expenses decreased~~year, due primarily to ~~lower compensation costs~~the non-recurrence of ~~$3.7~~$0.6 million of expense associated with ~~stock-based and incentive compensation plans, partially offset by higher consulting costs related to Project ExCEL, our supply chain management improvement initiative.~~

~~For~~environmental litigation recorded in the first ~~nine months~~quarter of ~~2004, unallocated corporate administrative and other costs were $18.9~~2004.

Total debt obligations have increased by $136.5 million, or 95.5%, to $279.5 million at April 30, 2005, as compared to ~~$18.6~~$143.0 million at May 1, 2004. The increase in total debt obligation is due to the issuance of $150 million senior notes to fund a portion of the Bennett acquisition. Interest expense increased $0.9 million, or 37.1%, to $3.4 million in the first ~~nine months~~quarter of 2005 from $2.5 million in the first quarter of the prior year. The increase is attributable to both increased consulting costs associated with Project ExCEL and a charge of $0.6 million recorded in the first quarter related to pre-trial interest awarded in connection with the Redfield litigation offset by lower compensation costs of $4.3 million associated with stock-based and incentive compensation plans. For further information on the Redfield litigation, see Part II - - Item 1 - Legal Proceedings.

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Borrowings~~

($ millions)
October 30,
2004
November 1,
2003
Increase/
(Decrease)
Notes payable $ 43.5 $ 16.0 $ 27.5
Long-term debt, including current maturities 100.0 103.5 (3.5 )
Total short- and long-term debt
$
143.5
$
119.5
$
24.0

Total debt obligations have increased by $24.0 million, or 20.1%, to $143.5 million at October 30, 2004 as compared to $119.5 million at November 1, 2003. Interest expense decreased $0.3 million, or 12.2%, to $2.0 million in the third quarter of 2004 as compared to $2.3 million in the third quarter of the prior year. The reduction in interest expense ~~was~~is a result of $1.0 million of expense recorded for bank commitment fees incurred in funding the acquisition of Bennett.

To fund a portion of the Bennett acquisition, we issued $150 million aggregate principal amount 8.75% senior notes due 2012 (“Senior Notes”). The Senior Notes are guaranteed on a senior unsecured basis by each of our subsidiaries that is an obligor under our senior secured credit facility. Interest is payable on May 1 and November 1 of each year, beginning on November 1, 2005. The Senior Notes will mature on May 1, 2012, but are callable any time on or after May 1, 2009, at specified redemption prices plus accrued and unpaid interest. The Senior Notes also contain certain restrictive covenants, including, among other things, restrictions on the payment of dividends, the incurrence of additional indebtedness, the guarantee or pledge of our assets, certain investments, and our ability to ~~lower interest rates.~~

~~The Company entered into an Amended and Restated~~merge or consolidate with another entity or sell substantially all of our assets.

We have a Revolving Credit Agreement (the ~~"Agreement"~~“Agreement”) ~~effective July 21, 2004, which amended and restated its existing $350 million revolving bank credit agreement. The Agreement~~that provides for a maximum line of credit of $350 million, subject to ~~the~~a calculated borrowing base restrictions. In addition to extending the credit term, the Agreement also provides other benefits to the Company, including expanding the definition of eligible inventory in certain circumstances and reducing the interest rate spread paid on outstanding borrowings.base. Borrowing availability under the Agreement is based upon the sum of eligible accounts receivable and inventory, less outstanding borrowings, letters of credit and applicable reserves. The Agreement matures on July 21, 2009, and ~~the Company's~~our obligations are secured by ~~the Company's~~our accounts receivable and inventory. Borrowings under the Agreement bear interest at a variable rate determined based upon the level of availability under the Agreement. If availability falls below specified levels, ~~the Company~~we would then be subject to certain financial covenants. In addition, if availability falls below $25 million and the fixed charge coverage ratio is less than 1.0 to 1, ~~the Company~~we would be in default. The Agreement also contains certain other covenants and restrictions.

On March 14, 2005, we entered into the First Amendment to the Agreement to permit the acquisition of Bennett and the issuance of 8.75% Senior Notes due 2012.

At ~~October~~April 30, ~~2004, the Company~~2005, we had ~~$143.5~~$129.5 million of borrowings outstanding and ~~$12.5~~$14.3 million in letters of credit outstanding under the ~~Amended and Restated Credit~~ Agreement. Total additional borrowing availability was approximately ~~$165.5~~$203.4 million at ~~October~~April 30, ~~2004.~~

182005.

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

October 31, 2004
November 1, 2003
January 31, 2004
Working capital ($ millions) $ 321.3 $ 283.3 $ 293.8
Current ratio 2.3:1 2.2:1 2.2:1
Total debt as a percentage of total capitalization
26.9%
25.8%
25.2%

Working capital at ~~October~~April 30, ~~2004~~2005, was ~~$321.3~~$269.1 million, which was ~~$27.5~~$12.2 million ~~higher~~lower than at January ~~31, 2004~~29, 2005, and ~~$38.0~~$30.7 million ~~higher~~lower than at ~~November~~May 1, ~~2003.~~2004. The ~~improvement~~decline in our working capital is attributable to ~~growth~~a reduction in cash and cash ~~equivalents~~equivalents. In connection with our acquisition of Bennett, we repatriated $60.5 million of earnings from our foreign subsidiaries and ~~inventories as well as effective management of our outstanding debt obligations and other current liabilities.~~used this cash to partially fund the acquisition. Our current ratio, the relationship of current assets to current liabilities, ~~increased to 2.3~~remained flat at 1.8 to 1 ~~at October 30, 2004 from 2.2~~ to 1the ratio at January ~~31,~~29, 2005, and decreased from the May 1, 2004 ~~and November 1, 2003~~ratio as a result of the ~~working capital increase.~~

Bennett acquisition.

At ~~October~~April 30, ~~2004, the Company~~2005, we had ~~$74.8~~$25.7 million of cash and cash equivalents, substantially all of which represents cash and cash equivalents of our Canadian and other foreign subsidiaries. ~~Our intention is to maintain this cash within our foreign operations indefinitely or to repatriate it only when it is tax-effective to do so.~~ On October 22, 2004, the American Jobs Creation Act of 2004 (the ~~"Act"~~“Act”) was signed into law. The Act provides for a special ~~one-time~~ tax ~~reduction~~rate for certain foreign earnings that are repatriated to the United States if certain conditions are met. ~~Based on initial estimates,~~In connection with the ~~Company may be able to~~acquisition of Bennett, we repatriated $60.5 million of earnings from our foreign subsidiaries under the provisions of the Act. We anticipate that we will repatriate approximately ~~$50 - $60~~$20 million in additional foreign earnings during 2005, on which ~~would generate~~we are providing tax expense ~~of approximately $9 - - $10 million. However,~~ at ~~this time, we are evaluating~~ the ~~terms of~~expected 5.25% effective rate under the American Jobs Creation Act ~~but have made no decisions regarding repatriation, and accordingly, have not provided deferred taxes on unremitted foreign earnings.~~

~~Cash provided by operating activities was $23.9 million in the first nine months~~ of 2004 as compared to $75.6 million last year, a difference of $51.7 million. This difference primarily reflects the investment of approximately $10.8 million in Bass inventory and approximately $5.9 million of accounts receivable from sales of Bass footwear.

Cash used for investing activities was $23.7 million in the first nine months of 2004 as compared to $21.3 million last year. Investing activities primarily include capital expenditures. Our capital expenditures are relatively consistent with the prior year and are in line with our planned levels. The majority of our capital expenditures in the third quarter were used to both retrofit existing stores and open new stores in our retail divisions.

Cash provided by financing activities was $18.9 million in the first nine months of 2004 as compared to cash used for financing activities of $33.7 million last year, a difference of $52.6 million. This difference represents an increase in our short-term notes payable of $24.0 million since the beginning of the year as compared to debt reductions totaling $33.0 million in the first nine months of last year. The increase in short-term notes payable was used to fund operations, including the Bass inventory and accounts receivable as well as the related transition and assimilation costs. In connection with its Amended and Restated Credit Agreement, the Company incurred $1.3 million in debt issuance costs, whichthese current period earnings are being ~~deferred and amortized~~generated. With regard to ~~expense over~~any other accumulated unremitted foreign earnings, our intention is to reinvest these earnings indefinitely or to repatriate the ~~five-year term of the agreement.~~

earnings only when it is tax-effective to do so.

In May 2000, we announced a stock repurchase program authorizing the repurchase of up to 2 million shares of our outstanding common stock. Since the inception of this program, we have purchased a total of 928,900 shares for $11.3 million. No shares were purchased under the plan in either the first ~~nine months~~quarter of ~~2004~~2005 or during any of fiscal ~~2003.~~

192004.

We paid dividends of $0.10 per share in the ~~third~~first quarter of ~~2004~~2005 and the ~~third~~first quarter of the prior year.

No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. For further information, see Item 7 of the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended January ~~31, 2004.~~29, 2005.

This Form 10-Q contains forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These include (i) general economic conditions and the consumer's preferences and purchasing patterns, which may be influenced by consumers' disposable income; (ii) the uncertainties of currently pending litigation; (iii) intense competition within the footwear industry; ~~and~~ (iv) political and economic conditions or other threats to continued and uninterrupted flow of inventory from Brazil and China, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its ~~inventory.~~inventory; (v) the integration of the Bennett business; and (vi) the Company’s ability to successfully implement its plan to strengthen the Naturalizer brand. In Item 1 of the Company's Annual Report on Form 10-K for the year ended January ~~31, 2004,~~29, 2005, detailed risk factors that could cause variations in results to occur are listed and further described. Such description is incorporated herein by reference.

No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Item 7A of the Company's Annual Report on Form 10-K for the year ended January ~~31, 2004.~~29, 2005.

It is the Chief Executive Officer's and Chief Financial Officer's ultimate responsibility to ensure ~~the Company maintains~~we maintain disclosure controls and procedures designed to provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is identified and communicated to senior management on a timely basis. ~~The Company's~~Our disclosure controls and procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly, quarterly and annual results, an established system of internal controls and internal control reviews by ~~the Company's~~our internal auditors.

As of ~~October~~April 30, ~~2004,~~2005, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of ~~the Company's~~our disclosure controls and procedures with respect to the information generated for use in this Quarterly Report. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded ~~the Company's~~our disclosure controls were effective to provide reasonable assurance that information required to be disclosed in the reports that ~~the Company files~~we file or ~~submits~~submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. ~~There~~

During the thirteen weeks ended April 30, 2005, we effected a change in our internal control over financial reporting to remediate a material weakness related to the application of our lease accounting policies and practices that existed as of January 29, 2005. As further discussed in Note 2 of the condensed consolidated financial statements, we corrected our lease accounting practices to treat construction allowances received from landlords as lease incentives, as defined by FASB Technical Bulletin 88-1. These lease incentives are recorded as a deferred rent obligation upon receipt and amortized to income over the lease term as a reduction of rent expense. For rent holidays, we now recognize rent expense on a straight-line basis over the lease term, including any rent-free build-out periods. We have implemented additional review processes over our leasing arrangements to ensure the collection and communication of information necessary for the proper accounting for each lease in accordance with generally accepted accounting principles.

As of April 30, 2005, we are in the process of transitioning certain of our business and financial systems supporting our Wholesale Operations segment to new platforms. Implementation of the new systems necessarily involves changes to our procedures for control over financial reporting. The new systems have been and are being subjected to testing prior to and after April 30, 2005, and appropriate controls are functioning to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. We have not experienced any significant difficulties to date in connection with the implementation or operation of the new systems.

On April 22, 2005, we completed the acquisition of Bennett Footwear Group, LLC (“Bennett”). The operating results of Bennett are included in our results from April 22, 2005, to April 30, 2005. We have applied our disclosure controls and procedures to the operating results of Bennett for that period. We will continue to closely monitor and refine our internal controls over financial reporting for this division during the transition and integration period. No deficiencies have been identified at this time.

Other than as described above, there have been no changes in ~~the Company's~~our internal control over financial reporting during the quarter ended ~~October~~April 30, ~~2004,~~2005, that have materially affected, or are reasonably likely to materially affect, ~~the Company's~~our internal control over financial reporting.

It should be noted that while ~~the Company's~~our management, including the Chief Executive Officer and Chief Financial Officer, believes ~~the Company's~~our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that ~~the Company's~~our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met. Further, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and

breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraud may occur and not be detected.

We are involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position.

All legal costs associated with litigation are expensed as incurred.

We are involved in environmental remediation and ongoing compliance activities at several sites. We are remediating, under the oversight of Colorado authorities, contamination at and beneath our owned facility in Colorado (also known as the ~~"Redfield"~~“Redfield” site) and groundwater and indoor air in residential neighborhoods adjacent to and near the property, which have been affected by solvents previously used at the site and surrounding facilities.

In March 2000, a class action lawsuit was filed in Colorado State Court (District Court for the City and County of Denver) related to the Redfield site described ~~above against one of our subsidiaries, a prior operator at the site and two individuals (the Antolovich class action).~~above. Plaintiffs ~~certain current and former residents living in an area adjacent to the Redfield site,~~ alleged claims for trespass, nuisance, strict liability, unjust enrichment, negligence and exemplary damages arising from the alleged release of solvents ~~that are~~ contaminating the groundwater and indoor air in ~~certain~~the areas adjacent to and near the site. In December 2003, athe jury hearing the claims returned a verdict finding ~~one of~~ our ~~subsidiaries~~subsidiary negligent and ~~awarding~~awarded the class plaintiffs $1.0 million in damages. We ~~have~~ recorded this award along with estimated pretrial interest on the ~~cost of associated pre-trial interest~~award and ~~the~~ estimated costs ofrelated to sanctions imposed ~~on us~~ by the court ~~resulting from pre-trial~~related to a pretrial discovery ~~disputes~~dispute between the parties. ~~We have~~In the first quarter of 2005, the federal court hearing a cost recovery suit against other responsible parties approved a settlement agreement between us, our co-defendant in the class action lawsuit and an insurer which resolved all remaining sanctions issues related to the class action. Accordingly, we reversed into income $0.7 million related to accrued sanctions. The total pretax charges recorded ~~total pre-tax charges of $3.7 million~~ for these ~~matters. In April~~matters in 2004 ~~the plaintiffs filed a motion for a new trial; the court has denied that motion.~~and prior were $3.7 million. The plaintiffs have appealed the judgment to the Colorado Court of Appeals and have asked for a retrial. The Company has cross-appealed the trial court's ruling as to the amount of pre-judgment interest, and has conditionally appealed a numberfiled an appeal of the ~~trial court's rulings in~~December 2003 jury verdict, and the ~~event of a retrial. The~~ ultimate outcome and cost to us may vary.

~~We have also filed suit~~

As described above in Federal District Court in Denver against a number of former owners/operators of the Redfield site as well as surrounding businesses seeking recovery of amounts spent responding to the contamination at and around the Redfield site. We have consummated settlements with all but two of the defendants. A settlement agreement with one of the remaining defendants has been submitted to the court for approval, and“Environmental Remediation,” we have an agreement in principle to settle with the other remaining defendant. We currently do not anticipate the case will be tried. We have also filed a contribution action in Colorado State Court against the Colorado Department of Transportation, which owns and operates a facility adjacent to the Redfield site. That case is not yet set for trial.

~~We have also~~ filed suit against our insurance carriers and are seeking recovery of certain defense costs, indemnity for the costs incurred for ~~investigation and~~ remediation ofrelated to the Redfield site and for the damages awarded in the ~~Antolovich~~ class action and other ~~relief. In prior years,~~related damages.

During the fourth quarter of 2004, we recorded ~~an anticipated recovery~~a charge of ~~$4.5~~$3.5 million ~~for remediation costs, of which approximately $3.8 million is outstanding at October 30, 2004. We believe insurance coverage in place entitles us~~related to reimbursement for more than the recorded recovery. While the insurance companies are contesting their indemnity obligations, we believe the recorded recovery is supported by the fact that the limits of the insurance policies at issue exceed the amount of the recorded recovery, and certain insurance companies have made offers to settle the claim. We are unable to estimate the ultimate recovery from our ~~insurers, but are pursuing resolution of our claims.~~

We have completed our remediation efforts at our 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 20 years. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other landfills.

While we currently do not operate manufacturing facilities, prior operations included numerous manufacturing and other facilities for which we may have responsibility under various environmental laws to address conditions that may be identified in the future.

~~The Company is a guarantor~~guarantee of an Industrial Development Bond financing ~~of $3.5 million~~ for a manufacturing and warehouse facility in Bedford County, Pennsylvania. ~~The outstanding principal on this Industrial Development Bond is $3.0 million.~~ These facilities and the business that operated them were sold to another party in 1985, which assumed ~~this~~the bond obligation. ~~This financing is scheduled to be paid annually in 2005 through 2009. During October 2004, the~~The current owner of the manufacturing and warehouse facility has filed for bankruptcy protection and is ~~seeking liquidation of~~liquidating its assets. ~~Management believes the maximum amount~~Although we will pursue recovery of ~~potential future payments under this guarantee, including interest due through maturity, is $3.5 million. While~~these costs, the ultimate outcome is ~~uncertain, management believes that the fair market value~~uncertain. Accordingly, we recorded our estimate of the ~~facility is sufficient to cover~~maximum exposure, $3.5 million, as a charge in the ~~payments due~~fourth quarter of 2004. We made a payment under this guarantee of $0.7 million during the ~~Industrial Development Bond. Accordingly, the Company has not recorded any charge~~first quarter of 2005 and have an accrued liability of $2.8 million at April 30, 2005 related to this ~~guarantee.~~

~~There have been no material developments during~~matter.

During 2004 and 2003, we recorded charges of $2.7 million relating to the ~~quarter ended October 30, 2004~~insolvency of an insurance company that insured us for workers’ compensation and casualty losses from 1973 to 1989. That company is now in ~~any other legal proceedings described~~liquidation. Certain claims from that time period are still outstanding. While management has recorded its best estimate of loss, the ultimate outcome and cost to us may vary.

We are contingently liable for lease commitments of approximately $6.7 million in the ~~Company's Annual Report on Form 10-K~~aggregate, which relate to the Cloth World and Meis specialty retailing chains and a manufacturing facility, which were sold in prior years. In order for us to incur any liability related to these lease commitments, the ~~year ended January 31, 2004.~~current owners would have to default. At this time, we do not believe this is reasonably likely to occur.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~During~~

The following table provides information relating to our repurchases of common stock during the ~~third~~first quarter of ~~2004, the Company did not repurchase any shares of common stock.~~

In May 2000, the Board of Directors authorized a stock repurchase program authorizing the repurchase of up to 2 million shares of our outstanding common stock. The Company can utilize the repurchase program to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase program does not have an expiration date. Under this plan, 928,900 shares have been repurchased and the remaining availability is 1,071,100 shares as of the end of the quarter.2005.


Fiscal Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
January 30, 2005 - February 26, 2005	-		$	-		-		1,071,100

February 27, 2005 - April 2, 2005	31,380	(2)		33.60	(2)	-		1,071,100

April 3, 2005 - April 30, 2005	1,281	(2)		33.81	(2)	-		1,071,100

Total	32,661		$	33.61		-		1,071,100

Represents shares that were tendered by employees related to certain share-based awards. These shares were tendered in satisfaction of the exercise price of stock options and/or to satisfy minimum tax withholding amounts for non-qualified stock options, restricted stock and stock performance awards. Accordingly, these share purchases are not considered a part of our publicly announced stock repurchase program.

At the Annual Meeting of Shareholders held on May 26, 2005, two proposals described in the Notice of Annual Meeting of Shareholders dated April 15, 2005, were voted upon.

ITEM 5

OTHER INFORMATION

None

ITEM 6

EXHIBITS

(3)	(i)	Certificate of Incorporation of the Company incorporated herein by reference from Exhibit 3 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 4, 2002.
	(ii)	Bylaws of the Company as amended through February 5, 2004, incorporated herein by reference from Exhibit 3 (b) to the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended January 31, 2004.
(31.1)		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1)		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended~~October~~April 30, ~~2004~~2005

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________

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)


	Thirteen Weeks Ended
($ thousands, except per share data)	April 30, 2005		May 1, 2004
NUMERATOR
Net earnings	$	3,779	$	8,526

DENOMINATOR (thousand shares)
Denominator for basic net earnings per common share		18,074		17,841
Dilutive effect of unvested restricted stock and stock options		738		1,078
Denominator for diluted net earnings per common share		18,812		18,919

Basic net earnings per common share	$	0.21	$	0.48

Diluted net earnings per common share	$	0.20	$	0.45


	Thirteen Weeks Ended						Thirty-nine Weeks Ended
($ Thousands)	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003


Net earnings	$	18,820		$	21,200		$	35,201		$	41,759

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		3,580			2,448			3,488			5,707
Unrealized losses on derivative instruments		(631	)		(624	)		(743	)		(1,179	)
Net loss from derivatives reclassified into earnings		418			536			1,582			1,253
		3,367			2,360			4,327			5,781

Comprehensive income	$	22,187		$	23,560		$	39,528		$	47,540


	Thirteen Weeks Ended
($ Thousands)	April 30, 2005			May 1, 2004
Net earnings	$	3,779		$	8,526

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		(568	)		(1,310	)
Unrealized gains on derivative instruments		7			102
Net loss from derivatives reclassified into earnings		570			491
		9			(717	)
Comprehensive income	$	3,788		$	7,809

BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)
($ thousands)	October 30, 2004				November 1, 2003			January 31, 2004
Assets
Current Assets
Cash and cash equivalents	$		74,793		$	52,750		$	55,657
Receivables			74,850			64,534			81,930
Inventories			409,961			376,602			376,210
Prepaid expenses and other current assets			17,963			24,717			15,888
Total current assets			577,567			518,603			529,685

Other assets			87,928			84,056			83,692
Goodwill and intangible assets, net			20,860			20,435			20,405

Property and equipment			291,684			271,405			272,151
Allowances for depreciation and amortization			(201,944	)		(186,598	)		(186,603	)
Total property and equipment			89,740			84,807			85,548
Total assets	$		776,095		$	707,901		$	719,330

Liabilities and Shareholders' Equity
Current Liabilities
Notes payable		$	43,500		$	16,000		$	19,500
Trade accounts payable			108,617			107,894			116,677
Accrued expenses			92,291			93,613			96,707
Income taxes			11,811			14,272			2,960
Current maturities of long-term debt			-			3,500			-
Total current liabilities			256,219			235,279			235,844

Other Liabilities
Long-term debt			100,000			100,000			100,000
Other liabilities			29,550			28,317			28,358
Total other liabilities			129,550			128,317			128,358

Shareholders' Equity
Common stock			68,229			67,640			67,787
Additional capital			62,977			55,135			62,772
Unamortized value of restricted stock			(2,935	)		(2,691	)		(3,408	)
Accumulated other comprehensive loss			(607	)		(5,366	)		(4,934	)
Retained earnings			262,662			229,587			232,911
Total shareholders' equity			390,326			344,305			355,128
Total liabilities and shareholders' equity		$	776,095		$	707,901		$	719,330

	(Unaudited)
				AS RESTATED (See Note 2)
($ thousands)	April 30, 2005			May 1, 2004			January 29, 2005
Assets
Current Assets
Cash and cash equivalents	$	25,748		$	66,422		$	79,448
Receivables		112,703			88,072			97,503
Inventories		423,707			366,902			421,450
Prepaid expenses and other current assets		26,167			17,049			24,438
Total current assets		588,325			538,445			622,839

Other assets		91,488			87,751			87,427
Goodwill and intangible assets, net		195,292			20,222			21,474

Property and equipment		347,215			315,987			339,138
Allowances for depreciation and amortization		(230,184	)		(210,732	)		(224,744	)
Total property and equipment		117,031			105,255			114,394
Total assets	$	992,136		$	751,673		$	846,134

Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt	$	79,500		$	43,000		$	92,000
Trade accounts payable		123,864			100,902			143,982
Accrued expenses		103,777			89,556			98,096
Income taxes		12,064			5,189			7,437
Total current liabilities		319,205			238,647			341,515

Other Liabilities
Long-term debt		200,000			100,000			50,000
Other liabilities		79,531			54,887			63,316
Total other liabilities		279,531			154,887			113,316

Shareholders' Equity
Common stock		68,650			68,002			68,406
Additional paid-in capital		62,314			64,851			62,639
Unamortized value of restricted stock		(2,443	)		(3,648	)		(2,661	)
Accumulated other comprehensive loss		(974	)		(5,651	)		(983	)
Retained earnings		265,853			234,585			263,902
Total shareholders’ equity		393,400			358,139			391,303
Total liabilities and shareholders’ equity	$	992,136		$	751,673		$	846,134


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
($ thousands, except per share data)	October 30, 2004		November 1, 2003		October 30, 2004		November 1, 2003

NUMERATOR
Net earnings	$	18,820	$	21,200	$	35,201	$	41,759

DENOMINATOR (thousand shares)
Denominator for basic net earnings per common share		17,943		17,761		17,902		17,634
Dilutive effect of unvested restricted stock and stock options		706		937		950		900
Denominator for diluted net earnings per common share		18,649		18,698		18,852		18,534

Basic net earnings per common share	$	1.05	$	1.19	$	1.97	$	2.37

Diluted net earnings per common share	$	1.01	$	1.13	$	1.87	$	2.25


($ thousands)	Famous Footwear		Wholesale Operations		Naturalizer Retail			Other			Totals


Thirteen Weeks Ended October 30, 2004

External sales	$	311,685	$	148,696	$	49,911		$	4,533		$	514,825
Intersegment sales		414		46,786		-			-			47,200
Operating earnings (loss)		24,802		10,375		(1,491	)		(5,405	)		28,281
Operating segment assets		359,044		188,362		79,836			148,853			776,095

Thirteen Weeks Ended November 1, 2003

External sales	$	301,588	$	140,062	$	49,789		$	1,994		$	493,433
Intersegment sales		284		35,968		-			-			36,252
Operating earnings (loss)		23,427		15,460		(166	)		(6,287	)		32,434
Operating segment assets		345,000		171,986		70,669			120,246			707,901

Thirty-nine Weeks Ended October 30, 2004

External sales	$	853,620	$	457,125	$	143,507		$	11,062		$	1,465,314
Intersegment sales		1,054		121,718		-			-			122,772
Operating earnings (loss)		49,818		32,144		(6,262	)		(19,224	)		56,476

Thirty-nine Weeks Ended November 1, 2003

External sales	$	831,634	$	418,950	$	142,296		$	5,381		$	1,398,261
Intersegment sales		693		100,718		-			-			101,411
Operating earnings (loss)		46,914		41,106		(2,534	)		(19,099	)		66,387


($ millions)	Employee Severance			Inventory Markdowns			Lease Buyouts			Total
Original charge and reserve balance	$	2.3		$	1.6		$	0.6		$	4.5
Adjustments		(0.3	)		0.4			(0.1	)		-
Expenditures in quarter ending May 1, 2004		(1.8	)		(2.0	)		(0.1	)		(3.9	)
Expenditures in quarter ending July 31, 2004		(0.1	)		-			(0.2	)		(0.3	)
Expenditures in quarter ending October 30, 2004		-			-			(0.1	)		(0.1	)
Reserve balance October 30, 2004	$	0.1		$	-		$	0.1		$	0.2


	Thirteen Weeks Ended						Thirty-nine Weeks Ended
($ thousands, except per share amounts)	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003

Net earnings, as reported	$	18,820		$	21,200		$	35,201		$	41,759
Add: Total share-based employee compensation (income) expense included in reported net earnings, net of related tax effect		(1,425	)		931			(962	)		2,145
Deduct: Total share-based employee compensation expense determined under the fair value based method for all awards, net of related tax effect		618			(1,479	)		(1,396	)		(3,877	)
Pro forma net earnings	$	18,013		$	20,652		$	32,843		$	40,027
Net earnings per common share:
Basic - as reported	$	1.05		$	1.19		$	1.97		$	2.37
Basic - pro forma		1.00			1.16			1.83			2.27
Diluted - as reported		1.01			1.13			1.87			2.25
Diluted - pro forma		0.97			1.10			1.74			2.16


	Thirteen Weeks Ended
($ thousands, except per share amounts)	April 30, 2005			May 1, 2004
Net earnings, as reported	$	3,779		$	8,526
Add: Total share-based employee compensation expense included in reported net earnings, net of related tax effect		137			913
Deduct: Total share-based employee compensation expense determined under the fair value based method for all awards, net of related tax effect		(1,135	)		(1,654	)
Pro forma net earnings	$	2,781		$	7,785
Net earnings per common share:
Basic - as reported	$	0.21		$	0.48
Basic - pro forma		0.15			0.44
Diluted - as reported		0.20			0.45
Diluted - pro forma		0.15			0.41


	Pension Benefits						Other Postretirement Benefits
	Thirteen Weeks Ended						Thirteen Weeks Ended
($ thousands)	October 30, 2004			November 1, 2003			October 30, 2004			November 1, 2003

Service cost	$	1,543		$	1,318		$	-		$	-
Interest cost		2,169			2,001			65			68
Expected return on assets		(3,831	)		(3,705	)		-			-
Amortization of:
Actuarial loss (gain)		104			96			(35	)		(48	)
Prior service costs		78			78			-			(26	)
Net transition assets		-			(42	)		-			-
Total net periodic benefit cost (income)	$	63			(254	)	$	30		$	(6	)


($ millions)	April 30, 2005		May 1, 2004		Increase/ (Decrease)
Current maturities of long-term debt	$	79.5	$	43.0	$	36.5
Long-term debt, including current maturities		200.0		100.0		100.0
Total short- and long-term debt	$	279.5	$	143.0	$	136.5

	October 31, 2004	November 1, 2003	January 31, 2004

Working capital ($ millions)	$ 321.3	$ 283.3	$ 293.8

Current ratio	2.3:1	2.2:1	2.2:1

Total debt as a percentage of total capitalization	26.9%	25.8%	25.2%

Directors	For	Withheld
Ronald A. Fromm	15,891,773	1,352,671
Steven W. Korn	16,196,290	1,048,154
Patricia G. McGinnis	16,217,923	1,026,521

		BROWN SHOE COMPANY, INC.

Date: ~~December~~June 8, ~~2004~~2005		/s/ Andrew M. Rosen
		Senior Vice President and Chief Financial Officer On on Behalf of the Corporation and as the Principal Financial Officer