See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash 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, comprehensive income 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 wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions. 

The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas and Easter holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. 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. 

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings (loss) attributable to Brown Shoe Company, Inc. 

For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended February 2, 2013.

In MarchFebruary 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net earnings are presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income, but only if the amount is required under accounting principles generally accepted in the United States ("U.S. GAAP") to be reclassified to net earnings in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net earnings, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this guidance on February 3, 2013. See Note 9 to the condensed consolidated financial statements for additional information.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard provides guidance on releasing cumulative translation adjustments to net earnings when an entity ceases to have a controlling financial interest in a subsidiary or business within a foreign entity. The cumulative translation adjustments should be released only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resides. This standard is effective prospectively for reporting periods beginning after December 15, 2013. The adoption of this newly issued guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In FebruaryJuly 2013, the FASB issued ASU No. 2013-02,2013-11, Comprehensive Income: ReportingIncome Taxes (Topic 740): Presentation of Amounts Reclassified Out of Accumulated Other Comprehensive Incomean Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  , whichThis guidance requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present either onan unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss (“NOL”) carryforward, similar tax loss, or tax credit carryforward, rather than as a liability, when the face ofuncertain tax position would reduce the statement where net earnings are presentedNOL or other carryforward under the tax law. The amendments in the notes, significant amounts reclassified out of accumulated other comprehensive income, but only if the amount is required under U.S. Generally Accepted Accounting Principles ("U.S. GAAP") to be reclassified to net earnings in its entirety in the same reporting period. For other amounts that arethis ASU do not required under U.S. GAAP to be reclassified in their entirety to net earnings, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. This standardrequire new recurring financial disclosures. The guidance is effective prospectively for reportingfiscal years, and interim periods within those years, beginning after December 15, 2012.2013, with early adoption permitted. The Company adoptedadoption of this presentation guidance is not expected to have a material impact on February 3, 2013. See Note 9 to the Company’s condensed consolidated financial statements for additional information.statements.

The Company’s discontinued operations included the Avia and Nevados brands of the American Sporting Goods Corporation division, as well as the Etienne Aigner and Vera Wang brands. In aggregate, discontinued operations included $3.8$1.2 million and $24.3$25.5 million of net sales in the thirteen and twenty-sixthirty-nine week periods ended August 3,November 2, 2013, respectively. Discontinued operations included $34.4$36.2 million and $62.6$98.8 million of net sales for the thirteen and twenty-sixthirty-nine week periods ended July 28,October 27, 2012, respectively.

Discontinued operations included earnings before income taxes of $0.3 million and a loss before income taxes of $2.0 million and $11.2$10.8 million in the thirteen and twenty-sixthirty-nine week periods ended August 3,November 2, 2013, respectively. Also included inFor the thirty-nine weeks ended November 2, 2013, discontinued operations was a $1.0 million gain andalso included $11.5 million of costs associated with the Company’s impairment of net assets/disposition of discontinued operations for the thirteen and twenty-six weeks ended August 3, 2013, respectively.operations. For the thirteen and twenty-sixthirty-nine week periods ended July 28,October 27, 2012, discontinued operations included an immaterial amount of earnings before income taxes and a loss before income taxes of $7.5 million and $11.5 million, respectively.

American Sporting Goods Corporation

On May 14, 2013, Brown Shoe International Corp. (“BSIC”), the sole shareholder of American Sporting Goods Corporation, entered into and simultaneously closed a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company, BSIC and Galaxy Brand Holdings, Inc. (“the Buyer”), pursuant to which the Buyer acquired all of the outstanding capital stock of American Sporting Goods Corporation from BSIC and the Company agreed to provide certain transition services. In connection with the transaction, American Sporting Goods Corporation sold inventory to a third party unaffiliated with the Buyer and distributed certain assets to BSIC. The aggregate purchase price for the stock of American Sporting Goods Corporation and the provision of such transition services was $74.0 million, subject to working capital adjustments, minus the amount of the pre-closing cash dividend declared by American Sporting Goods Corporation and paid to BSIC, representing proceeds from American Sporting Goods Corporation’s sale of inventory.

The Company purchased American Sporting Goods Corporation, comprised of Avia, Nevados, Ryka, AND 1, and other businesses, on February 17, 2011 and subsequently sold AND 1 during fiscal 2011. The Avia and Nevados businesses were sold under the Stock Purchase Agreement and the Company retained and is operating Ryka and other businesses. In this document, “ASG” refers to the subsidiary disposed on May 14, 2013, including the Avia and Nevados brands and excluding the Ryka brand and other retained businesses.

The Company received $60.3 million in cash and a promissory note of $12.0 million at closing, from the sale of stock, the sale of inventory, and for the provision of transitional services, less working capital adjustments. The promissory note iswas due November 14, 2013, earnsearned interest at a 3% annual rate, and iswas secured by a guarantee by ASG and a lien on certain assets of ASG.  In accordance with the terms of the promissory note, the Company received a payment of $12.2 million on November 14, 2013, representing the note principal and accrued interest. 

The operations of ASG were considered held for sale as of May 4, 2013 and were classified as discontinued operations. As a result of the sale of ASG, the Company recorded an impairment charge in the first quarter of 2013 of $12.6 million ($12.6 million after-tax, $0.30 per diluted share), representing the difference in the fair value less costs to sell as compared to the carrying value of the net assets to be sold. During the second quarter of 2013, the Company recognized a gain upon disposition of the ASG subsidiary of $1.0 million ($1.0 million after tax, $0.02 per diluted share). These charges are reflected in the condensed consolidated statement of earnings as a component of discontinued operations.operations for the thirty-nine weeks ended November 2, 2013. ASG was previously included in the Wholesale Operations segment.

Etienne Aigner

During the second quarter of 2012, the Company terminated the Etienne Aigner license agreement due to a dispute with the licensor. On April 29, 2013, an agreement to resolve the dispute was reached, pursuant to which the Company agreed to pay Etienne Aigner $6.5 million. The financial results of Etienne Aigner and the $6.5 million settlement are reflected as a component of discontinued operations.  The results of Etienne Aigner were previously included in the Wholesale Operations segment.

Vera Wang

During the first quarter of 2013, the Company communicated its intention not to renew the Vera Wang license agreement. The financial results of Vera Wang are reflected as a component of discontinued operations.  The results of Vera Wang were previously included in the Wholesale Operations segment.

The detail of ASG, Etienne Aigner, and Vera Wang assets and liabilities reported as discontinued operations in the condensed consolidated balance sheet are as follows:

As part of its portfolio realignment efforts, the Company entered into an agreement to sell certain of its supply chain and sourcing assets (“Sale Agreement”) on April 30, 2013 for $9.0 million, including $1.5 million in cash and a $7.5 million promissory note, subject to working capital adjustments. The sale closed during the second quarter of 2013. The promissory note requires installments over two years with the first payment of $3.0 million due no later than 45 days from the closing date and the remaining balance payable in eight quarterly payments of $562,500,$0.6 million, subject to working capital adjustments, plus accrued interest of 5%, compounded monthly, starting no later than three months after the closing date. TheFor the thirteen and thirty-nine week periods ended November 2, 2013, the Company received $0.6 million and $3.6 million, respectively, of installment payments in accordance with the first paymentterms of $3.0 million under the promissory note during the second quarter of 2013.note. As part of the Sale Agreement, the Company agreed to purchase a minimum of four million pairs of shoes each year for the next two years at market pricing, which can be fulfilled from a defined group of facilities owned by the purchaser.  

During the first quarter of 2013, the Company recognized an impairment charge of $4.7 million ($4.7 million after tax, $0.11 per diluted share), which represented the excess net asset value over the estimated fair value of the supply chain and sourcing assets less costs to sell. During the second quarter of 2013,  the Company recognized a loss on the sale of these supply chain and sourcing assets of $0.6 million ($0.6 million after tax, $0.01 per diluted share).   The financial results of the supply chain and sourcing assets have been included in the Wholesale Operations segment as continuing operations through the date of sale.

The Company uses the two-class method to compute basic and diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders for the periodsthirteen and thirty-nine weeks ended August 3,November 2, 2013 and July 28,October 27, 2012:

Options to purchase 134,24786,247 and 1,147,160567,966 shares of common stock for the thirteen weeks and 224,153214,403 and 1,251,1311,019,565 shares of common stock for the twenty-sixthirty-nine weeks ended August 3,November 2, 2013 and July 28,October 27, 2012, respectively, were not included in the denominator for diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders because the effect would be antidilutive.anti-dilutive.

Portfolio Realignment 

The Company's portfolio realignment efforts include the sale of ASG; the sale of the AND 1 division; exiting certain women’s specialty and private label brands; exiting the children’s wholesale business; the sale and closure of sourcing and supply chain assets; closing or relocating numerous underperforming or poorly aligned retail stores; the termination of the Etienne Aigner license agreement; the election not to renew the Vera Wang license in accordance with agreement terms, and other infrastructure changes. These portfolio realignment efforts began in 2011 and will continue through 2013. The Company expects to incur an immaterial amount of additional costs during the second half of 2013 related to its portfolio realignment initiatives.are substantially complete.

The following is a summary of the Company’s portfolio realignment expense (income) for our continuing and discontinued operations: