UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended ~~November 2, 2013~~May 3, 2014

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

Commission file number: 1-2191


BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter)

New York (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)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ☑ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer ¨☑	Accelerated filer þ☐
Non-accelerated filer ¨☐	Smaller reporting company ¨☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨☐ No þ☑

As of ~~November 29, 2013, 43,176,782~~May 30, 2014, 43,678,129 common shares were outstanding.


PART I	FINANCIAL INFORMATION


ITEM 1	FINANCIAL STATEMENTS


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)						(Unaudited)
($ thousands)		November 2, 2013		October 27, 2012		February 2, 2013		May 3, 2014		May 4, 2013		February 1, 2014
Assets
Current assets
Cash and cash equivalents	$	42,406	$	40,884	$	68,223	$	36,668	$	44,669	$	82,546
Receivables, net		112,491		113,519		111,392		105,746		96,734		129,217
Inventories, net		544,589		512,206		503,688		512,811		485,923		547,531
Prepaid expenses and other current assets		52,234		30,511		42,016		37,913		43,167		33,136
Current assets – held for sale								–		12,496		–
Current assets – discontinued operations		181		56,365		47,109		–		39,159		119
Total current assets		751,901		753,485		772,428		693,138		722,148		792,549

Other assets		111,647		134,664		119,695		136,256		115,591		139,621
Goodwill		13,954		13,954		13,954		13,954		16,755		13,954
Intangible assets, net		61,227		67,265		65,749		123,796		64,241		59,719
Noncurrent assets – discontinued operations		–		54,754		54,577		–		38,673		–
Property and equipment		428,137		432,459		437,745		428,454		415,576		428,540
Allowance for depreciation		(279,955)		(292,477)		(292,889)		(286,636)		(278,277)		(284,980)
Net property and equipment		148,182		139,982		144,856		141,818		137,299		143,560
Total assets	$	1,086,911	$	1,164,104	$	1,171,259	$	1,108,962	$	1,094,707	$	1,149,403

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	–	$	110,000	$	105,000	$	–	$	66,000	$	7,000
Trade accounts payable		200,706		173,856		213,660		195,703		188,948		226,602
Other accrued expenses		151,142		145,687		137,190		141,718		118,632		152,545
Current liabilities – held for sale								–		5,306		–
Current liabilities – discontinued operations		2,110		13,935		13,259		–		16,183		708
Total current liabilities		353,958		443,478		469,109		337,421		395,069		386,855

Other liabilities
Long-term debt		198,963		198,773		198,823		199,057		198,870		199,010
Deferred rent		37,548		30,714		33,711		37,368		35,631		38,593
Other liabilities		44,483		51,999		36,719		42,345		45,435		47,583
Noncurrent liabilities – discontinued operations		–		7,203		6,996		–		6,768		–
Total other liabilities		280,994		288,689		276,249		278,770		286,704		285,186

Equity
Common stock		432		429		429		437		432		434
Additional paid-in capital		125,831		119,665		121,593		133,916		123,099		131,398
Accumulated other comprehensive (loss) income		(21)		9,856		884
Accumulated other comprehensive income								17,153		225		16,676
Retained earnings		325,059		301,188		302,223		340,567		288,434		328,191
Total Brown Shoe Company, Inc. shareholders’ equity		451,301		431,138		425,129		492,073		412,190		476,699
Noncontrolling interests		658		799		772		698		744		663
Total equity		451,959		431,937		425,901		492,771		412,934		477,362
Total liabilities and equity	$	1,086,911	$	1,164,104	$	1,171,259	$	1,108,962	$	1,094,707	$	1,149,403

See notes to condensed consolidated financial statements.


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS	CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS								CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

	(Unaudited)								(Unaudited)
	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended
	November 2,		October 27,		November 2,		October 27,		May 3,		May 4,
($ thousands, except per share amounts)	2013		2012		2013		2012		2014		2013
Net sales	$	702,788	$	695,985	$	1,913,150	$	1,859,061	$	591,162	$	588,656
Cost of goods sold		424,548		416,650		1,140,268		1,117,818		348,821		348,640
Gross profit		278,240		279,335		772,882		741,243		242,341		240,016
Selling and administrative expenses		233,572		236,196		678,522		659,377		213,615		213,879
Restructuring and other special charges, net		–		2,146		1,262		19,660		–		519
Impairment of assets held for sale		–		–		4,660		–		–		4,660
Operating earnings		44,668		40,993		88,438		62,206		28,726		20,958
Interest expense		(5,254)		(5,398)		(16,167)		(17,079)		(5,306)		(5,721)
Interest income		132		76		282		236		76		68
Earnings before income taxes from continuing operations		39,546		35,671		72,553		45,363		23,496		15,305
Income tax provision		(12,495)		(11,418)		(24,522)		(15,275)		(8,020)		(7,946)
Net earnings from continuing operations		27,051		24,253		48,031		30,088		15,476		7,359
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax (expense) benefit of ($114), $19, $6,057 and $4,565, respectively		233		34		(4,784)		(6,887)
Impairment of net assets/disposition of discontinued operations, net of $0 tax		–		–		(11,512)		–
Net earnings (loss) from discontinued operations		233		34		(16,296)		(6,887)
Net earnings		27,284		24,287		31,735		23,201
Net loss attributable to noncontrolling interests		(30)		(5)		(174)		(251)
Net earnings attributable to Brown Shoe Company, Inc.	$	27,314	$	24,292	$	31,909	$	23,452
Loss from discontinued operations, net of tax benefit of $0 and $3,583										–		(5,637)
Disposition/impairment of discontinued operations, net of $0 tax										–		(12,554)
Net loss from discontinued operations										–		(18,191)
Net earnings (loss)										15,476		(10,832)
Net earnings (loss) attributable to noncontrolling interests										47		(70)
Net earnings (loss) attributable to Brown Shoe Company, Inc.									$	15,429	$	(10,762)

Basic earnings (loss) per common share:
From continuing operations	$	0.63	$	0.57	$	1.12	$	0.71	$	0.35	$	0.18
From discontinued operations		–		–		(0.38)		(0.16)		–		(0.44)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.63	$	0.57	$	0.74	$	0.55
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders									$	0.35	$	(0.26)

Diluted earnings (loss) per common share:
From continuing operations	$	0.62	$	0.56	$	1.11	$	0.71	$	0.35	$	0.18
From discontinued operations		0.01		–		(0.38)		(0.16)		–		(0.44)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.63	$	0.56	$	0.73	$	0.55
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders									$	0.35	$	(0.26)

Dividends per common share	$	0.07	$	0.07	$	0.21	$	0.21	$	0.07	$	0.07

See notes to condensed consolidated financial statements.

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Unaudited)

Thirteen Weeks Ended

Thirty-nine Weeks Ended

November 2,

October 27,

November 2,

October 27,
($ thousands)

2013

2012

2013

2012
Net earnings
$
27,284

$
24,287

$
31,735

$
23,201
Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment

(100)

557

(1,690)

545
Pension and other post retirement benefits adjustments, net of tax of $82, $0, $252 and $0, respectively

138

–

419

–
Unrealized gains (losses) on derivative financial instruments, net of tax of $61, $240, $308 and $204, respectively

79

403

714

(487)
Net (gains) losses from derivatives reclassified into earnings, net of tax of $57, $65, $182 and $76, respectively

(111)

137

(348)

161
Other comprehensive income (loss), net of tax

6

1,097

(905)

219
Comprehensive income

27,290

25,384

30,830

23,420
Comprehensive (loss) income attributable to noncontrolling interests

(25)

2

(114)

(248)
Comprehensive income attributable to Brown Shoe Company, Inc.
$
27,315

$
25,382

$
30,944

$
23,668


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	(Unaudited)
	Thirteen Weeks Ended
	May 3,		May 4,
($ thousands)		2014		2013
Net earnings (loss)	$	15,476	$	(10,832)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		887		(690)
Pension and other post retirement benefits adjustments		(23)		145
Derivative financial instruments		(387)		(114)
Other comprehensive income (loss), net of tax		477		(659)
Comprehensive income (loss)		15,953		(11,491)
Comprehensive income (loss) attributable to noncontrolling interests		35		(28)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	15,918	$	(11,463)

See notes to condensed consolidated financial statements.


BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)				(Unaudited)
	Thirty-nine Weeks Ended				Thirteen Weeks Ended
		November 2,		October 27,		May 3,		May 4,
($ thousands)		2013		2012		2014		2013
Operating Activities
Net earnings	$	31,735	$	23,201
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings (loss)					$	15,476	$	(10,832)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation		26,645		25,076		8,484		8,803
Amortization of capitalized software		9,728		9,945		3,235		3,276
Amortization of intangible assets		4,741		5,436		988		1,726
Amortization of debt issuance costs and debt discount		1,885		1,885		628		629
Share-based compensation expense		4,066		4,776		1,555		1,617
Tax benefit related to share-based plans		(2,581)		(889)		(1,769)		(1,962)
Loss on disposal of facilities and equipment		960		2,177		319		68
Impairment charges for facilities and equipment		1,072		2,481		291		366
Impairment of assets held for sale		4,660		–		–		4,660
Impairment of intangible assets		–		5,777
Impairment of net assets/disposition of discontinued operations		11,512		–
Net loss on sale of subsidiaries		576		–
Disposition/impairment of discontinued operations						–		12,554
Deferred rent		3,837		(1,647)		(1,225)		1,920
Provision for doubtful accounts		388		398		56		307
Changes in operating assets and liabilities, net of dispositions:
Receivables		(385)		15,063		23,385		16,363
Inventories		(41,180)		22,523		35,144		17,223
Prepaid expenses and other current and noncurrent assets		(6,748)		17,852		(1,917)		653
Trade accounts payable		(12,933)		(7,213)		(31,081)		(26,561)
Accrued expenses and other liabilities		23,848		18,113		(16,694)		(1,565)
Other, net		159		(1,431)		(492)		(3,284)
Net cash provided by operating activities		61,985		143,523		36,383		25,961

Investing Activities
Purchases of property and equipment		(37,888)		(39,081)		(7,381)		(7,367)
Capitalized software		(3,715)		(5,436)		(1,245)		(1,040)
Acquisition cost		–		(5,000)
Proceeds from sale of subsidiaries, net of cash balance of $4,370		69,347		–
Net cash provided by (used for) investing activities		27,744		(49,517)
Acquisition of trademarks						(65,065)		–
Net proceeds from sale of subsidiaries						–		1,500
Net cash used for investing activities						(73,691)		(6,907)

Financing Activities
Borrowings under revolving credit agreement		966,000		582,000		251,000		383,000
Repayments under revolving credit agreement		(1,071,000)		(673,000)		(258,000)		(422,000)
Dividends paid		(9,073)		(9,007)		(3,053)		(3,027)
Issuance of common stock under share-based plans, net		(2,406)		(1,860)		(803)		(2,070)
Tax benefit related to share-based plans		2,581		889		1,769		1,962
Net cash used for financing activities		(113,898)		(100,978)		(9,087)		(42,135)
Effect of exchange rate changes on cash and cash equivalents		(1,648)		174		517		(473)
Decrease in cash and cash equivalents		(25,817)		(6,798)		(45,878)		(23,554)
Cash and cash equivalents at beginning of period		68,223		47,682		82,546		68,223
Cash and cash equivalents at end of period	$	42,406	$	40,884	$	36,668	$	44,669

See notes to condensed consolidated financial statements.

BROWN SHOE COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1

Basis of Presentation

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.~~1, 2014.

Note 2

Impact of New Accounting Pronouncements

In ~~February~~July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ~~(“ASU”~~("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 July 2013, the FASB issued ASU~~ No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance requires entities to present an 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 uncertain tax position would reduce the NOL or other carryforward under the tax law. The amendments in this ASU do not require new recurring financial disclosures. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The Company adopted this guidance on February 2, 2014 and it did not have an impact on the Company’s condensed consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU amends the definition of a discontinued operation by raising the threshold for disposals to qualify as discontinued operations and requires new disclosures for disposals of individually significant components that do not meet the new definition of a discontinued operation. Under the new guidance, discontinued operations treatment is required for disposals of a component or group of components that represent a strategic shift that has or will have a major impact on an entity’s operations or financial results. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. The adoption of this ~~presentation~~ guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.

6 In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principal that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is currently evaluating the impact of the adoption of this ASU on its condensed consolidated financial statements.

Note 3

Discontinued Operations

The Company’s discontinued operations ~~included~~include the Avia and Nevados brands of ~~the~~ American Sporting Goods ~~division,~~Corporation, as well as the Etienne Aigner and Vera Wang brands. There were no net sales or loss from discontinued operations for the thirteen weeks ended May 3, 2014. In aggregate, discontinued operations included ~~$1.2~~net sales of $20.5 million and $25.5 million of net sales in the thirteen and thirty-nine week periods ended November 2, 2013, respectively. Discontinued operations included $36.2 million and $98.8 million of net sales for the thirteen and thirty-nine week periods ended October 27, 2012, respectively.

~~Discontinued operations included earnings before income taxes of $0.3 million and a~~ loss before income taxes of ~~$10.8~~$9.2 million infor the thirteen ~~and thirty-nine week periods~~weeks ended ~~November 2, 2013, respectively.~~May 4, 2013. For the ~~thirty-nine~~thirteen weeks ended ~~November 2,~~May 4, 2013, discontinued operations also included ~~$11.5 million of costs associated with the Company’s~~ disposition/impairment of ~~net assets/disposition of discontinued operations. For the thirteen and thirty-nine week periods ended October 27, 2012,~~ discontinued operations ~~included an immaterial amount~~ of ~~earnings before income taxes and a loss before income taxes of $11.5 million, respectively.~~$12.6 million.

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 ~~was due~~matured on November 14, ~~2013, earned interest at a 3% annual rate, and was secured by a guarantee by ASG and a lien on certain assets of ASG.~~2013. 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.

~~As a result~~In anticipation 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~~The $12.6 million impairment charge is reflected as disposition/impairment of ~~2013, the Company recognized a gain upon disposition~~discontinued operations, net 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~~statements of ~~earnings as a component of discontinued operations for the thirty-nine weeks ended November 2, 2013.~~earnings. ASG was previously included in the Wholesale Operations segment. Discontinued operations include net sales and earnings before income taxes of $18.3 million and $1.2 million, respectively, for the thirteen weeks ended May 4, 2013.

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. Discontinued operations include net sales and loss before income taxes of $0.2 million and $7.0 million, respectively, for the thirteen weeks ended May 4, 2013.

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.

Discontinued operations include net sales and loss before income taxes of $2.0 million and $3.4 million, respectively, for the thirteen weeks ended May 4, 2013.

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



	May 3,		May 4,		February 1,
($ thousands)		2014		2013		2014

Assets of Discontinued Operations
Current assets
Receivables, net	$	–	$	12,166	$	–
Inventories, net		–		23,250		111
Prepaid expenses and other current assets		–		3,743		8
Current assets - discontinued operations		–		39,159		119
Other assets		–		287		–
Goodwill		–		10,295		–
Intangible assets, net		–		27,057		–
Property and equipment, net		–		1,034		–
Noncurrent assets - discontinued operations		–		38,673		–
Total assets - discontinued operations	$	–	$	77,832	$	119

Liabilities of Discontinued Operations
Current liabilities
Trade accounts payable	$	–	$	4,642	$	139
Other accrued expenses		–		11,541		569
Current liabilities - discontinued operations		–		16,183		708
Other liabilities		–		6,768		–
Noncurrent liabilities - discontinued operations		–		6,768		–
Total liabilities - discontinued operations	$	–	$	22,951	$	708

Loss from discontinued operations, net of tax for the thirteen weeks ended May 3, 2014 and May 4, 2013 is as follows:

November 2,

October 27,

February 2,
($ thousands)

2013

2012

2013

Discontinued Assets

Current assets

Receivables, net
$
73

$
25,043

$
14,291
Inventories, net

75

27,153

29,587
Prepaid expenses and other current assets

33

4,169

3,231
Total current assets

181

56,365

47,109
Other assets

–

530

419
Goodwill

–

25,650

25,650
Intangible assets, net

–

27,508

27,275
Property and equipment, net

–

1,066

1,233
Total assets
$
181

$
111,119

$
101,686

Discontinued Liabilities

Current liabilities

Trade accounts payable
$
178

$
9,566

$
9,082
Other accrued expenses

1,932

4,369

4,177
Total current liabilities

2,110

13,935

13,259
Other liabilities

–

7,203

6,996
Total liabilities
$
2,110

$
21,138

$
20,255



	Thirteen Weeks Ended
($ thousands)	May 3, 2014		May 4, 2013
Net sales	$	–	$	20,537
Cost of goods sold		–		16,630
Gross profit		–		3,907
Selling and administrative expenses		–		4,861
Restructuring and other special charges, net		–		8,286
Operating loss		–		(9,240)
Interest expense		–		(69)
Interest income		–		89
Loss before income taxes from discontinued operations		–		(9,220)
Income tax benefit		–		3,583
Loss from discontinued operations, net of tax	$	–	$	(5,637)

Note 4

~~Dispositions~~

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 $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. For 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 terms of the promissory 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.

~~Note 5~~

Earnings (Loss) Per Share

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 ~~thirteen~~periods ended May 3, 2014 and ~~thirty-nine weeks ended November 2, 2013 and October 27, 2012:~~May 4, 2013:

Thirteen Weeks Ended

Thirty-nine Weeks Ended

November 2,

October 27,

November 2,

October 27,
($ thousands, except per share amounts)

2013

2012

2013

2012
NUMERATOR

Net earnings from continuing operations
$
27,051

$
24,253

$
48,031

$
30,088
Net loss attributable to noncontrolling interests

30

5

174

251
Net earnings allocated to participating securities

(1,097)

(1,210)

(2,098)

(1,505)
Net earnings from continuing operations

25,984

23,048

46,107

28,834
Net earnings (loss) from discontinued operations

233

34

(16,296)

(6,887)
Net (earnings) loss allocated to participating securities

(9)

(2)

712

339
Net earnings (loss) from discontinued operations

224

32

(15,584)

(6,548)
Net earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities
$
26,208

$
23,080

$
30,523

$
22,286

DENOMINATOR

Denominator for basic continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders

41,447

40,745

41,288

40,618
Dilutive effect of share-based awards for continuing operations and discontinued operations

319

190

283

103
Denominator for diluted continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders

41,766

40,935

41,571

40,721

Basic earnings (loss) per common share:

From continuing operations
$
0.63

$
0.57

$
1.12

$
0.71
From discontinued operations

–

–

(0.38)

(0.16)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders
$
0.63

$
0.57

$
0.74

$
0.55

Diluted earnings (loss) per common share:

From continuing operations
$
0.62

$
0.56

$
1.11

$
0.71
From discontinued operations

0.01

–

(0.38)

(0.16)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders
$
0.63

$
0.56

$
0.73

$
0.55



	Thirteen Weeks Ended
	May 3,		May 4,
($ thousands, except per share amounts)		2014		2013
NUMERATOR
Net earnings from continuing operations	$	15,476	$	7,359
Net (earnings) loss attributable to noncontrolling interests		(47)		70
Net earnings allocated to participating securities		(592)		–
Net earnings from continuing operations		14,837		7,429
Net loss from discontinued operations		–		(18,191)
Net earnings allocated to participating securities		–		–
Net loss from discontinued operations		–		(18,191)
Net earnings (loss) attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities	$	14,837	$	(10,762)

DENOMINATOR
Denominator for basic continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders		41,887		41,070
Dilutive effect of share-based awards for continuing operations and discontinued operations		229		198
Denominator for diluted continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders		42,116		41,268

Basic earnings (loss) per common share:
From continuing operations	$	0.35	$	0.18
From discontinued operations		–		(0.44)
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.35	$	(0.26)

Diluted earnings (loss) per common share:
From continuing operations	$	0.35	$	0.18
From discontinued operations		–		(0.44)
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.35	$	(0.26)

Options to purchase ~~86,247~~74,997 and ~~567,966~~432,466 shares of common stock for the thirteen weeks ended May 3, 2014 and ~~214,403 and 1,019,565 shares of common stock for the thirty-nine weeks ended November 2,~~May 4, 2013, ~~and 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 anti-dilutive.

Note 65

Restructuring and Other Initiatives

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 are ~~substantially~~ complete.

During the first quarter of 2014, the Company incurred no expenses for portfolio realignment initiatives. The following is a summary of the Company’s portfolio realignment expense for our continuing and discontinued ~~operations:~~operations for the thirteen weeks ended May 4, 2013:

Thirteen Weeks Ended

Thirty-nine Weeks Ended
($ millions, except per share data)

Pre-tax Expense

After-tax Expense

Loss Per Diluted Share

Pre-tax Expense

After-tax Expense

Loss Per Diluted Share
November 2, 2013

Continuing Operations

    Business exits and cost reductions
$
–
$
–

$
–
$
1.2

$
0.8

$
0.02
    Non-cash impairments/dispositions

–

–

–

4.7

4.7

0.11
     Total Continuing Operations

–

–

–

5.9

5.5

0.13
Discontinued Operations

    Business exits and cost reductions

–

–

–

13.3

6.4

0.13
    Non-cash impairments/dispositions

–

–

–

11.5

11.5

0.28
     Total Discontinued Operations

–

–

–

24.8

17.9

0.41
Total
$
–
$
–

$
–
$
30.7
$
23.4

$
0.54

October 27, 2012

  Continuing Operations

    Business exits and cost reductions
$
2.3
$
1.4

$
0.04
$
18.9

$
12.4

$
0.29
    Non-cash impairments/dispositions

–

–

–

–

–

–
     Total Continuing Operations

2.3

1.4

0.04

18.9

12.4

0.29
  Discontinued Operations

    Business exits and cost reductions

0.3

0.2

–

8.1

5.0

0.12
    Non-cash impairments/dispositions

–

–

–

–

–

–
     Total Discontinued Operations

0.3

0.2

–

8.1

5.0

0.12
  Total
$
2.6
$
1.6

$
0.04
$
27.0
$
17.4

$
0.41



		Thirteen Weeks Ended
($ millions, except per share data)		Pre-tax Expense		After-tax Expense		Loss Per Diluted Share
May 4, 2013
Continuing Operations
Business exits and cost reductions	$	0.5	$	0.3	$	0.01
Non-cash impairments/dispositions		4.7		4.7		0.11
Total Continuing Operations		5.2		5.0		0.12
Discontinued Operations
Business exits and cost reductions		11.1		7.1		0.16
Non-cash impairments/dispositions		12.5		12.5		0.30
Total Discontinued Operations		23.6		19.6		0.46
Total	$	28.8	$	24.6	$	0.58

Of the $28.8 million ($24.6 million after-tax, or $0.58 per diluted share) of portfolio realignment costs incurred during the first quarter of 2013, $27.7 million is included in the Wholesale Operations segment and $1.1 million is included in the Other segment. The business exits and cost reductions of the Company’s continuing operations were recorded within restructuring and other special charges, net ~~and cost of goods sold~~ in the condensed consolidated statements of earnings. The business exits and cost reductions of the Company’s discontinued operations were recorded within ~~earnings (loss)~~loss from discontinued operations, net of tax, in the condensed consolidated statements of earnings. The non-cash impairments/dispositions of the Company’s continuing operations were recorded within impairment of assets held for sale in the condensed consolidated statements of earnings. The non-cash impairments/dispositions of the Company’s discontinued operations were recorded within disposition/impairment ~~of net assets/disposition~~ of discontinued operations, net of tax in the condensed consolidated statements of earnings. The non-cash impairments/dispositions are included in Other in the following table.

During the third quarter of 2013, no expenses for portfolio realignment were incurred. Of the $2.3 million of continuing operations costs incurred during the third quarter of 2012, $1.5 million is included in the Wholesale Operations segment, $0.4 million is included in the Famous Footwear segment, $0.3 million is included in the Specialty Retail segment, and $0.1 million is included in the Other segment.

All of the $5.9 million of expenses for portfolio realignment that were recorded in continuing operations during the thirty-nine weeks ended November 2, 2013 were included in the Wholesale Operations segment. Of the $18.9 million incurred during the thirty-nine weeks ended October 27, 2012, $7.7 million is included in the Famous Footwear segment, $6.5 million is included in the Wholesale Operations segment, $3.9 million is included in the Specialty Retail segment, and $0.8 million is included in the Other segment.

The following is a summary of the charges and settlements by category of costs:

Total by Classification
($ millions)

Employee

Markdowns and Royalty Shortfalls

Facility

Other

Total

Continuing Operations

Discontinued Operations
Reserve balance at January 28, 2012
$
5.8

$
1.6

$
1.3

$
1.3

$
10.0

$
10.0

$
–
Additional charges in 2012

6.0

3.1

11.4

9.4

29.9

21.9

8.0
Amounts settled in 2012

(10.1)

(4.5)

(9.4)

(10.4)

(34.4)

(26.6)

(7.8)
Reserve balance at February 2, 2013
$
1.7

$
0.2

$
3.3

$
0.3

$
5.5

$
5.3

$
0.2
Additional charges in first quarter 2013

0.4

3.0

0.1

25.3

28.8

5.2

23.6
Amounts settled in first quarter 2013

(1.0)

(2.8)

(0.8)

(18.2)

(22.8)

(7.0)

(15.8)
Reserve balance at May 4, 2013
$
1.1

$
0.4

$
2.6

$
7.4

$
11.5

$
3.5

$
8.0
Additional charges (recoveries) in second quarter 2013

2.3

(0.4)

–

(0.1)

1.8

0.7

1.1
Amounts settled in second quarter 2013

(1.0)

0.3

(0.6)

(7.0)

(8.3)

(1.8)

(6.5)
Reserve balance at August 3, 2013
$
2.4

$
0.3

$
2.0

$
0.3

$
5.0

$
2.4

$
2.6
Additional charges in third quarter 2013

–

–

–

–

–

–

–
Amounts settled in third quarter 2013

(0.3)

(0.3)

(0.3)

(0.3)

(1.2)

(0.4)

(0.8)
Reserve balance at November 2, 2013
$
2.1

$
–

$
1.7

$
–

$
3.8

$
2.0

$
1.8



													Total by Classification
($ millions)		Employee	Markdowns and Royalty Shortfalls				Facility			Other		Total			Continuing Operations		Discontinued Operations
Reserve balance at February 2, 2013	$	1.7	$	0.2		$	3.3		$	0.3	$	5.5		$	5.3	$	0.2
Additional charges in first quarter 2013		0.4		3.0			0.1			25.3		28.8			5.2		23.6
Amounts settled in first quarter 2013		(1.0)		(2.8)			(0.8)			(18.2)		(22.8)			(7.0)		(15.8)
Reserve balance at May 4, 2013		1.1		0.4			2.6			7.4		11.5			3.5		8.0
Additional charges (recoveries) in 2013		2.2		(0.3)			–			–		1.9			0.7		1.2
Amounts settled in 2013		(2.3)		(0.1)			(1.2)			(7.4)		(11.0)			(2.7)		(8.3)
Reserve balance at February 1, 2014	$	1.0	$	–	–	$	1.4	–	$	–	$	2.4		$	1.5	$	0.9
Additional charges in first quarter 2014		–		–			–			–		–			–		–
Amounts settled in first quarter 2014		(0.4)		–			(0.1)			–		(0.5)			(0.1)		(0.4)
Reserve balance at May 3, 2014	$	0.6	$	–		$	1.3		$	–	$	1.9		$	1.4	$	0.5

~~Integration Related Costs~~

~~During the thirty-nine weeks ended October 27, 2012,~~Sale of Sourcing and Supply Chain Assets

As part of its portfolio realignment efforts, the Company ~~incurred integration costs related~~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 ~~acquisition~~second quarter of ~~ASG~~2013. In anticipation of ~~$0.7 million ($0.4 million after-tax, or $0.01 per diluted share). These costs were recognized as earnings (loss) from discontinued operations.~~

~~Organizational Change~~

~~During the thirty-nine weeks ended October 27, 2012,~~this transaction, the Company ~~incurred costs~~classified the related assets and liabilities of ~~$2.3~~the supply chain and sourcing assets as held for sale as of May 4, 2013 on the condensed consolidated balance sheet and recognized an impairment charge in the first quarter of 2013 of $4.7 million ($~~1.4~~4.7 million ~~on an after-tax basis,~~after tax, or ~~$0.03~~$0.11 per diluted share) ~~related~~ to ~~an organizational change at~~adjust the ~~corporate headquarters. These costs were recognized~~assets to their estimated fair value. 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 $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. In accordance with the terms of the promissory note, as ~~restructuring and other special charges, net and included in~~of May 3, 2014, the ~~Other segment.~~Company has received a total of $4.8 million of installment payments. As part of the Sale Agreement, the Company agreed to

purchase a minimum of four million pairs of shoes each year for two years following the closing date at market pricing, which can be fulfilled from a group of facilities owned by the purchaser.

Note 76

Business Segment Information

~~Applicable~~Following is a summary of certain key financial measures for the Company’s business ~~segment information is as follows~~segments for the periods ended ~~November 2, 2013~~May 3, 2014 and ~~October 27, 2012:~~May 4, 2013. All financial measures below exclude discontinued operations.



		Famous		Wholesale		Specialty						Famous		Wholesale		Specialty
($ thousands)		Footwear		Operations		Retail		Other		Total		Footwear		Operations		Retail		Other		Total

Thirteen Weeks Ended November 2, 2013
Thirteen Weeks Ended May 3, 2014											Thirteen Weeks Ended May 3, 2014
External sales	$	439,605	$	205,269	$	57,914	$	–	$	702,788	$	354,623	$	191,785	$	44,754	$	–	$	591,162
Intersegment sales		543		51,343		–		–		51,886		505		31,980		–		–		32,485
Operating earnings (loss)		37,047		16,782		221		(9,382)		44,668		27,871		13,754		(3,692)		(9,207)		28,726
Segment assets - continuing operations		485,217		379,249		93,747		128,517		1,086,730		503,239		414,778		57,139		133,806		1,108,962

Thirteen Weeks Ended October 27, 2012
Thirteen Weeks Ended May 4, 2013
External sales	$	436,812	$	196,371	$	62,802	$	–	$	695,985	$	352,279	$	181,625	$	54,752	$	–	$	588,656
Intersegment sales		505		57,848		–		–		58,353		606		36,729		–		–		37,335
Operating earnings (loss)		35,525		15,169		1,771		(11,472)		40,993		29,042		3,107		(1,329)		(9,862)		20,958
Segment assets - continuing operations		462,904		387,720		59,805		142,556		1,052,985		450,900		356,903		60,685		135,891		1,004,379

Thirty-nine Weeks Ended November 2, 2013
External sales	$	1,180,143	$	567,334	$	165,673	$	–	$	1,913,150
Intersegment sales		1,753		152,276		–		–		154,029
Operating earnings (loss)		95,057		28,085		(2,934)		(31,770)		88,438

Thirty-nine Weeks Ended October 27, 2012
External sales	$	1,134,237	$	551,896	$	172,928	$	–	$	1,859,061
Intersegment sales		1,529		159,641		–		–		161,170
Operating earnings (loss)		74,365		25,833		(7,551)		(30,441)		62,206
Segment assets - held for sale												–		12,496		–		–		12,496

The Other segment includes corporate assets, administrative expenses, and other costs and recoveries, which are not allocated to the operating segments.

Following is a reconciliation of operating earnings to earnings before income taxes from continuing operations:



	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended
	November 2,		October 27,		November 2,		October 27,		May 3,		May 4,
($ thousands)		2013		2012		2013		2012		2014		2013
Operating earnings	$	44,668	$	40,993	$	88,438	$	62,206	$	28,726	$	20,958
Interest expense		(5,254)		(5,398)		(16,167)		(17,079)		(5,306)		(5,721)
Interest income		132		76		282		236		76		68
Earnings before income taxes from continuing operations	$	39,546	$	35,671	$	72,553	$	45,363	$	23,496	$	15,305

Note 87

Goodwill and Intangible Assets

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



	November 2,		October 27,		February 2,		May 3,		May 4,		February 1,
($ thousands)		2013		2012		2013		2014		2013		2014

Intangible Assets
Famous Footwear	$	2,800	$	2,800	$	2,800	$	2,800	$	2,800	$	2,800
Wholesale Operations		118,003		118,003		118,003		183,068		118,003		118,003
Specialty Retail		200		200		200		200		200		200
Total intangible assets		121,003		121,003		121,003		186,068		121,003		121,003
Accumulated amortization		(59,776)		(53,738)		(55,254)		(62,272)		(56,762)		(61,284)
Total intangible assets, net		61,227		67,265		65,749		123,796		64,241		59,719
Goodwill
Wholesale Operations		13,954		13,954		13,954		13,954		16,755		13,954
Total goodwill		13,954		13,954		13,954		13,954		16,755		13,954
Goodwill and intangible assets, net	$	75,181	$	81,219	$	79,703	$	137,750	$	80,996	$	73,673

Intangible assets consist primarily of owned and licensed trademarks, of $21.0 million as of ~~November 2, 2013, October 27, 2012, and February 2, 2013~~which are not subject to ~~amortization. All remaining intangible assets, primarily owned and licensed trademarks, are subject to~~ amortization, ~~and have~~with the remainder being amortized over useful lives ranging from four to 2040 years as of ~~November 2, 2013.~~May 3, 2014. Amortization expense related to intangible assets was ~~$1.5~~$1.0 million and $1.7 million for the thirteen weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013, respectively.

On February 3, 2014, the Company entered into and ~~October 27, 2012~~simultaneously closed an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which the Company acquired the Franco Sarto trademarks. As consideration, the Company agreed to pay a cash purchase price of $65.0 million, which was paid at the time of closing. As a result of entering into and ~~$4.5~~closing the Asset Purchase Agreement, the Company’s license agreement, granting the Company the right to sell footwear and other products using the Franco Sarto trademarks through 2019, was terminated. The purchase price of $65.0 million, ~~and $4.6~~as well as transaction costs of $0.1 million, ~~for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, respectively.~~will be amortized over its useful life of 40 years.

Note 98

Shareholders’ Equity

The following tables set forth the changes in Brown Shoe Company, Inc. shareholders’ equity and noncontrolling interests for the ~~thirty-nine~~thirteen weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013, ~~and October 27, 2012,~~ respectively:

($ thousands)
Brown Shoe Company, Inc. Shareholders’ Equity

Noncontrolling Interests

Total Equity
Equity at February 2, 2013
$
425,129

$
772

$
425,901
Net earnings (loss)

31,909

(174)

31,735
Other comprehensive (loss) income

(905)

60

(845)
Dividends paid

(9,073)

–

(9,073)
Issuance of common stock under share-based plans, net

(2,406)

–

(2,406)
Tax benefit related to share-based plans

2,581

–

2,581
Share-based compensation expense

4,066

–

4,066
Equity at November 2, 2013
$
451,301

$
658

$
451,959

($ thousands)
Brown Shoe Company, Inc. Shareholders’ Equity

Noncontrolling Interests

Total Equity
Equity at January 28, 2012
$
412,669

$
1,047

$
413,716
Net earnings (loss)

23,452

(251)

23,201
Other comprehensive income

219

3

222
Dividends paid

(9,007)

–

(9,007)
Issuance of common stock under share-based plans, net

(1,860)

–

(1,860)
Tax benefit related to share-based plans

889

–

889
Share-based compensation expense

4,776

–

4,776
Equity at October 27, 2012
$
431,138

$
799

$
431,937



($ thousands)	Brown Shoe Company, Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
Equity at February 1, 2014	$	476,699	$	663	$	477,362
Net earnings		15,429		47		15,476
Other comprehensive income (loss)		477		(12)		465
Dividends paid		(3,053)		–		(3,053)
Issuance of common stock under share-based plans, net		(803)		–		(803)
Tax benefit related to share-based plans		1,769		–		1,769
Share-based compensation expense		1,555		–		1,555
Equity at May 3, 2014	$	492,073	$	698	$	492,771



($ thousands)	Brown Shoe Company, Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
Equity at February 2, 2013	$	425,129	$	772	$	425,901
Net loss		(10,762)		(70)		(10,832)
Other comprehensive (loss) income		(659)		42		(617)
Dividends paid		(3,027)		–		(3,027)
Issuance of common stock under share-based plans, net		(2,070)		–		(2,070)
Tax benefit related to share-based plans		1,962		–		1,962
Share-based compensation expense		1,617		–		1,617
Equity at May 4, 2013	$	412,190	$	744	$	412,934

Accumulated Other Comprehensive ~~(Loss)~~ Income

The following table sets forth the changes in accumulated other comprehensive ~~(loss)~~ income by component for the thirteen ~~and thirty-nine~~ weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013:

Accumulated

Accumulated

Accumulated

Other

Currency

Derivative

Postretirement

Comprehensive
($ thousands)
Translation

Transactions

Transactions

(Loss) Income
Balance August 3, 2013
$
5,322

$
317

$
(5,666)

$
(27)
Other comprehensive (loss) income before reclassifications

(100)

79

–

(21)
Amounts reclassified from accumulated other comprehensive (loss) income

–

(111)

138

27
Other comprehensive (loss) income

(100)

(32)

138

6
Balance November 2, 2013
$
5,222

$
285

$
(5,528)

$
(21)

Balance February 2, 2013

6,912

(81)

(5,947)

884
Other comprehensive (loss) income before reclassifications

(1,690)

714

–

(976)
Amounts reclassified from accumulated other comprehensive (loss) income

–

(348)

419

71
Other comprehensive (loss) income

(1,690)

366

419

(905)
Balance November 2, 2013
$
5,222

$
285

$
(5,528)

$
(21)



							Accumulated
	Foreign				Pension and Other		Other
	Currency		Derivative		Postretirement		Comprehensive
($ thousands)	Translation		Transactions		Transactions		Income (Loss)
Balance February 1, 2014	$	2,356	$	738	$	13,582	$	16,676
Other comprehensive income (loss) before reclassifications		887		(333)		–		554
Amounts reclassified from accumulated other comprehensive income		–		(54)		(23)		(77)
Other comprehensive income (loss)		887		(387)		(23)		477
Balance May 3, 2014	$	3,243	$	351	$	13,559	$	17,153

Balance February 2, 2013	$	6,912	$	(81)	$	(5,947)	$	884
Other comprehensive loss before reclassifications		(690)		(27)		–		(717)
Amounts reclassified from accumulated other comprehensive income		–		(87)		145		58
Other comprehensive (loss) income		(690)		(114)		145		(659)
Balance May 4, 2013	$	6,222	$	(195)	$	(5,802)	$	225

The following table sets forth the reclassifications out of accumulated other comprehensive ~~(loss)~~ income and the related tax effect by component for the thirteen ~~and thirty-nine~~ weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013:

Thirteen Weeks Ended November 2, 2013

Derivative

Postretirement

Tax

($ thousands)

Transactions

Transactions

Effect

Total

Net gains from derivative financial instruments
$
(168)

$
–

$
57

$
(111)

Pension and other postretirement benefits actuarial loss

–

216

(81)

135

Pension benefits prior service expense

–

4

(1)

3

$
(168)

$
220

$
(25)

$
27

Thirty-nine Weeks Ended November 2, 2013

Derivative

Postretirement

Tax

($ thousands)

Transactions

Transactions

Effect

Total

Net gains from derivative financial instruments
$
(530)

$
–

$
182

$
(348)

Pension and other postretirement benefits actuarial loss

–

661

(249)

412

Pension benefits prior service expense

–

10

(3)

7

$
(530)

$
671

$
(70)

$
71


		Amounts Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the
		Thirteen Weeks Ended			Condensed Consolidated
($ thousands)		May 3, 2014		May 4, 2013	Statements of Earnings
Net gains from derivative financial instruments (1)	$	(78)	$	(132)	Costs of goods sold and selling and administrative expenses
Tax provision		24		45	Income tax provision
Net gains from derivative financial instruments, net of tax		(54)		(87)

Pension and other postretirement benefits actuarial (gain) loss (2)		(50)		228	Selling and administrative expenses
Pension benefits prior service expense (2)		8		2	Selling and administrative expenses
Pension and other postretirement benefits adjustments		(42)		230
Tax provision (benefit)		19		(85)	Income tax provision
Pension and other postretirement benefits adjustments, net of tax		(23)		145
Amounts reclassified from accumulated other comprehensive income	$	(77)	$	58

(1)

~~Reclassifications related to pension and other postretirement benefits impacted selling and administrative expenses on the condensed consolidated statement of earnings.~~ See Note 11 and 12 to the condensed consolidated financial statements for additional information related to derivative financial instruments.

(2)

See Note 10 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits.


Note 109	Share-Based Compensation

The Company recognized share-based compensation expense of ~~$1.1~~$1.6 million ~~and $1.5 million during~~for both the thirteen weeks ended May 3, 2014 and ~~$4.1 million and $4.8 million during the thirty-nine weeks ended November 2, 2013 and October 27, 2012, respectively.~~May 4, 2013.

The Company issued ~~54,369~~452,125 shares of common stock during the thirteen weeks ended ~~November 2, 2013~~May 3, 2014 for restricted stock grants, stock options exercised, and directors’ fees. The Company issued 698,580 shares of common stock during the thirty-nine weeks ended November 2, 2013 for restricted stock grants, stock performance awards, stock options exercised, and directors’ fees. During the thirteen and thirty-nine weeks ended November 2, 2013, the Company cancelled restricted stock awards of 65,750 and 150,250 shares, respectively, as a result of forfeitures.

During the ~~third quarter of 2013,~~thirteen weeks ended May 3, 2014, the Company granted ~~12,300~~270,910 restricted shares to certain employees with a weighted-average grant date fair value of ~~$22.90. The~~$28.18. Of the 270,910 restricted shares, 269,110 restricted shares will vest in four years and share-based compensation expense will be recognized on a straight-line basis over the four-year period. The remaining 1,800 restricted shares will vest in one year. During the thirteen weeks ended May 3, 2014, the Company did not cancel any restricted stock awards as a result of forfeitures.

The Company granted 88,185 performance share units during the thirteen weeks ended May 3, 2014 with a weighted-average grant date fair value of $28.18. Vesting of performance-based units is dependent upon the financial performance of the Company and the attainment of certain financial goals during the next three years. Performance share units are settled in cash based on the Company’s stock price upon payout. The performance share units may pay out at a maximum of 200% of the target number of units. Compensation expense is being recognized based on the fair value of the award and the anticipated number of units to be awarded in accordance with the vesting schedule of the units over the three-year service period. The performance share units are settled in cash and their value is dependent upon the Company’s stock price. As a result, these performance share units are adjusted each period based on the quoted market price for the Company’s common stock.

The Company also granted ~~1,023~~910 restricted stock units for dividend equivalents on previously granted restricted stock units to non-employee directors with a weighted-average grant date fair value of ~~$23.57~~$26.63 during the ~~third quarter of 2013.~~thirteen weeks ended May 3, 2014. All restricted stock units granted during the ~~third quarter of 2013~~thirteen weeks ended May 3, 2014 vested immediately as of the payment date for the dividend.

Note 1110

Retirement and Other Benefit Plans

The following tables set forth the components of net periodic benefit cost (income) ~~cost~~ for the Company, including domestic and Canadian plans:

Pension Benefits

Other Postretirement Benefits

Thirteen Weeks Ended

Thirteen Weeks Ended

November 2,
October 27,

November 2,
October 27,
($ thousands)

2013

2012

2013

2012
Service cost
$
2,583
$
2,845

$
–
$
–
Interest cost

3,305

3,182

35

36
Expected return on assets

(6,200)

(6,266)

–

–
Amortization of:

Actuarial loss (gain)

238

41

(20)

(23)
Prior service expense

4

4

–

–
Net transition asset

–

(11)

–

–
Total net periodic benefit (income) cost
$
(70)
$
(205)

$
15
$
13



	Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits
	Thirty-nine Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended				Thirteen Weeks Ended
	November 2,		October 27,		November 2,		October 27,		May 3,		May 4,		May 3,		May 4,
($ thousands)		2013		2012		2013		2012		2014		2013		2014		2013
Service cost	$	8,057	$	8,675	$	–	$	–	$	2,587	$	2,891	$	–	$	–
Interest cost		9,940		9,546		105		112		3,556		3,331		13		35
Expected return on assets		(18,576)		(18,806)		–		–		(6,184)		(6,179)		–		–
Amortization of:
Actuarial loss (gain)		723		166		(60)		(59)		35		248		(85)		(20)
Prior service expense		10		8		–		–		8		2		–		–
Net transition asset		–		(33)		–		–
Total net periodic benefit cost (income)	$	154	$	(444)	$	45	$	53	$	2	$	293	$	(72)	$	15

Note 1211

Risk Management and Derivatives

In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities, and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.

Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major financial institutions and have varying maturities through ~~October 2014.~~May 2015. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The Company principally uses foreign currency forward contracts as cash flow hedges to offset a portion of the effects of exchange rate fluctuations. The Company’s cash flow exposures include anticipated foreign currency transactions, such as foreign currency denominated sales, costs, expenses, intercompany charges, as well as collections and payments. The Company performs a quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any hedge ineffectiveness in the condensed consolidated statement of earnings. Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion of the hedge is reported in the Company’s condensed consolidated statement of earnings. The amount of hedge ineffectiveness for the thirteen ~~and thirty-nine~~ weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013 ~~and October 27, 2012~~ was not material.

The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s condensed consolidated balance sheet at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive ~~(loss)~~ income and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

As of ~~November 2,~~May 3, 2014, May 4, 2013, ~~October 27, 2012,~~ and February ~~2, 2013,~~1, 2014, the Company had forward contracts maturing at various dates through ~~October~~May 2015, May 2014, ~~November 2013,~~ and January ~~2014,~~2015, respectively. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.

Contract Amount
(U.S. $ equivalent in thousands)
November 2, 2013

October 27, 2012

February 2, 2013
Financial Instruments

U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
$
18,024

$
19,427

$
18,442
Chinese yuan

14,860

22,193

15,544
Euro

8,729

4,784

3,459
Japanese yen

1,657

1,563

1,665
New Taiwanese dollars

633

935

734
Great Britain pounds sterling

–

211

63
Other currencies

739

853

729
Total financial instruments
$
44,642

$
49,966

$
40,636



	Contract Amount
(U.S. $ equivalent in thousands)	May 3, 2014		May 4, 2013		February 1, 2014
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	22,369	$	17,869	$	20,197
Chinese yuan		14,386		15,460		15,278
Euro		14,284		6,080		11,270
Japanese yen		1,625		1,500		1,586
Other currencies		1,318		1,407		1,345
Total financial instruments	$	53,982	$	42,316	$	49,676

The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance ~~sheet~~sheets as of ~~November 2,~~May 3, 2014, May 4, 2013, ~~October 27, 2012,~~ and February ~~2, 2013~~1, 2014 are as follows:

Asset Derivatives

Liability Derivatives
($ thousands)
Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign exchange forward contracts:

November 2, 2013
Prepaid expenses and other current assets

$
417

Other accrued expenses

$
184

October 27, 2012
Prepaid expenses and other current assets

189

Other accrued expenses

438

February 2, 2013
Prepaid expenses and other current assets

380

Other accrued expenses

373



	Asset Derivatives			Liability Derivatives
($ thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Foreign exchange forward contracts:

May 3, 2014	Prepaid expenses and other current assets	$	446	Other accrued expenses	$	364

May 4, 2013	Prepaid expenses and other current assets		181	Other accrued expenses		477

February 1, 2014	Prepaid expenses and other current assets		1,056	Other accrued expenses		222

For the thirteen weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013, ~~and October 27, 2012,~~ the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:



	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirteen Weeks Ended				Thirteen Weeks Ended
($ thousands)	November 2, 2013				October 27, 2012				May 3, 2014				May 4, 2013
Foreign exchange forward contracts: Income Statement Classification Gains (Losses) - Realized		Gain (Loss) Recognized in OCI on Derivatives		Gain Reclassified from Accumulated OCI into Earnings		Gain Recognized in OCI on Derivatives		(Loss) Gain Reclassified from Accumulated OCI into Earnings
Foreign exchange forward contracts: Income Statement Classification (Losses) Gains - Realized										(Loss) Gain Recognized in OCI on Derivatives		Gain Reclassified from Accumulated OCI into Earnings		Gain (Loss) Recognized in OCI on Derivatives		Gain Reclassified from Accumulated OCI into Earnings

Net sales	$	161	$	59	$	16	$	(26)	$	(7)	$	13	$	9	$	54
Cost of goods sold		(163)		24		204		(187)		19		53		85		21
Selling and administrative expenses		145		85		423		11		(456)		12		(158)		57
Interest expense		(3)		–		–		–		(11)		–		1		–

Thirty-nine Weeks Ended

Thirty-nine Weeks Ended
($ in thousands)
November 2, 2013

October 27, 2012
Foreign exchange forward contracts:
Income Statement Classification Gains (Losses) - Realized

Gain Recognized in OCI on Derivatives

Gain Reclassified from Accumulated OCI into Earnings

Gain (Loss) Recognized in OCI on Derivatives

(Loss) Gain Reclassified from Accumulated OCI into Earnings

Net sales
$
278
$
207

$
37
$
(12)
Cost of goods sold

382

51

(672)

(265)
Selling and administrative expenses

354

272

(49)

40
Interest expense

8

–

(7)

–

All gains and losses currently included within accumulated other comprehensive ~~(loss)~~ income associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 1312 to the condensed consolidated financial statements.


Note 1312	Fair Value Measurements

Fair Value Hierarchy

FASB guidance on fair value measurements and disclosures specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Measurement of Fair Value

The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.

Money Market Funds

The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations. The Company does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).

Deferred Compensation Plan Assets and Liabilities

The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participant generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified as trading securities within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).

Deferred Compensation Plan for Non-Employee Directors

Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs that is equal to the number of shares of the Company’s common stock which the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. When the participating director terminates his or her service as a director, the Company will pay the cash value of the deferred compensation to the director (or to the designated beneficiary in the event of death) in annual installments over a five-year or ten-year period, or in a lump sum, at the director’s election. The cash amount payable will be based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair market value at fiscal quarter-end on or following termination of the director’s service and calculated based on the mean of the high and low price of an equivalent number of shares of the Company’s common stock on the last trading day of the fiscal quarter. The plan also provides for earlier payment of a participating director’s account if the board determines that the participant has a demonstrated financial hardship. The accounts of participants continue to earn dividend equivalents on the account balance. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are ~~reported~~presented in selling and administrative expenses in the Company’s condensed consolidated statement of earnings. The fair value of ~~the liabilities~~each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).

Restricted Stock Units for Non-Employee Directors

Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company may be granted at no cost to non-employee directors. The RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent

units, and are settled in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each RSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). Additional information related to restricted stock units for non-employee directors is disclosed in Note 9 to the condensed consolidated financial statements.

Performance Share Units

Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period at no cost to certain officers and key employees if certain financial goals are met. Under the plan, employees are granted performance share awards at a target number of shares or units, which generally vest over a three-year service period. At the end of the vesting period, the employee will have earned an amount of shares or units between 0% and 200% of the targeted award, depending on the achievement of specified financial goals for the service period. Each of the Company’s current unvested performance share awards utilize performance share units, which are settled in cash, rather than common stock. The fair value of each performance share unit is based on an unadjusted quoted market price of the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). Additional information related to performance share units is disclosed in Note 9 to the condensed consolidated financial statements.

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments are disclosed within Note 1211 to the condensed consolidated financial statements.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at ~~November 2,~~May 3, 2014, May 4, 2013, ~~October 27, 2012,~~ and February ~~2, 2013.~~1, 2014. The Company did not have any transfers between Level 1 and Level 2 during ~~2012~~2013 or the ~~thirty-nine~~thirteen weeks ended ~~November 2, 2013.~~

Fair Value Measurements
($ thousands)

Total

Level 1

Level 2

Level 3

Asset (Liability)

As of November 2, 2013

Cash equivalents – money market funds
$
4,472

$
4,472

$
–

$
–

Non-qualified deferred compensation plan assets

2,081

2,081

–

–

Non-qualified deferred compensation plan liabilities

(2,081)

(2,081)

–

–

Deferred compensation plan liabilities for non-employee directors

(1,565)

(1,565)

–

–

Derivative financial instruments, net

233

–

233

–

As of October 27, 2012

Cash equivalents – money market funds
$
3,092

$
3,092

$
–

$
–

Non-qualified deferred compensation plan assets

1,272

1,272

–

–

Non-qualified deferred compensation plan liabilities

(1,272)

(1,272)

–

–

Deferred compensation plan liabilities for non-employee directors

(1,022)

(1,022)

–

–

Derivative financial instruments, net

(249)

–

(249)

–

As of February 2, 2013:

Cash equivalents – money market funds
$
27,223

$
27,223

$
–

$
–

Non-qualified deferred compensation plan assets

1,411

1,411

–

–

Non-qualified deferred compensation plan liabilities

(1,411)

(1,411)

–

–

Deferred compensation plan liabilities for non-employee directors

(1,139)

(1,139)

–

–

Derivative financial instruments, net

7

–

7

–

May 3, 2014.



			Fair Value Measurements
($ thousands)		Total		Level 1		Level 2		Level 3
Asset (Liability)

As of May 3, 2014:
Cash equivalents – money market funds	$	24	$	24	$	–	$	–
Non-qualified deferred compensation plan assets		2,687		2,687		–		–
Non-qualified deferred compensation plan liabilities		(2,687)		(2,687)		–		–
Deferred compensation plan liabilities for non-employee directors		(1,697)		(1,697)		–		–
Restricted stock units for non-employee directors		(8,182)		(8,182)		–		–
Performance share units		(507)		(507)		–		–
Derivative financial instruments, net		82		–		82		–

As of May 4, 2013:
Cash equivalents – money market funds	$	6,505	$	6,505	$	–	$	–
Non-qualified deferred compensation plan assets		1,692		1,692		–		–
Non-qualified deferred compensation plan liabilities		(1,692)		(1,692)		–		–
Deferred compensation plan liabilities for non-employee directors		(1,170)		(1,170)		–		–
Restricted stock units for non-employee directors		(5,064)		(5,064)		–		–
Performance share units		(744)		(744)		–		–
Derivative financial instruments, net		(296)		–		(296)		–

As of February 1, 2014:
Cash equivalents – money market funds	$	41,236	$	41,236	$	–	$	–
Non-qualified deferred compensation plan assets		2,191		2,191		–		–
Non-qualified deferred compensation plan liabilities		(2,191)		(2,191)		–		–
Deferred compensation plan liabilities for non-employee directors		(1,668)		(1,668)		–		–
Restricted stock units for non-employee directors		(7,769)		(7,769)		–		–
Performance share units		(2,300)		(2,300)		–		–
Derivative financial instruments, net		834		–		834		–

Impairment Charges

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC 820, Fair Value Measurements and Disclosures. Long-lived assets held and used with a carrying amount of ~~$84.6~~$79.0 million were assessed for indicators of impairment and written down to their fair value, resulting in impairment charges of ~~$0.1~~$0.3 million for the thirteen weeks ended ~~November 2, 2013. The $0.1~~May 3, 2014. Of the $0.3 million impairment charge ~~was recorded in the Specialty Retail segment and is reflected~~included in selling and administrative ~~expenses. An impairment charge of $0.8 million was recorded for the thirty-nine weeks ended November 2, 2013, of which $0.4~~expenses, $0.2 million related to the Famous Footwear segment and ~~$0.4~~$0.1 million related to the Specialty Retail segment.

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) related to certain supply chain and sourcing assets, which represented the excess net asset value over the estimated fair value of the assets less costs to sell. The fair value of net assets was estimated based on the anticipated sales proceeds. This iswas considered a Level 2 input as the assets were not sold on an active market. The impairment charge was recorded as impairment of assets held for sale in the condensed consolidated statement of earnings and was included in the Wholesale Operations segment. These assets were sold in the second quarter of 2013, and the Company recognized an additional loss on sale of $0.6 million. See Note ~~4 and Note 6~~5 to the condensed consolidated financial statements for additional information.

During the second quarter of 2013, the Company sold ASG. The assets of ASG were determined to be held for sale at May 4, 2013, and an impairment charge of $12.6 million was recorded in the first quarter of 2013 within ~~the~~disposition/impairment of discontinued operations, ~~section~~net of tax in the condensed consolidated statement of earnings. The Company recognized a gain on disposition of $1.0 million in the second quarter of 2013. ASG was previously included within the Wholesale Operations segment. The fair value of assets was estimated based on the anticipated sales proceeds less costs to sell. This iswas considered a Level 2 input as the assets were not sold on an active market. See Note 3 and Note 65 to the condensed consolidated financial statements for additional information.

Fair Value of the Company’s Other Financial Instruments

The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables, trade accounts payable, and borrowings under the revolving credit agreement approximate their carrying values due to the short-term nature of these instruments.



		November 2, 2013				October 27, 2012				February 2, 2013				May 3, 2014				May 4, 2013				February 1, 2014
		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
($ thousands)		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value		Amount		Value
Senior Notes	$	198,963	$	210,500	$	198,773	$	204,000	$	198,823	$	208,000
Long-term debt – Senior Notes													$	199,057	$	210,750	$	198,870	$	209,000	$	199,010	$	210,500

The fair value of the Company’s Senior Notes was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).

Note 1413

Income Taxes

The Company’s effective tax rate can vary considerably from period to period, depending on a number of factors. The Company’s consolidated effective tax rates from continuing operations were ~~31.6%~~34.1% and ~~33.8%~~51.9% for the thirteen ~~and thirty-nine~~ weeks ended ~~November 2,~~May 3, 2014 and May 4, 2013, ~~respectively, remaining relatively consistent with~~respectively. The decrease in the Company’s effective tax ~~rates~~rate this quarter was due to the non-deductible nature of ~~32.0% and 33.7% for~~ the ~~thirteen and thirty-nine weeks ended October 27, 2012, respectively.~~ $4.7 million impairment charge in the first quarter of 2013, as further described in Note 5 to the condensed consolidated financial statements.

Note 1514

Related Party Transactions

C. banner International Holdings Limited

The Company has a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”, formerly known as Hongguo International Holdings Limited) to market Naturalizer footwear in China. The Company is a 51% owner of the joint venture (“B&H Footwear”), with CBI owning the other 49%. B&H Footwear sells Naturalizer footwear to a retail affiliate of CBI on a wholesale basis, which in turn sells the Naturalizer products through department store shops and free-standing stores in China. During 2013, B&H Footwear transferred the operation of 25 retail stores in China to CBI. B&H Footwear continues to sell footwear to CBI on a wholesale basis. During the thirteen ~~and thirty-nine~~ weeks ended ~~November 2, 2013,~~May 3, 2014, the Company, through its consolidated subsidiary, B&H Footwear, sold ~~$1.9~~$2.0 million ~~and $4.1 million, respectively,~~ of Naturalizer footwear on a wholesale basis to CBI, with ~~$2.4 million and $5.0~~$1.0 million in corresponding sales during the thirteen ~~and thirty-nine~~ weeks ended ~~October 27, 2012, respectively.~~May 4, 2013.

Note 1615

Commitments and Contingencies

Environmental Remediation

Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.

Redfield

The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified workplan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the workplan, a pilot test was conducted of certain

groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be ~~$15.9~~$15.7 million as of ~~November 2, 2013.~~May 3, 2014. The Company expects to spend approximately $0.2 million in each of the next five years and ~~$14.9~~$14.7 million in the aggregate thereafter related to the on-site remediation.

The cumulative expenditures for both on-site and off-site remediation through ~~November 2, 2013~~May 3, 2014 were ~~$27.0~~$26.2 million. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at ~~November 2, 2013~~May 3, 2014 is ~~$8.4~~$9.6 million, of which ~~$7.6~~$8.6 million is recorded within other liabilities and ~~$0.8~~$1.0 million is recorded within other accrued expenses. Of the total ~~$8.4~~$9.6 million reserve, ~~$4.8~~$4.9 million is for on-site remediation and ~~$3.6~~$4.7 million is for off-site remediation.

Other

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 through 2024. The Company has an accrued liability of ~~$1.5~~$1.4 million at ~~November 2, 2013~~May 3, 2014 related to these sites, which has been discounted at 6.4%. On an undiscounted basis, this liability would be $2.0 million. The Company expects to spend approximately $0.2 million in each of the next five years and $1.0 million in the aggregate 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 sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.

Based on information currently available, the Company has an accrued liability of ~~$9.8~~$11.0 million as of ~~November 2, 2013~~May 3, 2014 to complete the cleanup, maintenance and monitoring at all sites. Of the ~~$9.8~~$11.0 million liability, ~~$8.8~~$9.9 million is recorded in other liabilities and ~~$1.0~~$1.1 million is recorded in other accrued expenses. The Company continues to evaluate its estimated costs in conjunction with its environmental consultants and records its best estimate of such liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.

Litigation

The Company 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 is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.

Note 1716

Financial Information for the Company and its Subsidiaries

Brown Shoe Company, Inc. issued senior notes, which are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under its existing agreement. The following table presents the consolidating financial information for each of Brown Shoe Company, Inc. (“Parent”), the Guarantors, and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”), together with consolidating eliminations, as of and for the periods indicated. The Guarantors are 100% owned by the Parent. On May 14, 2013, during the second quarter of 2013, ASG was sold and ceased to be a borrower under the Credit Agreement. ASG is included as a “Guarantor” in the financial statements through the sale date. The proceeds from the sale were utilized to pay down the Company’s revolving credit facility. See Note 3 to the condensed consolidated financial statements for further information on the sale of ASG.

The condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that the information, presented in lieu of complete financial statements for each of the Guarantors, provides meaningful information to allow investors to determine the nature of the assets held by, and operations and cash flows of, each of the consolidated groups.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Assets

Current assets

Cash and cash equivalents
$
–

$
29,722

$
12,684

$
–

$
42,406
Receivables, net

93,097

1,275

18,119

–

112,491
Inventories, net

98,548

439,807

6,234

–

544,589
Prepaid expenses and other current assets

37,418

11,423

3,393

–

52,234
Current assets – discontinued operations

158

–

23

–

181
Total current assets

229,221

482,227

40,453

–

751,901
Other assets

95,221

15,812

614

–

111,647
Goodwill and intangible assets, net

56,369

18,812

–

–

75,181
Property and equipment, net

26,908

118,976

2,298

–

148,182
Investment in subsidiaries

851,906

152,992

–

(1,004,898)

–
Intercompany receivable

431,576

483,654

233,841

(1,149,071)

–
Total assets
$
1,691,201

$
1,272,473

$
277,206

$
(2,153,969)

$
1,086,911

Liabilities and Equity

Current liabilities

Trade accounts payable
$
44,889

$
136,669

$
19,148

$
–

$
200,706
Other accrued expenses

58,289

83,483

9,370

–

151,142
Current liabilities – discontinued operations

2,065

–

45

–

2,110
Total current liabilities

105,243

220,152

28,563

–

353,958
Other liabilities

Long-term debt

198,963

–

–

–

198,963
Other liabilities

29,395

51,192

1,444

–

82,031
Intercompany payable

906,299

149,223

93,549

(1,149,071)

–
Total other liabilities

1,134,657

200,415

94,993

(1,149,071)

280,994
Equity

Brown Shoe Company, Inc. shareholders’ equity

451,301

851,906

152,992

(1,004,898)

451,301
Noncontrolling interests

–

–

658

–

658
Total equity

451,301

851,906

153,650

(1,004,898)

451,959
Total liabilities and equity
$
1,691,201

$
1,272,473

$
277,206

$
(2,153,969)

$
1,086,911

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 2, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
213,028

$
498,383

$
36,753

$
(45,376)

$
702,788
Cost of goods sold

157,500

282,617

29,807

(45,376)

424,548
Gross profit

55,528

215,766

6,946

–

278,240
Selling and administrative expenses

53,327

178,810

1,435

–

233,572
Equity in (earnings) loss of subsidiaries

(31,516)

2,728

–

28,788

–
Operating earnings (loss)

33,717

34,228

5,511

(28,788)

44,668
Interest expense

(5,254)

–

–

–

(5,254)
Interest income

4

69

59

–

132
Intercompany interest income (expense)

3,558

(3,693)

135

–

–
Intercompany dividend

–

7,778

(7,778)

–

–
Earnings (loss) before income taxes from continuing operations

32,025

38,382

(2,073)

(28,788)

39,546
Income tax provision

(5,011)

(6,822)

(662)

–

(12,495)
Net earnings (loss) from continuing operations

27,014

31,560

(2,735)

(28,788)

27,051
Discontinued operations:

Earnings (loss) from discontinued operations, net of tax

300

(44)

(23)

–

233
Net earnings (loss) from discontinued operations

300

(44)

(23)

–

233
Net earnings (loss)

27,314

31,516

(2,758)

(28,788)

27,284
Net loss attributable to noncontrolling interests

–

–

(30)

–

(30)
Net earnings (loss) attributable to Brown Shoe Company, Inc.
$
27,314

$
31,516

$
(2,728)

$
(28,788)

$
27,314

Comprehensive income (loss)
$
27,320

$
31,313

$
(2,758)

$
(28,585)

$
27,290
Comprehensive loss attributable to noncontrolling interests

–

–

(25)

–

(25)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.
$
27,320

$
31,313

$
(2,733)

$
(28,585)

$
27,315



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 3, 2014
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Assets
Current assets
Cash and cash equivalents	$	–	$	25,528	$	11,140	$	–	$	36,668
Receivables, net		83,713		1,412		20,621		–		105,746
Inventories, net		93,159		414,424		5,228		–		512,811
Prepaid expenses and other current assets		34,476		507		2,930		–		37,913
Intercompany receivable – current		981		368		10,655		(12,004)		–
Total current assets		212,329		442,239		50,574		(12,004)		693,138
Other assets		120,941		14,678	��	637		–		136,256
Goodwill and intangible assets, net		119,666		18,084		–		–		137,750
Property and equipment, net		27,303		112,630		1,885		–		141,818
Investment in subsidiaries		879,965		169,843		–		(1,049,808)		–
Intercompany receivable – noncurrent		450,481		500,580		242,150		(1,193,211)		–
Total assets	$	1,810,685	$	1,258,054	$	295,246	$	(2,255,023)	$	1,108,962

Liabilities and Equity
Current liabilities
Trade accounts payable	$	48,509	$	123,656	$	23,538	$	–	$	195,703
Other accrued expenses		69,665		64,082		7,971		–		141,718
Intercompany payable – current		2,367		59		9,578		(12,004)		–
Total current liabilities		120,541		187,797		41,087		(12,004)		337,421
Other liabilities
Long-term debt		199,057		–		–		–		199,057
Other liabilities		33,499		44,745		1,469		–		79,713
Intercompany payable – noncurrent		965,515		145,547		82,149		(1,193,211)		–
Total other liabilities		1,198,071		190,292		83,618		(1,193,211)		278,770
Equity
Brown Shoe Company, Inc. shareholders’ equity		492,073		879,965		169,843		(1,049,808)		492,073
Noncontrolling interests		–		–		698		–		698
Total equity		492,073		879,965		170,541		(1,049,808)		492,771
Total liabilities and equity	$	1,810,685	$	1,258,054	$	295,246	$	(2,255,023)	$	1,108,962

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
551,962

$
1,361,742

$
136,825

$
(137,379)

$
1,913,150
Cost of goods sold

412,736

754,229

110,682

(137,379)

1,140,268
Gross profit

139,226

607,513

26,143

–

772,882
Selling and administrative expenses

169,097

504,351

5,074

–

678,522
Restructuring and other special charges, net

686

576

–

–

1,262
Impairment of assets held for sale

–

–

4,660

–

4,660
Equity in (earnings) loss of subsidiaries

(70,990)

3,789

–

67,201

–
Operating earnings (loss)

40,433

98,797

16,409

(67,201)

88,438
Interest expense

(16,076)

(91)

–

–

(16,167)
Interest income

17

201

64

–

282
Intercompany interest income (expense)

10,487

(10,879)

392

–

–
Intercompany dividend

–

7,778

(7,778)

–

–
Earnings (loss) before income taxes from continuing operations

34,861

95,806

9,087

(67,201)

72,553
Income tax benefit (provision)

2,630

(26,995)

(157)

–

(24,522)
Net earnings (loss) from continuing operations

37,491

68,811

8,930

(67,201)

48,031
Discontinued operations:

(Loss) earnings from discontinued operations, net of tax

(5,582)

1,137

(339)

–

(4,784)
Impairment of net assets/disposition of discontinued operations

–

1,042

(12,554)

–

(11,512)
Net (loss) earnings from discontinued operations

(5,582)

2,179

(12,893)

–

(16,296)
Net earnings (loss)
$
31,909

$
70,990

$
(3,963)

$
(67,201)

$
31,735
Net loss attributable to noncontrolling interests

–

–

(174)

–

(174)
Net earnings (loss) attributable to Brown Shoe Company, Inc.
$
31,909

$
70,990

$
(3,789)

$
(67,201)

$
31,909

Comprehensive income (loss)
$
31,005

$
69,771

$
(3,964)

$
(65,982)

$
30,830
Comprehensive loss attributable to noncontrolling interests

–

–

(114)

–

(114)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.
$
31,005

$
69,771

$
(3,850)

$
(65,982)

$
30,944



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEKS ENDED MAY 3, 2014
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	179,160	$	401,580	$	36,624	$	(26,202)	$	591,162
Cost of goods sold		127,466		218,366		29,191		(26,202)		348,821
Gross profit		51,694		183,214		7,433		–		242,341
Selling and administrative expenses		49,197		159,967		4,451		–		213,615
Operating earnings		2,497		23,247		2,982		–		28,726
Interest expense		(5,305)		(1)		–		–		(5,306)
Interest income		1		59		16		–		76
Intercompany interest income (expense)		3,974		(4,079)		105		–		–
Earnings before income taxes		1,167		19,226		3,103		–		23,496
Income tax benefit (provision)		464		(7,954)		(530)		–		(8,020)
Equity in earnings of subsidiaries, net of tax		13,798		2,526		–		(16,324)		–
Net earnings		15,429		13,798		2,573		(16,324)		15,476
Less: Net earnings attributable to noncontrolling interests		–		–		47		–		47
Net earnings attributable to Brown Shoe Company, Inc.	$	15,429	$	13,798	$	2,526	$	(16,324)	$	15,429

Comprehensive income	$	15,918	$	14,355	$	2,520	$	(16,840)	$	15,953
Less: Comprehensive income attributable to noncontrolling interests		–		–		35		–		35
Comprehensive income attributable to Brown Shoe Company, Inc.	$	15,918	$	14,355	$	2,485	$	(16,840)	$	15,918


UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS										UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2013
FOR THE THIRTEEN WEEKS ENDED MAY 3, 2014											FOR THE THIRTEEN WEEKS ENDED MAY 3, 2014
						Non-										Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total		Parent		Guarantors		Guarantors		Eliminations		Total
Net cash provided by (used for) operating activities	$	27,271	$	60,573	$	(25,859)	$	–	$	61,985
Net cash (used for) provided by operating activities											$	(3,343)	$	25,854	$	13,872	$	–	$	36,383

Investing activities
Purchases of property and equipment		(3,389)		(33,737)		(762)		–		(37,888)		(1,866)		(5,411)		(104)		–		(7,381)
Capitalized software		(3,591)		(117)		(7)		–		(3,715)		(1,171)		(43)		(31)		–		(1,245)
Acquisition of trademarks												(65,065)		–		–		–		(65,065)
Intercompany investing		(1,024)		1,024		–		–		–		(533)		533		–		–		–
Proceeds from sale of subsidiaries, net of cash balance		–		69,347		–		–		69,347
Net cash (used for) provided by investing activities		(8,004)		36,517		(769)		–		27,744
Net cash used for investing activities												(68,635)		(4,921)		(135)		–		(73,691)

Financing activities
Borrowings under revolving credit agreement		966,000		–		–		–		966,000		251,000		–		–		–		251,000
Repayments under revolving credit agreement		(1,071,000)		–		–		–		(1,071,000)		(258,000)		–		–		–		(258,000)
Dividends paid		(9,073)		–		–		–		(9,073)		(3,053)		–		–		–		(3,053)
Issuance of common stock under share-based plans, net		(2,406)		–		–		–		(2,406)		(803)		–		–		–		(803)
Tax benefit related to share-based plans		2,581		–		–		–		2,581		1,769		–		–		–		1,769
Intercompany financing		94,631		(97,780)		3,149		–		–		81,065		(25,924)		(55,141)		–		–
Net cash (used for) provided by financing activities		(19,267)		(97,780)		3,149		–		(113,898)
Net cash provided by (used for) financing activities												71,978		(25,924)		(55,141)		–		(9,087)
Effect of exchange rate changes on cash and cash equivalents		–		(1,648)		–		–		(1,648)		–		517		–		–		517
Decrease in cash and cash equivalents		–		(2,338)		(23,479)		–		(25,817)		–		(4,474)		(41,404)		–		(45,878)
Cash and cash equivalents at beginning of period		–		32,060		36,163		–		68,223		–		30,002		52,544		–		82,546
Cash and cash equivalents at end of period	$	–	$	29,722	$	12,684	$	–	$	42,406	$	–	$	25,528	$	11,140	$	–	$	36,668


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 2, 2013
CONDENSED CONSOLIDATING BALANCE SHEET											CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 1, 2014											AS OF FEBRUARY 1, 2014
						Non-										Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total		Parent		Guarantors		Guarantors		Eliminations		Total
Assets
Current assets
Cash and cash equivalents	$	–	$	32,060	$	36,163	$	–	$	68,223	$	–	$	30,002	$	52,544	$	–	$	82,546
Receivables, net		67,571		6,593		37,228		–		111,392		84,428		2,349		42,440		–		129,217
Inventories, net		92,683		394,468		16,537		–		503,688		119,131		421,101		7,299		–		547,531
Prepaid expenses and other current assets		14,523		26,524		969		–		42,016		38,069		16,024		3,984		(24,941)		33,136
Current assets – discontinued operations		5,447		41,553		109		–		47,109		119		–		–		–		119
Intercompany receivable – current												602		191		8,860		(9,653)		–
Total current assets		180,224		501,198		91,006		–		772,428		242,349		469,667		115,127		(34,594)		792,549
Other assets		99,527		19,320		848		–		119,695		123,066		15,864		691		–		139,621
Goodwill and intangible assets, net		37,270		19,901		22,532		–		79,703		55,225		18,448		–		–		73,673
Noncurrent assets – discontinued operations		1,145		3,980		52,925		(3,473)		54,577
Property and equipment, net		27,931		108,224		8,701		–		144,856		27,201		114,359		2,000		–		143,560
Investment in subsidiaries		765,729		91,136		113,033		(969,898)		–		865,700		165,970		–		(1,031,670)		–
Intercompany receivable		341,221		527,863		183,372		(1,052,456)		–
Intercompany receivable – noncurrent												457,507		482,180		230,572		(1,170,259)		–
Total assets	$	1,453,047	$	1,271,622	$	472,417	$	(2,025,827)	$	1,171,259	$	1,771,048	$	1,266,488	$	348,390	$	(2,236,523)	$	1,149,403

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	105,000	$	–	$	–	$	–	$	105,000	$	7,000	$	–	$	–	$	–	$	7,000
Trade accounts payable		53,350		118,096		42,214		–		213,660		72,349		116,604		37,649		–		226,602
Other accrued expenses		51,751		78,293		7,146		–		137,190		81,902		87,045		8,539		(24,941)		152,545
Current liabilities – discontinued operations		3,754		9,396		109		–		13,259		708		–		–		–		708
Intercompany payable – current												4,689		766		4,198		(9,653)		–
Total current liabilities		213,855		205,785		49,469		–		469,109		166,648		204,415		50,386		(34,594)		386,855
Other liabilities
Long-term debt		198,823		–		–		–		198,823		199,010		–		–		–		199,010
Other liabilities		17,042		48,986		4,402		–		70,430		38,657		46,055		1,464		–		86,176
Non current liabilities – discontinued operations		–		–		10,469		(3,473)		6,996
Intercompany payable		598,198		138,089		316,169		(1,052,456)		–
Intercompany payable – noncurrent												890,034		150,318		129,907		(1,170,259)		–
Total other liabilities		814,063		187,075		331,040		(1,055,929)		276,249		1,127,701		196,373		131,371		(1,170,259)		285,186
Equity
Brown Shoe Company, Inc. shareholders’ equity		425,129		878,762		91,136		(969,898)		425,129		476,699		865,700		165,970		(1,031,670)		476,699
Noncontrolling interests		–		–		772		–		772		–		–		663		–		663
Total equity		425,129		878,762		91,908		(969,898)		425,901		476,699		865,700		166,633		(1,031,670)		477,362
Total liabilities and equity	$	1,453,047	$	1,271,622	$	472,417	$	(2,025,827)	$	1,171,259	$	1,771,048	$	1,266,488	$	348,390	$	(2,236,523)	$	1,149,403


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET	UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET										UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 27, 2012
AS OF MAY 4, 2013											AS OF MAY 4, 2013
						Non-										Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total		Parent		Guarantors		Guarantors		Eliminations		Total
Assets
Current assets
Cash and cash equivalents	$	–	$	29,113	$	11,771	$	–	$	40,884	$	–	$	29,202	$	15,467	$	–	$	44,669
Receivables, net		89,342		5,863		18,314		–		113,519		67,017		6,079		23,638		–		96,734
Inventories, net		73,175		421,458		17,573		–		512,206		79,768		400,139		6,016		–		485,923
Prepaid expenses and other current assets		22,219		3,412		4,880		–		30,511		41,977		1,251		(61)		–		43,167
Current assets – held for sale												–		–		12,496		–		12,496
Current assets – discontinued operations		16,868		39,465		32		–		56,365		2,542		36,605		12		–		39,159
Intercompany receivable – current												786		246		19,236		(20,268)		–
Total current assets		201,604		499,311		52,570		–		753,485		192,090		473,522		76,804		(20,268)		722,148
Other assets		115,445		18,409		810		–		134,664		98,431		16,562		598		–		115,591
Goodwill and intangible assets, net		38,337		20,265		22,617		–		81,219		36,203		19,538		25,255		–		80,996
Noncurrent assets – discontinued operations		1,185		1,595		53,159		(1,185)		54,754		–		1,321		37,352		–		38,673
Property and equipment, net		24,578		106,269		9,135		–		139,982		26,484		108,416		2,399		–		137,299
Investment in subsidiaries		862,308		234,014		–		(1,096,322)		–		759,545		(28,096)		(3,597)		(727,852)		–
Intercompany receivable		215,585		384,523		174,894		(775,002)		–
Intercompany receivable – noncurrent												343,110		546,265		180,056		(1,069,431)		–
Total assets	$	1,459,042	$	1,264,386	$	313,185	$	(1,872,509)	$	1,164,104	$	1,455,863	$	1,137,528	$	318,867	$	(1,817,551)	$	1,094,707

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	110,000	$	–	$	–	$	–	$	110,000	$	66,000	$	–	$	–	$	–	$	66,000
Trade accounts payable		32,579		118,756		22,521		–		173,856		31,065		129,630		28,253		–		188,948
Other accrued expenses		41,432		89,006		15,249		–		145,687		55,497		59,651		3,484		–		118,632
Current liabilities – held for sale												–		–		5,306		–		5,306
Current liabilities – discontinued operations		6,746		7,149		40		–		13,935		11,343		4,796		44		–		16,183
Intercompany payable – current												5,231		37		15,000		(20,268)		–
Total current liabilities		190,757		214,911		37,810		–		443,478		169,136		194,114		52,087		(20,268)		395,069
Other liabilities
Long-term debt		198,773		–		–		–		198,773		198,870		–		–		–		198,870
Other liabilities		34,398		42,601		5,714		–		82,713		26,685		50,003		4,378		–		81,066
Intercompany payable		603,976		144,566		26,460		(775,002)		–
Noncurrent liabilities – discontinued operations		–		–		8,388		(1,185)		7,203		(1,105)		(2,535)		10,408		–		6,768
Intercompany payable – noncurrent												650,087		136,401		282,943		(1,069,431)		–
Total other liabilities		837,147		187,167		40,562		(776,187)		288,689		874,537		183,869		297,729		(1,069,431)		286,704
Equity
Brown Shoe Company, Inc. shareholders’ equity		431,138		862,308		234,014		(1,096,322)		431,138		412,190		759,545		(31,693)		(727,852)		412,190
Noncontrolling interests		–		–		799		–		799		–		–		744		–		744
Total equity		431,138		862,308		234,813		(1,096,322)		431,937		412,190		759,545		(30,949)		(727,852)		412,934
Total liabilities and equity	$	1,459,042	$	1,264,386	$	313,185	$	(1,872,509)	$	1,164,104	$	1,455,863	$	1,137,528	$	318,867	$	(1,817,551)	$	1,094,707


UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME	UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME										UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEKS ENDED OCTOBER 27, 2012
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2013											FOR THE THIRTEEN WEEKS ENDED MAY 4, 2013
						Non-										Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	192,767	$	512,952	$	42,437	$	(52,171)	$	695,985	$	158,781	$	418,538	$	42,604	$	(31,267)	$	588,656
Cost of goods sold		144,270		291,940		32,611		(52,171)		416,650		116,330		229,956		33,621		(31,267)		348,640
Gross profit		48,497		221,012		9,826		–		279,335		42,451		188,582		8,983		–		240,016
Selling and administrative expenses		55,773		182,963		(2,540)		–		236,196		50,000		159,852		4,027		–		213,879
Restructuring and other special charges, net		1,522		624		–		–		2,146		519		–		–		–		519
Equity in (earnings) loss of subsidiaries		(31,317)		(10,031)		–		41,348		–
Operating earnings (loss)		22,519		47,456		12,366		(41,348)		40,993
Impairment of assets held for sale												–		–		4,660		–		4,660
Operating (loss) earnings												(8,068)		28,730		296		–		20,958
Interest expense		(5,301)		(97)		–		–		(5,398)		(5,630)		(91)		–		–		(5,721)
Interest income		–		61		15		–		76		3		64		1		–		68
Intercompany interest income (expense)		3,040		(3,147)		107		–		–		3,454		(3,579)		125		–		–
Earnings (loss) before income taxes from continuing operations		20,258		44,273		12,488		(41,348)		35,671
(Loss) earnings before income taxes from continuing operations												(10,241)		25,124		422		–		15,305
Income tax benefit (provision)		3,101		(12,402)		(2,117)		–		(11,418)		3,382		(10,566)		(762)		–		(7,946)
Equity in earnings (loss) from continuing operations of subsidiaries, net of tax												14,288		(270)		225		(14,243)		–
Net earnings (loss) from continuing operations		23,359		31,871		10,371		(41,348)		24,253		7,429		14,288		(115)		(14,243)		7,359
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax		927		(548)		(345)		–		34
Net earnings (loss) from discontinued operations		927		(548)		(345)		–		34
Net earnings (loss)		24,286		31,323		10,026		(41,348)		24,287
Net loss attributable to noncontrolling interests		–		–		(5)		–		(5)
Net earnings (loss) attributable to Brown Shoe Company, Inc.	$	24,286	$	31,323	$	10,031	$	(41,348)	$	24,292
(Loss) earnings from discontinued operations, net of tax												(6,948)		1,591		(280)		–		(5,637)
Disposition/impairment of discontinued operations, net of tax												–		–		(12,554)		–		(12,554)
Equity in loss from discontinued operations of subsidiaries, net of tax												(11,243)		(12,834)		–		24,077		–
Net (loss) earnings from discontinued operations												(18,191)		(11,243)		(12,834)		24,077		(18,191)
Net (loss) earnings												(10,762)		3,045		(12,949)		9,834		(10,832)
Less: Net loss attributable to noncontrolling interests												–		–		(70)		–		(70)
Net (loss) earnings attributable to Brown Shoe Company, Inc.											$	(10,762)	$	3,045	$	(12,879)	$	9,834	$	(10,762)

Comprehensive income (loss)	$	24,842	$	31,872	$	10,018	$	(41,348)	$	25,384
Comprehensive loss attributable to noncontrolling interests		–		–		2		–		2
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	24,842	$	31,872	$	10,016	$	(41,348)	$	25,382
Comprehensive (loss) income											$	(11,463)		2,445		(12,920)		10,447		(11,491)
Less: Comprehensive loss attributable to noncontrolling interests												–		–		(28)		–		(28)
Comprehensive (loss) income attributable to Brown Shoe Company, Inc.											$	(11,463)	$	2,445	$	(12,892)	$	10,447	$	(11,463)

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 27, 2012

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
529,074

$
1,347,547

$
133,406

$
(150,966)

$
1,859,061
Cost of goods sold

403,710

756,547

108,527

(150,966)

1,117,818
Gross profit

125,364

591,000

24,879

–

741,243
Selling and administrative expenses

138,732

512,516

8,129

–

659,377
Restructuring and other special charges, net

9,796

9,864

–

–

19,660
Equity in (earnings) loss of subsidiaries

(46,486)

(13,087)

–

59,573

–
Operating earnings (loss)

23,322

81,707

16,750

(59,573)

62,206
Interest expense

(16,800)

(279)

–

–

(17,079)
Interest income

–

185

51

–

236
Intercompany interest income (expense)

9,569

(9,889)

320

–

–
Earnings (loss) before income taxes from continuing operations

16,091

71,724

17,121

(59,573)

45,363
Income tax benefit (provision)

10,308

(22,303)

(3,280)

–

(15,275)
Net earnings (loss) from continuing operations

26,399

49,421

13,841

(59,573)

30,088
Discontinued operations:

Loss from discontinued operations, net of tax

(2,953)

(2,714)

(1,220)

–

(6,887)
Net loss from discontinued operations

(2,953)

(2,714)

(1,220)

–

(6,887)
Net earnings (loss)

23,446

46,707

12,621

(59,573)

23,201
Net loss attributable to noncontrolling interests

–

–

(251)

–

(251)
Net earnings (loss) attributable to Brown Shoe Company, Inc.
$
23,446

$
46,707

$
12,872

$
(59,573)

$
23,452

Comprehensive income (loss)
$
23,422

46,954

12,617

(59,573)

23,420
Comprehensive loss attributable to noncontrolling interests

–

–

(248)

–

(248)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.
$
23,422

$
46,954

$
12,865

$
(59,573)

$
23,668


UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS										UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 27, 2012
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2013											FOR THE THIRTEEN WEEKS ENDED MAY 4, 2013
						Non-										Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total		Parent		Guarantors		Guarantors		Eliminations		Total
Net cash provided by (used for) operating activities	$	19,306	$	(53,096)	$	177,313	$	–	$	143,523
Net cash (used for) provided by operating activities											$	(27,728)	$	44,941	$	8,748	$	–	$	25,961

Investing activities
Purchases of property and equipment		(3,809)		(33,602)		(1,670)		–		(39,081)		(778)		(6,406)		(183)		–		(7,367)
Capitalized software		(5,433)		–		(3)		–		(5,436)		(1,040)		–		–		–		(1,040)
Acquisition cost		–		(5,000)		–		–		(5,000)
Net proceeds from sale of subsidiaries												1,500		–		–		–		1,500
Net cash used for investing activities		(9,242)		(38,602)		(1,673)		–		(49,517)		(318)		(6,406)		(183)		–		(6,907)

Financing activities
Borrowings under revolving credit agreement		582,000		–		–		–		582,000		383,000		–		–		–		383,000
Repayments under revolving credit agreement		(673,000)		–		–		–		(673,000)		(422,000)		–		–		–		(422,000)
Dividends paid		(9,007)		–		–		–		(9,007)		(3,027)		–		–		–		(3,027)
Issuance of common stock under share-based plans, net		(1,860)		–		–		–		(1,860)		(2,070)		–		–		–		(2,070)
Tax benefit related to share-based plans		889		–		–		–		889		1,962		–		–		–		1,962
Intercompany financing		95,300		86,305		(181,605)		–		–		70,181		(40,920)		(29,261)		–		–
Net cash (used for) provided by financing activities		(5,678)		86,305		(181,605)		–		(100,978)
Net cash provided by (used for) financing activities												28,046		(40,920)		(29,261)		–		(42,135)
Effect of exchange rate changes on cash and cash equivalents		–		174		–		–		174		–		(473)		–		–		(473)
Increase (decrease) in cash and cash equivalents		4,386		(5,219)		(5,965)		–		(6,798)
Decrease in cash and cash equivalents												–		(2,858)		(20,696)		–		(23,554)
Cash and cash equivalents at beginning of period		(4,386)		34,332		17,736		–		47,682		–		32,060		36,163		–		68,223
Cash and cash equivalents at end of period	$	–	$	29,113	$	11,771	$	–	$	40,884	$	–	$	29,202	$	15,467	$	–	$	44,669

3130



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



OVERVIEW

~~Both retail and wholesale businesses contributed to this quarter’s success. Our third quarter~~The financial results of our first quarter 2014 exceeded our expectations, especially given the weather-related headwinds we faced in February and March. The results reflect ~~a strong back-to-school season, as~~solid performance within our Wholesale Operations and Famous Footwear ~~delivered record-setting third quarter net sales.~~segments. Our Wholesale Operations segment reported aimprovements in net sales ~~improvement~~and gross profit of ~~4.5%. We believe~~5.6% and 7.3%, respectively, while the ~~benefits of our portfolio realignment efforts are evident~~Famous Footwear segment experienced a 2.0% increase in ~~our results.~~gross profit.

The following is a summary of the financial highlights for the ~~third~~first quarter of ~~2013:~~2014:

Consolidated net sales increased ~~$6.8~~$2.5 million, or ~~1.0%~~0.4%, to ~~$702.8~~$591.2 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$696.0~~$588.7 million for the ~~third~~first quarter of ~~2012.~~2013. In our Wholesale Operations segment, we saw continued improvement as net sales increased by ~~$8.9~~$10.2 million, or ~~4.5%~~5.6%. ~~Wholesale Operations reported strong performance from many of our wholesale brands, as our trend-right styles continued to resonate with consumers.~~ Net sales of our Famous Footwear segment increased by ~~$2.8~~$2.3 million, reflecting continued growth in same-store sales of ~~4.9% in the third quarter, with strength across nearly all geographies, climate zones, and genders.~~1.3%. Our Specialty Retail segment experienced ~~an increase~~a $10.0 million decline in ~~same-store~~net sales ~~of 0.6%~~ in the ~~third~~first quarter of ~~2013, but~~2014, primarily driven by a lower store count, lower e-commerce sales, and a ~~lower store count resulted in a $4.9 million~~5.6% decrease in ~~overall net sales~~same-store sales.

Consolidated operating earnings increased $7.7 million, or 37.1%, to $28.7 million in the first quarter of 2014, compared to $21.0 million for the ~~third~~first quarter of 2013.

~~Consolidated operating earnings increased $3.7 million, or 9.0%, to $44.7 million in the third quarter of 2013, compared to $41.0 million for the third quarter of 2012.~~

Consolidated net earnings attributable to Brown Shoe Company, Inc. were ~~$27.3~~$15.4 million, or ~~$0.63~~$0.35 per diluted share, in the ~~third~~first quarter of ~~2013,~~2014, compared to a net ~~earnings~~loss of ~~$24.3~~$10.8 million, or ~~$0.56~~$0.26 per diluted share, in the ~~third~~first quarter of ~~2012.~~2013.

~~Our portfolio realignment efforts impact the comparison of~~The following items impacted our ~~third~~first quarter ~~results for~~2014 and 2013 ~~and 2012~~results and should be considered in evaluating ~~comparability. Our portfolio realignment efforts include~~ the ~~sale~~comparability of our Avia and Nevados divisions; the sale of AND 1; exiting certain women’s specialty and private label brands; exiting the children’s wholesale business; the sale and closure of certain 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 and other infrastructure changes. No portfolio realignment costs were incurred during the third quarter of 2013 compared to costs of $2.6 million ($1.6 million after-tax, or $0.04 per diluted share) incurred during the third quarter of 2012. A portion of these costs were reflected in discontinued operations, as further discussed in Note 3, Note 4 and Note 6results:

Franco Sarto Trademarks Acquisition – On February 3, 2014, we entered into and simultaneously closed on an Asset Purchase Agreement pursuant to which we acquired the Franco Sarto trademarks for $65.0 million. As a result of acquiring the trademarks, our license agreement, which granted us the right to sell footwear and other products using the Franco Sarto trademarks through 2019, was terminated. The license agreement required us to pay royalty expense on sales of Franco Sarto branded products. Beginning February 3, 2014, the date of acquisition, we are no longer required to record royalty expense for these sales, resulting in lower cost of goods sold and higher gross profit. See Note 7 to the condensed consolidated financial statements for additional information.

Portfolio Realignment – Our portfolio realignment efforts included the sale of our Avia and Nevados divisions; the sale of AND 1; exiting certain women’s specialty and private label brands; exiting the children’s wholesale business; the sale and closure of certain 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 and other infrastructure changes. No portfolio realignment costs were incurred during the first quarter of 2014 compared to costs of $28.8 million ($24.6 million after-tax, or $0.58 per diluted share) incurred during the first quarter of 2013. A portion of these costs were reflected in discontinued operations, as further discussed in Note 3 and Note 5 to the condensed consolidated financial statements.

Our debt-to-capital ratio, as defined herein, decreased to ~~30.6%~~28.8% at ~~November 2, 2013,~~May 3, 2014, compared to ~~41.7%~~39.1% at ~~October 27, 2012~~May 4, 2013 and ~~41.6%~~30.1% at February 2,1, 2014. The improvement from May 4, 2013 ~~reflecting~~reflects our cash provided by operating activities as well as lower borrowings under our revolving credit ~~agreement, primarily due to the cash proceeds from the sale of our Avia and Nevados divisions in May 2013 as well as cash provided by operating activities in 2013.~~agreement. As of ~~November 2, 2013, the Company~~May 3, 2014, we had no outstanding borrowings under the revolving credit agreement. Our current ratio, as defined herein, was ~~2.12~~2.05 to 1 at ~~November 2, 2013,~~May 3, 2014, compared to ~~1.70~~1.83 to 1 at ~~October 27, 2012~~May 4, 2013 and ~~1.65~~2.05 to 1 at February ~~2, 2013.~~1, 2014. The improvement in the current ratio from ~~October 27, 2012 as compared~~May 4, 2013 to ~~November 2, 2013,~~May 3, 2014 was also driven by our cash provided by operating activities and lower borrowings under our revolving credit agreement.

Outlook for the Remainder of ~~2013~~2014

~~We delivered strong financial results in the third quarter with solid performance across our businesses.~~ Based on our ~~third~~first quarter results, we ~~now~~are optimistic about the remainder of the year. We expect consolidated net sales to be between $2.58 billion and $2.60 billion. We also expect to earn ~~$0.82~~$1.47 to ~~$0.86~~$1.57 per diluted share in 2013, which includes pre-tax costs of approximately $31 million ($23.5 million on an after-tax basis, or $0.54 per diluted share) related to our portfolio realignment initiatives. We remain cautious in our outlook of the macro economic environment and related impacts on consumer sentiment and spending.2014.

Following are the consolidated results and the results by segment:



CONSOLIDATED RESULTS
	Thirteen Weeks Ended
	May 3, 2014				May 4, 2013
			% of				% of
			Net				Net
($ millions)			Sales				Sales
Net sales	$	591.2	100.0	%	$	588.7	100.0	%
Cost of goods sold		348.9	59.0	%		348.7	59.2	%
Gross profit		242.3	41.0	%		240.0	40.8	%
Selling and administrative expenses		213.6	36.1	%		213.8	36.3	%
Restructuring and other special charges, net		–	–			0.5	0.1	%
Impairment of assets held for sale		–	–			4.7	0.8	%
Operating earnings		28.7	4.9	%		21.0	3.6	%
Interest expense		(5.3)	(0.9)	%		(5.8)	(1.0)	%
Interest income		0.1	0.0	%		0.1	0.0	%
Earnings before income taxes from continuing operations		23.5	4.0	%		15.3	2.6	%
Income tax provision		(8.0)	(1.4)	%		(8.0)	(1.3)	%
Net earnings from continuing operations		15.5	2.6	%		7.3	1.3	%
Discontinued operations:
Loss from discontinued operations, net of tax		–	–			(5.6)	(1.0)	%
Disposition/impairment of discontinued operations, net of tax		–	–			(12.6)	(2.1)	%
Net loss from discontinued operations		–	–			(18.2)	(3.1)	%
Net earnings (loss)		15.5	2.6	%		(10.9)	(1.8)	%
Net earnings (loss) attributable to noncontrolling interests		0.1	0.0	%		(0.1)	0.0	%
Net earnings (loss) attributable to Brown Shoe Company, Inc.	$	15.4	2.6	%	$	(10.8)	(1.8)	%

CONSOLIDATED RESULTS

Thirteen Weeks Ended

Thirty-nine Weeks Ended

November 2, 2013

October 27, 2012

November 2, 2013

October 27, 2012

% of

% of

% of

% of

Net

Net

Net

Net

($ millions)

Sales

Sales

Sales

Sales

Net sales
$
702.8

100.0
%

$
696.0

100.0
%
$
1,913.2

100.0
%

$
1,859.1

100.0
%
Cost of goods sold

424.6

60.4
%

416.7

59.9
%

1,140.3

59.6
%

1,117.9

60.1
%
Gross profit

278.2

39.6
%

279.3

40.1
%

772.9

40.4
%

741.2

39.9
%
Selling and administrative expenses

233.5

33.2
%

236.2

33.9
%

678.5

35.5
%

659.3

35.5
%
Restructuring and other special charges, net

–

–

2.1

0.3
%

1.3

0.1
%

19.7

1.1
%
Impairment of assets held for sale

–

–

–

–

4.7

0.2
%

–

–

Operating earnings

44.7

6.4
%

41.0

5.9
%

88.4

4.6
%

62.2

3.3
%
Interest expense

(5.3)

(0.8)
%

(5.4)

(0.8)
%

(16.1)

(0.8)
%

(17.0)

(0.9)
%
Interest income

0.1

0.0
%

0.1

0.0
%

0.3

0.0
%

0.2

0.0
%
Earnings before income taxes from continuing operations

39.5

5.6
%

35.7

5.1
%

72.6

3.8
%

45.4

2.4
%
Income tax provision

(12.4)

(1.7)
%

(11.4)

(1.6)
%

(24.6)

(1.2)
%

(15.3)

(0.7)
%
Net earnings from continuing operations

27.1

3.9
%

24.3

3.5
%

48.0

2.6
%

30.1

1.7
%
Discontinued operations:

Earnings (loss) from discontinued operations, net of tax

0.2

0.0
%

–

–

(4.8)

(0.3)
%

(6.9)

(0.4)
%
Impairment of net assets/disposition of discontinued operations

–

–

–

–

(11.5)

(0.6)
%

–

–

Net earnings (loss) from discontinued operations

0.2

0.0
%

–

–

(16.3)

(0.9)
%

(6.9)

(0.4)
%
Net earnings

27.3

3.9
%

24.3

3.5
%

31.7

1.7
%

23.2

1.3
%
Net loss attributable to noncontrolling interests

–

–

–

–

(0.2)

(0.0)
%

(0.3)

(0.0)
%
Net earnings attributable to Brown Shoe Company, Inc.
$
27.3

3.9
%

$
24.3

3.5
%
$
31.9

1.7
%

$
23.5

1.3
%

Net Sales

Net sales increased ~~$6.8~~$2.5 million, or ~~1.0%~~0.4%, to ~~$702.8~~$591.2 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$696.0~~$588.7 million for the ~~third~~first quarter of ~~2012.~~2013. Net sales at our Wholesale Operations and Famous Footwear segments increased while net sales at our Specialty Retail segment decreased. Our Wholesale Operations segment reported ~~an $8.9~~a $10.2 million increase in net sales, ~~reflecting strength in many~~driven by strong sales of our ~~major brands including~~Vince, Via Spiga, Franco Sarto, and Sam Edelman ~~Franco Sarto, Vince, and LifeStride,~~brands, partially offset by ~~decreases~~a decrease in our ~~Dr. Scholl’s Shoes, Via Spiga, Naturalizer, and Fergie brands.~~Carlos Santana brand. Our Famous Footwear segment reported a ~~$2.8~~$2.3 million increase in net sales, reflecting a same-store sales increase of ~~4.9%~~1.3%, partially offset by a lower store count. Despite weaker customer traffic patterns during the quarter, Famous Footwear experienced an improved customer conversion rate, higher average unit retail prices, and an increase in pairs per transaction. Strong growth in canvas styles, women’s boots, athletics, and accessories contributed to the increase in net sales. Net sales of our Specialty Retail segment decreased ~~$4.9~~$10.0 million ~~as our same-store sales increase of 0.6% was offset by~~due to a lower store count, lower sales from our e-commerce subsidiary, a ~~lower store count,~~decrease in same-store sales of 5.6%, and a lower Canadian dollar exchange rate.

Net sales increased $54.1 million, or 2.9%, to $1,913.2 million for the nine months ended November 2, 2013, compared to $1,859.1 million for the nine months ended October 27, 2012. Net sales of our Famous Footwear and Wholesale Operations segments increased and our Specialty Retail segment decreased. Our Famous Footwear segment reported a $45.9 million increase in net sales, which reflects a same-store sales increase of 4.3% during the nine months ended November 2, 2013. Famous Footwear experienced improvement in several metrics, including customer conversion rate, average unit retail price, and pairs per transaction, partially offset by a decrease in customer traffic. Our Wholesale Operations segment reported a $15.4 million increase in net sales, reflecting strength in our Sam Edelman, Franco Sarto, LifeStride, Vince, and Dr. Scholl’s Shoes brands, partially offset by decreases in our Via Spiga, Fergie, Ryka, and Naturalizer brands, and lower sales of brands we have exited, including certain women’s specialty brands and the children’s wholesale business. The net sales of our Specialty Retail segment decreased $7.2 million, due to lower sales from our e-commerce subsidiary, a lower store count, and a lower Canadian dollar exchange rate, partially offset by an increase in same-store sales of 1.7%.

Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. Relocated stores are treated as new stores, and 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 therefore excluded from the same-store sales calculation. E-commerce sales for those e-commerce websites that function as an extension of a retail chain are included in the same-store sales calculation. For comparability purposes, same-store sales for the third quarter of 2013 are calculated based on retail sales for weeks 27 through 39 in 2013 as compared to weeks 28 through 40 in 2012. This adjustment is required due to the impact of the 53rd ~~week of sales in the fourth quarter of fiscal 2012. The calculation for the third quarter of 2013 appropriately reflects the change in same-store-sales on a comparable retail calendar week basis.~~

Gross Profit

Gross profit ~~decreased $1.1~~increased $2.3 million, or ~~0.4%~~1.0%, to ~~$278.2~~$242.3 million for the ~~third~~first quarter of 2014, compared to $240.0 million for the first quarter of 2013, ~~compared to $279.3 million for the third quarter of 2012, primarily~~ reflecting higher sales in our Wholesale Operations and Famous Footwear segments, partially offset by lower sales in our Specialty Retail ~~segment, partially offset by higher sales in our Famous Footwear and Wholesale Operations segments.~~segment. As a percentage of net sales, gross profit ~~was 39.6%~~improved to 41.0% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~40.1%~~40.8% for the ~~third~~first quarter of ~~2012.~~2013. The ~~lower~~higher gross profit rate was ~~primarily~~ driven in part by our ~~Wholesale Operations~~Famous Footwear segment, which reported a gross profit rate of ~~31.8%~~45.6% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~33.0%~~45.0% for the ~~third~~first quarter of ~~2012.~~2013. The ~~decrease~~increase in our Famous Footwear gross profit rate was driven primarily by lower inventory markdowns and lower product costs. Our Wholesale Operations gross profit rate also increased to 32.3% in the first quarter of 2014, compared to 31.8% in the first quarter of 2013. The increase was driven by ~~higher inventory markdowns, primarily for~~margin improvement from several of our wholesale brands as well as lower royalty expense due to the ~~Ryka division as we begin to reposition this brand, and lower~~acquisition of the Franco Sarto trademarks, partially offset by the reduced gross profit impact from lower retail sales of our wholesale brands in ~~our international division.~~the first quarter of 2014. Retail and Wholesale Operations net sales were ~~71%~~68% and ~~29%~~32%, respectively, in the ~~third~~first quarter of ~~2013,~~2014, compared to ~~72%~~69% and ~~28%~~31% in the ~~third~~first quarter of ~~2012.~~2013. Gross profit rates in our retail businesses are higher, on average, than in our wholesale business.

Gross profit increased $31.7 million, or 4.3%, to $772.9 million for the nine months ended November 2, 2013, compared to $741.2 million for the nine months ended October 27, 2012, driven by higher sales at both our Famous Footwear and Wholesale Operations segments. As a percentage of net sales, our gross profit increased to 40.4% for the nine months ended November 2, 2013 from 39.9% for the nine months ended October 27, 2012, reflecting improvement in each segment. At Famous Footwear, the increase in the gross profit rate was primarily driven by higher average unit retail prices and a favorable sales mix of higher margin athletic footwear. The increase in our Wholesale Operations gross profit rate was driven by a more profitable brand mix and lower product costs. During the nine months ended November 2, 2013, Retail and Wholesale Operations net sales were 70% and 30%, respectively, consistent with the nine months ended October 27, 2012.

We classify certain warehousing, distribution, sourcing, and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.

Selling and Administrative Expenses

Selling and administrative expenses decreased ~~$2.7~~$0.2 million, or ~~1.1%~~0.1%, to ~~$233.5~~$213.6 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$236.2~~$213.8 million in the ~~third~~first quarter of ~~2012. The decrease was primarily driven by~~2013. There were offsetting factors impacting this decrease. We incurred lower ~~marketing~~facility and employee expenses in ~~the retail divisions due to a shift in the timing of marketing initiatives, lower expenses related to~~ our ~~cash and share-based incentive plans, lower long-term disability benefit costs,~~Specialty Retail segment and lower ~~director compensation,~~warehouse expenses in our Wholesale Operations segment. These decreases were partially offset by ~~higher warehousing~~an increase in marketing, store rent and ~~facilities costs.~~depreciation expenses, and variable store employee compensation in our Famous Footwear segment. As a percentage of net sales, selling and administrative expenses decreased to ~~33.2%~~36.1% for the ~~third~~first quarter of 2014 from 36.3% for the first quarter of 2013, ~~from 33.9% for the third quarter of 2012,~~ reflecting ~~the factors listed above and~~ better leveraging of our expense base over higher net sales.

Selling and administrative expenses increased $19.2 million, or 2.9%, to $678.5 million for the nine months ended November 2, 2013, compared to $659.3 million for the nine months ended October 27, 2012. The increase was primarily driven by higher expenses related to our cash and stock-based incentive plans and higher warehouse and facilities costs, partially offset by lower marketing costs. As a percentage of net sales, selling and administrative expenses was 35.5% for the first nine months of 2013, consistent with the comparable period in 2012.

Restructuring and Other Special Charges, Net

We recorded no restructuring and other special charges, net for the ~~third~~first quarter of ~~2013~~2014 compared to ~~$2.1~~$0.5 million for the ~~third~~first quarter of ~~2012,~~2013, related to our portfolio realignment efforts, as further discussed in Note 65 to the condensed consolidated financial statements.

For the nine months ended November 2, 2013, we recorded restructuring and other special charges, net, of $1.3 million related to our restructuring initiatives, compared to $19.7 million for the comparable period in 2012.

Impairment of Assets Held for Sale

~~For~~During the ~~nine months ended November 2,~~first quarter of 2013, we recorded an impairment charge of $4.7 million to adjust certain sourcing and supply chain assets held for sale to their estimated fair value, as further discussed in ~~Notes 4 and 6~~Note 5 to the condensed consolidated financial statements. There was no corresponding charge during the first quarter of 2014.

Operating Earnings

Operating earnings increased ~~$3.7~~$7.7 million, or ~~9.0%~~37.1%, to ~~$44.7~~$28.7 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$41.0~~$21.0 million for the ~~third~~first quarter of ~~2012,~~2013, driven by higher net sales and a decrease in ~~selling and administrative expenses~~impairment of assets held for sale and restructuring and other

special charges, net, as described above. As a percentage of net sales, operating earnings improved to ~~6.4%~~4.9% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~5.9%~~3.6% for the ~~third~~first quarter of ~~2012.~~

Operating earnings increased $26.2 million, or 42.2%, to $88.4 million for the nine months ended November 2, 2013, compared to $62.2 million for the nine months ended October 27, 2012, driven by higher net sales, a higher gross profit rate, and lower restructuring and other special charges, partially offset by an increase in selling and administrative expenses. As a percentage of net sales, operating earnings improved to 4.6% for the nine months ended November 2, 2013, compared to 3.3% for the nine months ended October 27, 2012.2013.

Interest Expense

Interest expense decreased ~~$0.1~~$0.5 million, or ~~2.6%~~7.3%, to $5.3 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$5.4~~$5.8 million for the ~~third~~first quarter of ~~2012, primarily reflecting lower average borrowings under our revolving credit agreement.~~

~~Interest expense decreased $0.9 million, or 5.3%, to $16.1 million for the nine months ended November 2,~~ 2013, ~~compared to $17.0 million for the nine months ended October 27, 2012,~~ primarily reflecting lower average borrowings under our revolving credit agreement.

Income Tax Provision

Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate from continuing operations was ~~31.6% and 33.8%~~34.1% for the ~~three and nine months ended November 2,~~first quarter of 2014, compared to our first quarter of 2013 ~~respectively. Our 2013~~rate of 51.9%. The effective tax ~~rates are relatively consistent with~~rate was higher in the ~~rates experienced for~~first quarter of 2013 due to the ~~three and nine months ended October 27, 2012~~non-deductible nature of ~~32.0% and 33.7%, respectively.~~the $4.7 million impairment charge discussed above.

Net Earnings from Continuing Operations

We reported net earnings from continuing operations of ~~$27.1~~$15.5 million in the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$24.3~~$7.3 million in the ~~third~~first quarter of ~~2012,~~2013, as a result of the factors described above.

We reported net earnings from continuing operations of $48.0 million for the nine months ended November 2, 2013, compared to $30.1 million for the nine months ended October 27, 2012, as a result of the factors described above.

Net ~~Earnings (Loss)~~Loss from Discontinued Operations

We reported net ~~earnings~~loss from discontinued operations of ~~$0.2~~$18.2 million ~~during~~in the ~~third~~first quarter of 2013, compared to an immaterial amount of earnings in the third quarter of 2012. The increase is primarily attributable to merchandise sold under the Vera Wang license agreement. The Company communicated its intention not to renew this agreementwith no corresponding net loss during the first quarter of ~~2013, as further discussed in Note 3 to the condensed consolidated financial statements.~~

~~During the nine months ended November 2, 2013, we reported a~~2014. The net ~~loss from discontinued operations of $16.3 million, compared to a net loss of $6.9 million for the nine months ended October 27, 2012. The higher~~ loss in 2013 iswas primarily ~~related~~attributable to a non-cash impairment charge related to the sale of our Avia and Nevados ~~divisions~~brands of ~~$11.5~~$12.6 million during the first ~~half~~quarter of 2013, reflecting the estimated fair value of those ~~assets. This~~assets, which were subsequently sold during the second quarter of 2013. The net loss was also attributable to losses from our Vera Wang and Etienne Aigner brands which were classified as discontinued operations in the first quarter of 2013, partially offset by ~~decreased losses~~earnings from ~~discontinued operations~~ASG as further described in ~~2013 for the Avia and Nevados divisions, as the 2013 results include only the four months prior~~Note 3 to the ~~sale of ASG in May 2013.~~condensed consolidated financial statements.

Net Earnings (Loss) Attributable to Brown Shoe Company, Inc.

We reported net earnings attributable to Brown Shoe Company, Inc. of ~~$27.3~~$15.4 million ~~and $31.9 million for~~during the ~~three and nine months ended November 2, 2013, respectively,~~first quarter of 2014, compared to ~~$24.3~~a net loss of $10.8 million ~~and $23.5 million for~~during the ~~three and nine months ended October 27, 2012, respectively,~~first quarter of 2013, as a result of the factors described above.



FAMOUS FOOTWEAR	FAMOUS FOOTWEAR																				FAMOUS FOOTWEAR
	Thirteen Weeks Ended										Thirty-nine Weeks Ended										Thirteen Weeks Ended
	November 2, 2013					October 27, 2012					November 2, 2013					October 27, 2012					May 3, 2014					May 4, 2013
				% of					% of					% of					% of					% of					% of
($ millions, except sales per square				Net					Net					Net					Net					Net					Net
foot)				Sales					Sales					Sales					Sales					Sales					Sales
Operating Results
Net sales	$	439.6		100.0	%	$	436.8		100.0	%	$	1,180.1		100.0	%	$	1,134.2		100.0	%	$	354.6		100.0	%	$	352.3		100.0	%
Cost of goods sold		252.3		57.4	%		250.1		57.3	%		657.1		55.7	%		635.5		56.0	%		192.8		54.4	%		193.6		55.0	%
Gross profit		187.3		42.6	%		186.7		42.7	%		523.0		44.3	%		498.7		44.0	%		161.8		45.6	%		158.7		45.0	%
Selling and administrative expenses		150.3		34.2	%		150.8		34.5	%		427.9		36.2	%		416.6		36.7	%		133.9		37.7	%		129.7		36.8	%
Restructuring and other special charges, net		–		–			0.4		0.1	%		–		–			7.7		0.7	%
Operating earnings	$	37.0		8.4	%	$	35.5		8.1	%	$	95.1		8.1	%	$	74.4		6.6	%	$	27.9		7.9	%	$	29.0		8.2	%

Key Metrics
Same-store sales % change		4.9	%				6.8	%				4.3	%				4.6	%				1.3	%				1.1	%
Same-store sales $ change	$	19.5				$	26.7				$	47.0				$	47.7				$	4.5				$	3.8
Sales change from new and closed stores, net	$	(16.7)				$	(6.1)				$	(1.1)				$	(17.4)				$	(2.2)				$	1.4

Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)	$	59				$	58				$	160				$	151
Sales per square foot, excluding e-commerce (thirteen weeks ended)																					$	49				$	48
Sales per square foot, excluding e-commerce (trailing twelve-months)	$	208				$	196				$	208				$	196				$	209				$	201
Square footage (thousand sq. ft.)		7,095					7,249					7,095					7,249					6,981					7,176

Stores opened		11					18					42					43					11					12
Stores closed		22					11					49					71					21					13
Ending stores		1,048					1,061					1,048					1,061					1,034					1,054

Net Sales

Net sales increased ~~$2.8~~$2.3 million, or ~~0.6%~~0.7%, to ~~$439.6~~$354.6 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$436.8~~$352.3 million for the ~~third~~first quarter of ~~2012, as Famous Footwear reported record quarterly sales.~~2013. Same-store sales, including e-commerce, increased ~~4.9%~~1.3% during the ~~third~~first quarter of ~~2013. The end of the third quarter marked the end of another strong back-to-school season.~~2014. Despite an overall decline in customer traffic impacted by the cold weather during the first two months of the quarter, Famous Footwear reported an improved customer conversion rate, higher average unit retail prices, and an increase in pairs per transaction. ~~While nearly all geographies, climate zones, and genders reported improvement,~~We experienced sales growth in canvas styles, women’s boots, athletics, ~~sports slides, sandals, boat shoes,~~ and ~~canvas shoe styles were notable factors in our net sales growth.~~accessories. During the ~~third~~first quarter of ~~2013,~~2014, we opened 11 new stores and closed 2221 stores, resulting in ~~1,048~~1,034 stores and total square footage of ~~7.1~~7.0 million at the end of the ~~third~~first quarter of ~~2013,~~2014, compared to ~~1,061~~1,054 stores and total square footage of 7.2 million at the end of the ~~third~~first quarter of ~~2012.~~2013. Sales per square foot, excluding e-commerce, increased ~~2.1%~~3.7% to ~~$59~~$49 in the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$58~~$48 in the ~~third~~first quarter of last year. On a trailing twelve month basis, sales per square foot, excluding e-commerce, increased 4.0% to $209 for the twelve months ended May 3, 2014, compared to $201 for the twelve months ended May 4, 2013. Members of our customer loyalty program, Rewards, continue to account for a majority of the segment’s sales, with approximately ~~74%~~72% of our net sales made to members of our Rewards program in the ~~third~~first quarter of ~~2013, as~~2014, compared to approximately ~~71%~~68% in the ~~third~~first quarter of ~~2012.~~

Net sales increased $45.9 million, or 4.0%, to $1,180.1 million for the nine months ended November 2, 2013, compared to $1,134.2 million for the comparable period in 2012. Same-store sales, including e-commerce, increased 4.3% during the nine months ended November 2, 2013, primarily due to increases in our conversion rate, average unit retail prices, and pairs per transaction, partially offset by a decrease in customer traffic. Growth in athletics, sports slides, sandals, and canvas shoe styles also contributed to our increase in net sales. Sales per square foot, excluding e-commerce, increased 6.0% to $160 for the nine months ended November 2, 2013, compared to $151 for the nine months ended October 27, 2012. On a trailing twelve month basis, sales per square foot, excluding e-commerce, increased 6.2% to $208 for the twelve months ended November 2, 2013, as compared to $196 for the twelve months ended October 27, 2012.2013.

Gross Profit

Gross profit increased ~~$0.6~~$3.1 million, or ~~0.3%~~2.0%, to ~~$187.3~~$161.8 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$186.7~~$158.7 million for the ~~third~~first quarter of ~~2012,~~2013, due primarily to the growth in net sales. As a percentage of net sales, our gross profit was ~~42.6%~~45.6% for the ~~third~~first quarter

of ~~2013, down slightly~~2014, compared to the gross profit rate of ~~42.7%~~45.0% for the ~~third~~first quarter of ~~2012. Although we experienced a favorable sales mix of higher margin athletics and boots, this improvement was partially offset by higher inventory markdowns.~~

Gross profit increased $24.3 million, or 4.9%, to $523.0 million for the nine months ended November 2, 2013, compared to $498.7 million for the nine months ended October 27, 2012, primarily reflecting the increase in net sales. As a percentage of net sales, our gross profit was 44.3% for the nine months ended November 2, 2013, compared to 44.0% for the comparable period in 2012.2013. The increase in our gross profit rate was primarily driven by ~~higher average unit retail prices~~lower inventory markdowns and ~~a favorable sales mix of higher margin athletic footwear.~~ lower product costs.

Selling and Administrative Expenses

Selling and administrative expenses ~~decreased $0.5~~increased $4.2 million, or ~~0.4%~~3.3%, to ~~$150.3~~$133.9 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$150.8~~$129.7 million for the ~~third~~first quarter of ~~2012.~~2013. The ~~decrease~~increase was primarily attributable to ~~lower~~higher marketing expenses, ~~partially offset by higher~~ store rent and depreciation ~~expense,~~expenses, and variable store employee costs, and distribution center expenses. Our marketing expenses were shifted from the third quarter to earlier in 2013 as the segment invested in national television advertising with Good Morning America early in 2013.compensation. As a percentage of net sales, selling and administrative expenses ~~decreased~~increased to ~~34.2%~~37.7% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~34.5%~~36.8% for the ~~third~~first quarter of ~~2012.~~2013.

Selling and administrative expenses increased $11.3 million, or 2.7%, to $427.9 million for the nine months ended November 2, 2013, compared to $416.6 million for the nine months ended October 27, 2012. The increase was primarily attributable to increases in variable store employee costs, store depreciation expense, and distribution center expenses. As a percentage of net sales, selling and administrative expenses decreased to 36.2% for the nine months ended November 2, 2013, compared to 36.7% for the nine months ended October 27, 2012, reflecting better leveraging of our expense base over higher net sales.

~~Restructuring and Other Special Charges, Net~~

We did not incur restructuring and other special charges for the three and nine months ended November 2, 2013. We incurred $0.4 million and $7.7 million of restructuring and other special charges, net during the three and nine months ended October 27, 2012, respectively, related to our portfolio realignment efforts, which included the closure or relocation of underperforming stores and the closure of a distribution center.34

Operating Earnings

Operating earnings ~~increased $1.5~~decreased $1.1 million, or ~~4.3%~~4.0%, to ~~$37.0~~$27.9 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$35.5~~$29.0 million for the ~~third~~first quarter of ~~2012.~~2013. The ~~increase~~decrease was due to ~~a combination of~~ higher ~~net sales, lower~~ selling and administrative expenses, partially offset by higher net sales and ~~a decrease in restructuring and other special charges, net,~~gross profit rate, as described above. As a percentage of net sales, operating earnings ~~improved~~decreased to ~~8.4%~~7.9% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~8.1%~~8.2% for the ~~third~~first quarter of ~~2012.~~2013.

Operating earnings increased $20.7 million, or 27.8%, to $95.1 million for the nine months ended November 2, 2013, compared to $74.4 million for the nine months ended October 27, 2012. The increase was due to both higher net sales and gross profit rate, and a reduction in restructuring and other special charges, net, partially offset by higher selling and administrative expenses, as described above. As a percentage of net sales, operating earnings improved to 8.1% for the nine months ended November 2, 2013, compared to 6.6% for the comparable period in 2012.



WHOLESALE OPERATIONS	WHOLESALE OPERATIONS																WHOLESALE OPERATIONS
	Thirteen Weeks Ended								Thirty-nine Weeks Ended								Thirteen Weeks Ended
	November 2, 2013				October 27, 2012				November 2, 2013				October 27, 2012				May 3, 2014				May 4, 2013
			% of				% of				% of				% of				% of				% of
			Net				Net				Net				Net				Net				Net
($ millions)			Sales				Sales				Sales				Sales				Sales				Sales
Operating Results
Net sales	$	205.3	100.0	%	$	196.4	100.0	%	$	567.3	100.0	%	$	551.9	100.0	%	$	191.8	100.0	%	$	181.6	100.0	%
Cost of goods sold		140.1	68.2	%		131.7	67.0	%		388.4	68.5	%		381.8	69.2	%		129.8	67.7	%		123.8	68.2	%
Gross profit		65.2	31.8	%		64.7	33.0	%		178.9	31.5	%		170.1	30.8	%		62.0	32.3	%		57.8	31.8	%
Selling and administrative expenses		48.4	23.6	%		48.1	24.6	%		144.9	25.5	%		139.0	25.1	%		48.2	25.1	%		49.5	27.3	%
Restructuring and other special charges, net		–				1.4	0.7	%		1.2	0.2	%		5.3	1.0	%		–				0.5	0.2	%
Impairment of assets held for sale		–				–	–			4.7	0.8	%		–	–			–				4.7	2.6	%
Operating earnings	$	16.8	8.2	%	$	15.2	7.7	%	$	28.1	5.0	%	$	25.8	4.7	%	$	13.8	7.2	%	$	3.1	1.7	%

Key Metrics
Unfilled order position at end of period	$	311.7			$	299.9											$	368.6			$	314.9

Net Sales

Net sales increased ~~$8.9~~$10.2 million, or ~~4.5%~~5.6%, to ~~$205.3~~$191.8 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$196.4~~$181.6 million for the ~~third~~first quarter of ~~2012.~~2013. The increase reflects strength in many of our brands including ~~Sam Edelman,~~Vince, Via Spiga, Franco Sarto, ~~Vince,~~ and ~~LifeStride,~~Sam Edelman, partially offset by ~~decreases~~a decrease in our ~~Dr. Scholl’s Shoes,~~Carlos Santana brand. Our Vince brand has experienced strong growth since it launched in the fall of 2012. The Via Spiga ~~Naturalizer, and Fergie brands. For the fall season, our product categories of high-shaft boots, shooties and booties have performed particularly well.In addition, as disclosed last quarter, we~~brand has experienced a ~~shift of approximately $7 million in net sales for shipments, primarily in our Naturalizer brand, that had been previously planned for~~strong turnaround as the ~~third quarter, that were shipped during the second quarter.~~new spring product resonated well with consumers. Our unfilled order position increased ~~$11.8~~$53.7 million, or ~~3.9%~~17.1%, from ~~$299.9~~$314.9 million as of ~~October 27, 2012~~May 4, 2013 to ~~$311.7~~$368.6 million as of ~~November 2, 2013,~~May 3, 2014 primarily due to growth in our Sam Edelman, Franco Sarto, Naturalizer, and Vince brands.

Net sales increased $15.4 million, or 2.8%, to $567.3 million for the nine months ended November 2, 2013, compared to $551.9 million for the nine months ended October 27, 2012. The increase was primarily attributable to increases in our Sam Edelman, Franco Sarto, LifeStride, Vince, and Dr. Scholl’s Shoes brands, partially offset by decreases in our Via Spiga, Fergie, Ryka, and Naturalizer brands and lower sales of brands we have exited, including certain women’s specialty brands and the children’s wholesale business.

Gross Profit

Gross profit increased ~~$0.5~~$4.2 million, or ~~0.7%~~7.3%, to ~~$65.2~~$62.0 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$64.7~~$57.8 million for the ~~third~~first quarter of ~~2012,~~2013, reflecting the increase in net sales volume. As a percentage of net sales, our gross profit ~~decreased~~increased to 32.3% for the first quarter of 2014 from 31.8% for the ~~third~~first quarter of ~~2013 from 33.0% for the third quarter of 2012.~~2013. The ~~decrease~~increase in our Wholesale Operations gross profit rate was driven by ~~higher inventory markdowns, primarily for~~margin improvement from several of our ~~Ryka division~~wholesale brands as ~~we begin~~well as lower royalty expense due to ~~reposition this brand, and lower~~the acquisition of the Franco Sarto trademarks, as discussed above, partially offset by the reduced gross profit impact from lower sales of our wholesale brands through our retail divisions in ~~our international division.~~

~~Gross profit increased $8.8 million, or 5.2%, to $178.9 million for~~ the ~~nine months ended November 2, 2013, compared to $170.1 million for the nine months ended October 27, 2012. As a percentage~~first quarter of net sales, our gross profit increased to 31.5% for the nine months ended November 2, 2013 from 30.8% for the comparable period in 2012, primarily driven by a more profitable brand mix and lower product costs. 2014.

Selling and Administrative Expenses

Selling and administrative expenses ~~increased $0.3~~decreased $1.3 million, or ~~0.6%~~2.6%, to ~~$48.4~~$48.2 million for the ~~third~~first quarter of 2014, compared to $49.5 million for the first quarter of 2013, ~~compared to $48.1 million for the third quarter of 2012. Wholesale Operations incurred higher~~driven in part by lower warehouse expenses during the ~~quarter, which were partially offset by a lower cost structure resulting from exiting certain brands under our portfolio realignment initiatives.~~quarter. As a percentage of net sales, selling and administrative expenses decreased to ~~23.6%~~25.1% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~24.6%~~27.3% for the ~~third~~first quarter of ~~2012,~~2013, reflecting better leveraging of our expense base over higher net sales.

Selling and administrative expenses increased $5.9 million, or 4.3%, to $144.9 million for the nine months ended November 2, 2013, compared to $139.0 million for the nine months ended October 27, 2012, driven in part by higher expenses related to our cash and stock-based incentive plans and higher warehouse expenses. As a percentage of net sales, selling and administrative expenses increased to 25.5% for the nine months ended November 2, 2013, compared to 25.1% for the comparable period in 2012.

Restructuring and Other Special Charges, Net

We incurred no restructuring and other special charges ~~net~~during the first quarter of ~~zero and $1.2~~2014, compared to $0.5 million during the ~~three and nine months ended November 2, 2013, respectively, compared to $1.4 million and $5.3 million during the three and nine months ended October 27, 2012, respectively.~~first quarter of 2013. Our portfolio realignment efforts ~~include~~included the exit of certain brands, the sale and closure of sourcing and supply chain assets, and other changes to our infrastructure, as further discussed in ~~Notes 4 and 6~~Note 5 to the condensed consolidated financial statements. ~~These initiatives are substantially complete.~~

Impairment of Assets Held for Sale

Operating Earnings

Operating earnings increased ~~$1.6~~$10.7 million ~~or 10.6%,~~ to ~~$16.8~~$13.8 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$15.2~~$3.1 million for the ~~third~~first quarter of ~~2012.~~2013. The increase was primarily driven by ~~an increase in~~higher net sales and ~~a decrease~~gross profit rate and decreases in impairment of assets held for sale

and restructuring and other special ~~charges, partially offset by a lower gross profit rate and an increase in selling and administrative expenses.~~charges. As a percentage of net sales, operating earnings increased to ~~8.2%~~7.2% for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~7.7%~~1.7% in the ~~third~~first quarter of ~~2012.~~2013.

Operating earnings increased $2.3 million, or 8.7%, to $28.1 million for the nine months ended November 2, 2013, compared to $25.8 million for the nine months ended October 27, 2012. The increase was primarily driven by an increase in net sales and gross profit rate and a decrease in restructuring and other special charges, partially offset by an increase in selling and administrative expenses and a 2013 impairment charge on certain supply chain and sourcing assets held for sale. As a percentage of net sales, operating earnings increased to 5.0% for the nine months ended November 2, 2013, compared to 4.7% for the comparable period in 2012.



SPECIALTY RETAIL	SPECIALTY RETAIL																				SPECIALTY RETAIL

	Thirteen Weeks Ended										Thirty-nine Weeks Ended										Thirteen Weeks Ended
	November 2, 2013					October 27, 2012					November 2, 2013					October 27, 2012					May 3, 2014					May 4, 2013
				% of					% of					% of					% of					% of					% of
($ millions, except sales per				Net					Net					Net					Net					Net					Net
square foot)				Sales					Sales					Sales					Sales					Sales					Sales
Operating Results
Net sales	$	57.9		100.0	%	$	62.8		100.0	%	$	165.7		100.0	%	$	172.9		100.0	%	$	44.8		100.0	%	$	54.8		100.0	%
Cost of goods sold		32.1		55.5	%		34.8		55.5	%		94.7		57.1	%		100.4		58.1	%		26.3		58.6	%		31.3		57.0	%
Gross profit		25.8		44.5	%		28.0		44.5	%		71.0		42.9	%		72.5		41.9	%		18.5		41.4	%		23.5		43.0	%
Selling and administrative expenses		25.6		44.1	%		25.9		41.3	%		73.9		44.7	%		76.5		44.2	%		22.2		49.6	%		24.8		45.4	%
Restructuring and other special charges, net		–		–			0.3		0.4	%		–		–			3.6		2.1	%
Operating earnings (loss)	$	0.2		0.4	%	$	1.8		2.8	%	$	(2.9)		(1.8)	%	$	(7.6)		(4.4)	%
Operating loss																					$	(3.7)		(8.2)	%	$	(1.3)		(2.4)	%

Key Metrics
Same-store sales % change		0.6	%				8.4	%				1.7	%				3.2	%				(5.6)	%				(0.3)	%
Same-store sales $ change	$	0.2				$	3.2				$	1.8				$	3.5				$	(1.8)				$	(0.1)
Sales change from new and closed stores, net	$	(1.3)				$	(3.1)				$	(3.7)				$	(10.7)				$	(3.7)				$	(0.5)
Impact of changes in Canadian exchange rate on sales	$	(0.9)				$	0.3				$	(1.4)				$	(0.9)				$	(0.9)				$	(0.3)
Sales change of e-commerce subsidiary	$	(2.9)				$	(1.6)				$	(3.9)				$	(3.3)				$	(3.6)				$	(0.4)

Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)	$	109				$	109				$	302				$	297
Sales per square foot, excluding e-commerce (thirteen weeks ended)																					$	84				$	91
Sales per square foot, excluding e-commerce (trailing twelve-months)	$	400				$	403				$	400				$	403				$	391				$	397
Square footage (thousand sq. ft.)		325					352					325					352					307					336

Stores opened		4					10					10					22					1					2
Stores closed		34					11					47					33					8					9
Ending stores		185					223					185					223					172					215

Net Sales

Net sales decreased ~~$4.9~~$10.0 million, or ~~7.8%~~18.3%, to ~~$57.9~~$44.8 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$62.8~~$54.8 million for the ~~third~~first quarter of ~~2012.~~2013. The decrease in net sales reflects a ~~$2.9~~lower store count due in part to the transfer of our China retail operations to C. banner International Holdings Limited as further discussed in Note 14 to the condensed consolidated financial statements, a $3.6 million decrease in net sales at our e-commerce subsidiary, a ~~lower store count,~~decrease in same-store sales of 5.6%, and a lower Canadian dollar exchange ~~rate, partially offset by an increase in same-store sales of 0.6%.~~rate. We opened ~~four~~one new retail ~~stores~~store and closed 34eight stores during the ~~third~~first quarter of ~~2013,~~2014, resulting in a total of ~~185~~172 stores and total square footage of 0.3 million at the end of the first quarter of 2014, compared to 215 stores (including ~~two~~25 Naturalizer stores in China) and total square footage of 0.3 million at the end of the ~~third~~first quarter of 2013. During 2013, ~~compared to 223 stores (including 22~~all Naturalizer stores in ~~China) and total square footage of 0.4 million at the end of the third quarter of 2012.~~China were either closed or transferred to our joint venture partner. Sales per square foot, excluding e-commerce, was ~~$109~~$84 for the ~~third~~first quarter of ~~2013, consistent with~~2014, compared to $91 for the ~~third~~first quarter of ~~2012.~~

Net sales decreased $7.2 million, or 4.2%, to $165.7 million for the nine months ended November 2, 2013, compared to $172.9 million for the nine months ended October 27, 2012. The decrease in net sales reflects a $3.9 million decrease in sales at our e-commerce subsidiary, a lower store count, and a lower Canadian dollar exchange rate, partially offset by an increase in same-store sales of 1.7%. As a result of these factors, sales per square foot, excluding e-commerce, increased 1.7% to $302 for the nine months ended November 2, 2013, compared to $297 for the nine months ended October 27, 2012.2013. On a trailing twelve month basis, sales per square foot, excluding e-commerce, decreased ~~0.6%~~1.7% to ~~$400~~$391 for the twelve months ended ~~November 2, 2013, from $403~~May 3, 2014 compared to $397 for the twelve months ended ~~October 27, 2012.~~May 4, 2013.

Gross Profit

Gross profit decreased ~~$2.2~~$5.0 million, or ~~7.8%~~21.2%, to ~~$25.8~~$18.5 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$28.0~~$23.5 million for the ~~third~~first quarter of ~~2012,~~2013, driven by the decrease in net ~~sales.~~sales and a lower gross profit rate. As a percentage of net sales, our gross profit decreased to 41.4% for the ~~third~~first quarter of ~~2013 of 44.5% was consistent with~~2014 from 43.0% for the ~~third~~first quarter of ~~2012.~~

Gross profit decreased $1.5 million, or 2.0%, to $71.0 million for the nine months ended November 2, 2013, compared to $72.5 million for the nine months ended October 27, 2012, reflecting the lower net sales volume for the period. As a percentage of net sales, our gross profit increased to 42.9% for the nine months ended November 2, 2013 from 41.9% for the nine months ended October 27, 2012.2013. The ~~increase~~decrease in our gross profit rate was driven primarily ~~driven~~ by ~~a favorable sales~~higher inventory markdowns and an unfavorable mix of ~~higher~~lower margin ~~product and inventory markdowns.~~product.

Selling and Administrative Expenses

Selling and administrative expenses decreased ~~$0.3~~$2.6 million, or ~~1.4%~~10.6%, to ~~$25.6~~$22.2 million for the ~~third~~first quarter of 2014, compared to $24.8 million for the first quarter of 2013, ~~compared to $25.9 million for the third quarter of 2012,~~ reflecting lower ~~payroll~~facility and ~~marketing~~employee expenses as a result of the lower store count, partially offset by higher distribution center costs. As a percentage of net sales, selling and administrative expenses increased to 44.1% for the third quarter of 2013 from 41.3% for the third quarter of 2012, reflecting the de-leveraging of the expense base over lower net sales.

Selling and administrative expenses decreased $2.6 million, or 3.2%, to $73.9 million for the nine months ended November 2, 2013, compared to $76.5 million for the nine months ended October 27, 2012, reflecting lower payroll, facility, and marketing expenses as a result of theour lower store count. As a percentage of net sales, selling and administrative expenses increased to ~~44.7%~~49.6% for the ~~nine months ended November 2, 2013, compared to 44.2%~~first quarter of 2014 from 45.4% for the ~~comparable period in 2012,~~first quarter of 2013, reflecting the de-leveraging of the expense base over lower net sales.

~~Restructuring and Other Special Charges, Net~~

We incurred no restructuring and other special charges during the three and nine months ended November 2, 2013, compared to $0.3 million and $3.6 million during the three and nine months ended October 27, 2012, respectively, for our portfolio realignment efforts, which included costs to close underperforming stores.

Operating ~~Earnings (Loss)~~Loss

Specialty Retail reported an operating ~~earnings~~loss of ~~$0.2~~$3.7 million for the ~~third~~first quarter of ~~2013,~~2014, compared to ~~$1.8~~an operating loss of $1.3 million for the ~~third~~first quarter of ~~2012,~~2013. The increase in our operating loss was primarily ~~due to~~driven by lower net sales, partially offset by lower selling and administrative expenses, ~~and restructuring and other special charges,~~ as discussed above.

Specialty Retail reported an operating loss of $2.9 million for the nine months ended November 2, 2013, compared to a $7.6 million loss for the nine months ended October 27, 2012, primarily reflecting lower restructuring and other special charges, lower selling and administrative expenses, and a higher gross profit rate.

OTHER SEGMENT

The Other segment includes unallocated corporate administrative expenses and other costs and recoveries.

The segment reported costs of ~~$9.4~~$9.2 million for the ~~third~~first quarter of ~~2013,~~2014, compared to costs of ~~$11.5~~$9.9 million for the ~~third~~first quarter of ~~2012. The primary drivers of the $2.1 million decrease include lower director compensation and employee disability benefit costs.~~2013.

The segment reported costs of $31.8 million for the nine months ended November 2, 2013, compared to costs of $30.4 million for the nine months ended October 27, 2012. The primary drivers of the $1.4 million increase include higher expenses related to consulting, cash and stock-based incentive plans, and director compensation, partially offset by lower restructuring and other special charges and employee disability benefit costs.


LIQUIDITY AND CAPITAL RESOURCES

Borrowings



	November 2,		October 27,		February 2,		May 3,		May 4,		February 1,
($ millions)	2013		2012		2013		2014		2013		2014
Borrowings under revolving credit agreement	$	–	$	110.0	$	105.0	$	–	$	66.0	$	7.0
Senior notes		199.0		198.8		198.8
Long-term debt – Senior Notes								199.1		198.9		199.0
Total debt	$	199.0	$	308.8	$	303.8	$	199.1	$	264.9	$	206.0

Total debt obligations decreased ~~$109.8~~$65.8 million to ~~$199.0~~$199.1 million at ~~November 2, 2013,~~May 3, 2014, compared to ~~$308.8~~$264.9 million at ~~October 27, 2012,~~May 4, 2013, and decreased ~~$104.8~~$6.9 million from ~~$303.8~~$206.0 million at February ~~2, 2013~~1, 2014 due to lower borrowings under our revolving credit agreement, resulting from ~~the cash proceeds from the sale of~~ our ~~Avia and Nevados divisions in the second quarter of 2013 and our~~strong cash provided by operating ~~activities.~~activities over the respective periods, partially offset by the $65 million acquisition of the Franco Sarto trademarks in the first quarter of 2014. As a result of the lower average borrowings under our revolving credit agreement, interest expense for the ~~third~~first quarter of ~~2013~~2014 decreased ~~$0.1~~$0.5 million to $5.3 million, compared to ~~$5.4~~$5.8 million for the ~~third~~first quarter of ~~2012.~~2013.

Credit Agreement

On January 7, 2011, Brown Shoe Company, Inc. and certain of our subsidiaries (the “Loan Parties”) entered into a Third Amended and Restated Credit Agreement, which was further amended on February 17, 2011 (as so amended, the “Credit Agreement”). The Credit Agreement matures on January 7, 2016 and provides for a revolving credit facility in an aggregate amount of up to $530.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at our option of up to $150.0 million from time to time during the term of the Credit Agreement (the “general purpose accordion feature”) subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase.

Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory, and certain other collateral.

Interest on borrowings is at variable rates based on the London ~~Inter-Bank~~Interbank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.

The Credit Agreement limits our ability to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of (i) 15.0% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million for three consecutive business days, or an event of default occurs, the lenders may assume dominion and control over our cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.

The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security document supporting the agreement to be in full force and effect and a change of control event. In addition, if the excess availability falls below the greater of (i) 12.5% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million, and the fixed charge coverage ratio is less than 1.0 to 1.0, we would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. We were in compliance with all covenants and restrictions under the Credit Agreement as of ~~November 2, 2013~~May 3, 2014 in all material respects.

At ~~November 2, 2013,~~May 3, 2014, we had no borrowings outstanding and ~~$11.1~~$6.4 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was ~~$514.6~~$491.5 million at ~~November 2, 2013.~~May 3, 2014. While we had no borrowings outstanding under the Credit Agreement as of ~~November 2, 2013,~~May 3, 2014, we anticipate using the facility as we purchase inventory for our ~~spring~~fall selling season.

$200 Million Senior Notes Due 2019

On May 11, 2011, we issued $200.0 million aggregate principal amount of 7.125% Senior Notes due 2019 (the “2019 Senior Notes”). We used a portion of the net proceeds to call and redeem the outstanding 8.75% senior notes due in 2012. We used the remaining net proceeds for general corporate purposes, including repaying amounts outstanding under the Credit Agreement.

The 2019 Senior Notes are guaranteed on a senior unsecured basis by each of our subsidiaries that is an obligor under the Credit Agreement. Interest on the 2019 Senior Notes is payable on May 15 and November 15 of each year. The 2019 Senior Notes mature on May 15, 2019. Prior to May 15, 2014, we ~~may~~had the option to redeem some or all of the 2019 Senior Notes at a redemption price equal to the sum of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest, plus a “make whole” premium. ~~After~~Effective May 15, 2014, we may redeem all or a part of the 2019 Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, if redeemed during the 12-month period beginning on May 15 of the years indicated below:



Year	Percentage
2014	105.344%
2015	103.563%
2016	101.781%
2017 and thereafter	100.000%

In addition, prior to May 15, 2014, we may redeem up to 35% of the 2019 Senior Notes with the proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest thereon, if any, to the redemption date.

The 2019 Senior Notes also contain certain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions, and sales of assets. As of ~~November 2, 2013,~~May 3, 2014, we were in compliance with all covenants and restrictions relating to the 2019 Senior Notes in all material respects.

~~On May 14, 2013, ASG was sold and ceased to be a borrower under the Credit Agreement. See Note 3 to the condensed consolidated financial statements for further information regarding the sale.~~

Working Capital and Cash Flow



	Thirty-nine Weeks Ended						Thirteen Weeks Ended
	November 2,		October 27,		Increase/		May 3,		May 4,		Increase/
($ millions)	2013		2012		(Decrease)		2014		2013		(Decrease)
Net cash provided by operating activities	$	62.0	$	143.5	$	(81.5)	$	36.4	$	25.9	$	10.5
Net cash provided by (used for) investing activities		27.7		(49.5)		77.2
Net cash used for investing activities								(73.7)		(6.9)		(66.8)
Net cash used for financing activities		(113.9)		(101.0)		(12.9)		(9.1)		(42.1)		33.0
Effect of exchange rate changes on cash and cash equivalents		(1.6)		0.2		(1.8)		0.5		(0.5)		1.0
Decrease in cash and cash equivalents	$	(25.8)	$	(6.8)	$	(19.0)	$	(45.9)	$	(23.6)	$	(22.3)

Reasons for the major variances in cash provided (used) in the table above are as follows:

Cash provided by operating activities was ~~$81.5~~$10.5 million ~~lower for~~higher in the ~~nine months ended November 2, 2013~~first quarter of 2014 as compared to the ~~comparable period in 2012,~~first quarter of 2013, reflecting the following factors:

~~An increase in inventory in the nine months ended November 2, 2013 to support the Company’s higher level of sales compared to a decrease in inventory for the comparable period in 2012;~~

Higher net earnings;

~~An increase~~

A larger decrease in inventories in the first quarter of 2014 compared to the comparable period in 2013;

A larger decrease in accounts receivable in the ~~nine months ended November 2, 2013 in support~~first quarter of ~~the higher Wholesale Operations sales volume,~~2014 compared to ~~a decrease in accounts receivable for~~ the comparable period in ~~2012;~~2013 due to strong customer collections; partially offset by

An increase in prepaid expenses and other current assets in the nine months ended November 2, 2013 driven by the promissory note received in conjunction with the sale of ASG, compared to a decrease for the comparable period in 2012;

·	A larger decrease in trade accounts payable in the ~~nine months ended November 2, 2013,~~first quarter of 2014 compared to the comparable period in ~~2012~~2013 due to the timing of payments; ~~partially offset by~~and

~~An increase~~

A larger decrease in ~~non-cash impairment~~accrued expenses and other liabilities in the first quarter of ~~net assets/disposition~~2014 compared to the comparable period in 2013 due to the timing of ~~discontinued operations and assets held for sale as well as higher net earnings.~~payments.

Cash ~~provided by~~used for investing activities was ~~$77.2~~$66.8 million higher for the ~~nine months ended November 2, 2013,~~first quarter of 2014, as compared to the comparable period in ~~2012~~2013 due to the ~~$69.3~~$65 million acquisition of the Franco Sarto trademarks and a $1.5 million decrease in net proceeds from the sale of ~~subsidiaries, a $5.0 million decrease in acquisition costs, and a $2.9 million aggregate decrease in purchases of property and equipment and capitalized software.~~subsidiaries. We expect purchases of property and equipment and capitalized software of approximately ~~$54~~$53 million to ~~$56~~$57 million in ~~2013, primarily related to remodeled and new stores and general infrastructure.~~2014.

Cash used for financing activities was ~~$12.9~~$33.0 million ~~higher~~lower for the ~~nine months ended November 2, 2013~~first quarter of 2014 as compared to the comparable period in ~~2012~~2013 primarily due to ~~higher~~lower net repayments ~~net of borrowings,~~ under our Credit Agreement, as weour borrowings under the Credit Agreement were reduced ~~our outstanding borrowings to zero as~~more significantly during the first quarter of ~~November 2, 2013, partially offset by a higher tax benefit associated with our share-based plans.~~2013.

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



	November 2, 2013		October 27, 2012			February 2, 2013		May 3, 2014		May 4, 2013			February 1, 2014
Working capital ($ millions)⁽¹⁾	$	397.9		$	310.0	$	303.3	$	355.7		$	327.1	$	405.7

Current ratio ⁽²⁾	2.12:1		1.70:1			1.65:1		2.05:1		1.83:1			2.05:1

Debt-to-capital ratio ⁽³⁾	30.6%		41.7%			41.6%		28.8%		39.1%			30.1%

(1)

Working capital has been computed as total current assets less total current liabilities.

(2)

The current ratio has been computed by dividing total current assets by total current liabilities.

(3)

The debt-to-capital ratio has been computed by dividing total debt by total capitalization. Total debt is defined as long-term debt and borrowings under the revolving credit agreement. Total capitalization is defined as total debt and total shareholders’ equity.

Working capital at ~~November 2, 2013,~~May 3, 2014, was ~~$397.9~~$355.7 million, which was ~~$94.6~~$50.0 million lower than at February 1, 2014 and $28.6 million higher than at ~~February 2, 2013 and $87.9 million higher than at October 27, 2012.~~May 4, 2013. Our current ratio ~~increased to 2.12~~was 2.05 to 1 as of ~~November 2, 2013 compared to 1.65~~May 3, 2014, consistent with February 1, 2014, and 1.83 to 1 at ~~February 2, 2013, and 1.70 to 1 at October 27, 2012.~~May 4, 2013. The ~~increase~~improvement in the current ratio from ~~October 27, 2012~~May 4, 2013 to ~~November 2, 2013~~May 3, 2014 was ~~primarily~~ driven by ~~higher inventory~~our cash provided by operating activities and lower borrowings under our revolving credit agreement due to the cash proceeds from the sale of our Avia and Nevados divisions in May 2013 and cash provided by operating activities in 2013. The increase in the current ratio from February 2, 2013 as compared to November 2, 2013 was primarily driven by an increase in inventory, a decrease in accounts payable, and a decrease in borrowings under our revolving credit agreement, reflecting the proceeds from the sale of subsidiaries and cash provided by operating activities in 2013.agreement. Our debt-to-capital ratio was ~~30.6%~~28.8% as of ~~November 2, 2013,~~May 3, 2014, compared to ~~41.6%~~30.1% as of February ~~2, 2013~~1, 2014 and ~~41.7%~~39.1% as of ~~October 27, 2012.~~May 4, 2013. The decrease in our debt-to-capital ratio from February 2,1, 2014 and May 4, 2013 ~~and October 27, 2012~~ is primarily due to lower borrowings under our revolving credit agreement.

At ~~November 2, 2013,~~May 3, 2014, we had ~~$42.4~~$36.7 million of cash and cash equivalents, substantially all of which represents cash and cash equivalents of our foreign subsidiaries. In accordance with Internal Revenue Service guidelines limiting the length of time that our parent company

can borrow funds from foreign subsidiaries, Brown Shoe Company, Inc. utilizes the cash and cash equivalents of its foreign subsidiaries to manage the liquidity needs of the consolidated company and minimize interest expense on a consolidated basis.

~~On May 14, 2013,~~As further discussed in Note 7 to the condensed consolidated financial statements, on February 3, 2014, we ~~sold ASG. The proceeds from~~purchased the ~~sale were utilized to pay down the revolving credit facility.~~Franco Sarto trademarks for $65.0 million.

We declared and paid dividends of $0.07 per share in both the ~~third~~first quarter of ~~2013~~2014 and the ~~third~~first quarter of ~~2012.~~2013. The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions, and other factors deemed relevant by our Board of Directors; however, we presently expect that dividends will continue to be paid.


CONTRACTUAL OBLIGATIONS

Our contractual obligations primarily consist of purchase obligations, operating lease commitments, ~~purchase obligations,~~long-term debt, interest on long-term debt, minimum license commitments, borrowings under our revolving credit agreement, ~~long-term debt, minimum license commitments, interest on long-term debt,~~ obligations for our supplemental executive retirement plan and other postretirement benefits, and obligations related to our restructuring ~~and expense and capital containment~~ initiatives.

During the first quarter of 2013, in connection with our agreement to sell certain supply chain and sourcing assets we entered into a minimum purchase commitment contract with the purchaser of these assets to source the manufacturing of eight million pairs of shoes over the next two years, four million each year, at market pricing. The agreement also allows a six month extension (through approximately January 2016) in the event that the required purchase level has not been met at the end of the two year period. This represents less than 10% of the Company’s sourcing requirements related to its Wholesale Operations division. The total purchase obligation is estimated at approximately $100 million. This commitment can be fulfilled from a defined group of facilities owned by the purchaser.

As discussed earlier, we sold our ASG subsidiary on May 14, 2013. In connection with the sale of ASG, we entered into a six-month transition services agreement. Certain lease and purchase obligations associated with that subsidiary are no longer obligations of the Company after May 14, 2013, or in some cases, beyond the six-month transition services period.

Except for ~~the~~ changes ~~discussed above and~~ within the normal course of business (primarily changes in purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations, borrowings under and repayments of our revolving credit agreement and changes in operating lease commitments as a result of new stores, store closures and lease renewals), there have been no other significant changes to our contractual obligations identified in our Annual Report on Form 10-K for the year ended February ~~2, 2013.~~1, 2014.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. The adoption of new accounting pronouncements is described in Note 2 to the condensed consolidated financial statements. For further information, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended February ~~2, 2013.~~1, 2014.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements and their impact on the Company are described in Note 2 to the condensed consolidated financial statements.


FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain forward-looking statements and expectations regarding the Company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii) ~~intense competition within the footwear industry; (iii)~~ rapidly changing fashion trends and purchasing patterns; (iii) intense competition within the footwear industry; (iv) ~~customer concentration~~the ability to accurately forecast sales and ~~increased consolidation in the retail industry;~~manage inventory levels; (v) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China, where Brown Shoe Company relies heavily on manufacturing facilities for a significant amount of their inventory; (vi) cybersecurity threats or other major disruption to the ~~ability to recruit~~Company’s information technology systems; (vii) customer concentration and ~~retain senior management and~~increased consolidation in the retail industry; (viii) a disruption in the Company’s distribution centers; (ix) foreign currency fluctuations; (x) additional duties, quotas, tariffs or other key associates; (vii) the ability to attract, retain, and maintain good relationships with licensors and protect intellectual property rights; (viii) the ability to secure/exit leases on favorable terms; (ix) the ability to maintain relationships with current suppliers; (x)trade restrictions; (xi) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; ~~(xi)~~(xii) the ability to ~~source product at a pace consistent~~recruit and retain senior management and other key associates; (xiii) the ability to attract, retain, and maintain good relationships with ~~increased demand for footwear;~~licensors and ~~(xii)~~protect intellectual property rights; (xiv) the ~~impact of rising prices in a potentially inflationary global environment.~~ability to secure/exit leases on favorable terms; and (xv) the ability to maintain relationships with current suppliers. The Company's reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Item 1A of the ~~company’s~~Company’s Annual Report on Form 10-K for the year ended February ~~2, 2013,~~1, 2014, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q. The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 Part II, Item 7A of the Company's Annual Report on Form 10-K for the year ended February ~~2, 2013.~~1, 2014.

ITEM 4

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

It is the Chief Executive Officer's and Chief Financial Officer's ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or 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 and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 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 our internal auditors.

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that 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. Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved. As of ~~November 2, 2013,~~May 3, 2014, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.

There were no significant changes to internal control over financial reporting during the quarter ended ~~November 2, 2013,~~May 3, 2014, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II	OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

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.

Information regarding Legal Proceedings is set forth within Note 1615 to the condensed consolidated financial statements and incorporated by reference herein.

ITEM 1A

RISK FACTORS

No material changes have occurred related to our risk factors since the end of the most recent fiscal year. For further information, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended February ~~2, 2013.~~1, 2014.


ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information relating to our repurchases of common stock during the ~~third~~first quarter of ~~2013:~~2014:

Maximum Number

Total Number

of Shares that

Purchased

May Yet Be

Total Number
Average
as Part of Publicly

Purchased Under

of Shares
Price Paid
Announced

the Program

Fiscal Period

Purchased
per Share
Program (1)

(1)

August 4, 2013 – August 31, 2013

3,002
(2)
$
23.83
(2)
–

2,500,000

September 1, 2013 – October 5, 2013

8,525
(2)

22.88
(2)
–

2,500,000

October 6, 2013 – November 2, 2013

1,524
(2)

22.55
(2)
–

2,500,000

Total

13,051
(2)
$
23.06
(2)
–

2,500,000



							Maximum Number
						Total Number	of Shares that
						Purchased	May Yet Be
	Total Number		Average			as Part of Publicly	Purchased Under
	of Shares		Price Paid			Announced	the Program
Fiscal Period	Purchased		per Share			Program (1)	(1)

February 2, 2014 – March 1, 2014	22,586	(2)	$	24.09	(2)	–		2,500,000

March 2, 2014 – April 5, 2014	121,019	(2)		25.01	(2)	–		2,500,000

April 6, 2014 – May 3, 2014	911	(2)		25.89	(2)	–		2,500,000

Total	144,516	(2)	$	24.87	(2)	–		2,500,000

(1)

On August 25, 2011, the Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.5 million shares of our outstanding common stock. We 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, no shares were repurchased through the end of the ~~third~~first quarter of ~~2013;~~2014; therefore, there were 2.5 million shares authorized to be purchased under the program as of ~~November 2, 2013.~~May 3, 2014. Our repurchases of common stock are limited under our debt agreements.

(2)

Reflects 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.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5	OTHER INFORMATION

None.

ITEM 6

EXHIBITS


Exhibit No.
3.1		Restated Certificate of Incorporation of Brown Shoe Company, Inc. (the “Company”) incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2007, and filed June 5, 2007.
3.2		Bylaws of the Company as amended through ~~October 10, 2013,~~May 29, 2014, incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K dated and filed ~~October 10, 2013.~~May 30, 2014.
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.
101.INS	†	XBRL Instance Document
101.SCH 101.CAL 101.LAB 101.PRE 101.DEF	† † † † †	XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Presentation Linkbase Document XBRL Taxonomy Definition Linkbase Document

† Denotes exhibit is filed with this Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		BROWN SHOE COMPANY, INC.

Date: ~~December~~June 11, ~~2013~~2014		/s/ Russell C. Hammer
		Russell C. Hammer Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer



	Thirty-nine Weeks Ended				Thirty-nine Weeks Ended
($ in thousands)	November 2, 2013				October 27, 2012
Foreign exchange forward contracts: Income Statement Classification Gains (Losses) - Realized		Gain Recognized in OCI on Derivatives		Gain Reclassified from Accumulated OCI into Earnings		Gain (Loss) Recognized in OCI on Derivatives		(Loss) Gain Reclassified from Accumulated OCI into Earnings

Net sales	$	278	$	207	$	37	$	(12)
Cost of goods sold		382		51		(672)		(265)
Selling and administrative expenses		354		272		(49)		40
Interest expense		8		–		(7)		–



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 2013
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Assets
Current assets
Cash and cash equivalents	$	–	$	29,722	$	12,684	$	–	$	42,406
Receivables, net		93,097		1,275		18,119		–		112,491
Inventories, net		98,548		439,807		6,234		–		544,589
Prepaid expenses and other current assets		37,418		11,423		3,393		–		52,234
Current assets – discontinued operations		158		–		23		–		181
Total current assets		229,221		482,227		40,453		–		751,901
Other assets		95,221		15,812		614		–		111,647
Goodwill and intangible assets, net		56,369		18,812		–		–		75,181
Property and equipment, net		26,908		118,976		2,298		–		148,182
Investment in subsidiaries		851,906		152,992		–		(1,004,898)		–
Intercompany receivable		431,576		483,654		233,841		(1,149,071)		–
Total assets	$	1,691,201	$	1,272,473	$	277,206	$	(2,153,969)	$	1,086,911

Liabilities and Equity
Current liabilities
Trade accounts payable	$	44,889	$	136,669	$	19,148	$	–	$	200,706
Other accrued expenses		58,289		83,483		9,370		–		151,142
Current liabilities – discontinued operations		2,065		–		45		–		2,110
Total current liabilities		105,243		220,152		28,563		–		353,958
Other liabilities
Long-term debt		198,963		–		–		–		198,963
Other liabilities		29,395		51,192		1,444		–		82,031
Intercompany payable		906,299		149,223		93,549		(1,149,071)		–
Total other liabilities		1,134,657		200,415		94,993		(1,149,071)		280,994
Equity
Brown Shoe Company, Inc. shareholders’ equity		451,301		851,906		152,992		(1,004,898)		451,301
Noncontrolling interests		–		–		658		–		658
Total equity		451,301		851,906		153,650		(1,004,898)		451,959
Total liabilities and equity	$	1,691,201	$	1,272,473	$	277,206	$	(2,153,969)	$	1,086,911



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 2, 2013
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	213,028	$	498,383	$	36,753	$	(45,376)	$	702,788
Cost of goods sold		157,500		282,617		29,807		(45,376)		424,548
Gross profit		55,528		215,766		6,946		–		278,240
Selling and administrative expenses		53,327		178,810		1,435		–		233,572
Equity in (earnings) loss of subsidiaries		(31,516)		2,728		–		28,788		–
Operating earnings (loss)		33,717		34,228		5,511		(28,788)		44,668
Interest expense		(5,254)		–		–		–		(5,254)
Interest income		4		69		59		–		132
Intercompany interest income (expense)		3,558		(3,693)		135		–		–
Intercompany dividend		–		7,778		(7,778)		–		–
Earnings (loss) before income taxes from continuing operations		32,025		38,382		(2,073)		(28,788)		39,546
Income tax provision		(5,011)		(6,822)		(662)		–		(12,495)
Net earnings (loss) from continuing operations		27,014		31,560		(2,735)		(28,788)		27,051
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax		300		(44)		(23)		–		233
Net earnings (loss) from discontinued operations		300		(44)		(23)		–		233
Net earnings (loss)		27,314		31,516		(2,758)		(28,788)		27,284
Net loss attributable to noncontrolling interests		–		–		(30)		–		(30)
Net earnings (loss) attributable to Brown Shoe Company, Inc.	$	27,314	$	31,516	$	(2,728)	$	(28,788)	$	27,314

Comprehensive income (loss)	$	27,320	$	31,313	$	(2,758)	$	(28,585)	$	27,290
Comprehensive loss attributable to noncontrolling interests		–		–		(25)		–		(25)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	27,320	$	31,313	$	(2,733)	$	(28,585)	$	27,315