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~~August 2,~~November 1, 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 ☑þ	Accelerated filer ☐¨
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 ☑

As of ~~August 29,~~November 28, 2014, ~~43,705,607~~43,760,637 common shares were outstanding.



PART I	FINANCIAL INFORMATION



ITEM 1	FINANCIAL STATEMENTS

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

($ thousands)
August 2, 2014

August 3, 2013

February 1, 2014
Assets

Current assets

Cash and cash equivalents
$
46,876

$
53,137

$
82,546
Receivables, net

125,484

120,054

129,217
Inventories, net

657,656

615,916

547,531
Prepaid expenses and other current assets

39,167

51,845

33,136
Current assets – discontinued operations

–

1,661

119
Total current assets

869,183

842,613

792,549

Other assets

134,779

113,764

139,621
Goodwill

13,954

13,954

13,954
Intangible assets, net

122,808

62,734

59,719
Property and equipment

437,364

428,764

428,540
Allowance for depreciation

(289,006)

(280,809)

(284,980)
Net property and equipment

148,358

147,955

143,560
Total assets
$
1,289,082

$
1,181,020

$
1,149,403

Liabilities and Equity

Current liabilities

Borrowings under revolving credit agreement
$
–

$
23,000

$
7,000
Trade accounts payable

341,694

309,806

226,602
Other accrued expenses

159,152

143,735

152,545
Current liabilities – discontinued operations

–

3,536

708
Total current liabilities

500,846

480,077

386,855

Other liabilities

Long-term debt

199,104

198,917

199,010
Deferred rent

36,560

36,196

38,593
Other liabilities

43,320

39,429

47,583
Total other liabilities

278,984

274,542

285,186

Equity

Common stock

437

432

434
Additional paid-in capital

135,930

124,543

131,398
Accumulated other comprehensive income (loss)

16,641

(27)

16,676
Retained earnings

355,574

300,770

328,191
Total Brown Shoe Company, Inc. shareholders’ equity

508,582

425,718

476,699
Noncontrolling interests

670

683

663
Total equity

509,252

426,401

477,362
Total liabilities and equity
$
1,289,082

$
1,181,020

$
1,149,403



BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)
($ thousands)	November 1, 2014			November 2, 2013			February 1, 2014
Assets
Current assets
Cash and cash equivalents	$	39,080		$	42,406		$	82,546
Receivables, net	138,217			112,491			129,217
Inventories, net	567,777			544,589			547,531
Prepaid expenses and other current assets	37,845			52,234			33,136
Current assets – discontinued operations	—			181			119
Total current assets	782,919			751,901			792,549

Other assets	139,878			111,647			139,621
Goodwill	13,954			13,954			13,954
Intangible assets, net	121,820			61,227			59,719
Property and equipment	439,166			428,137			428,540
Allowance for depreciation	(287,877		)	(279,955		)	(284,980		)
Net property and equipment	151,289			148,182			143,560
Total assets	$	1,209,860		$	1,086,911		$	1,149,403

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	14,000		$	—		$	7,000
Trade accounts payable	203,062			200,706			226,602
Other accrued expenses	172,077			151,142			152,545
Current liabilities – discontinued operations	—			2,110			708
Total current liabilities	389,139			353,958			386,855

Other liabilities
Long-term debt	199,150			198,963			199,010
Deferred rent	37,571			37,548			38,593
Other liabilities	42,983			44,483			47,583
Total other liabilities	279,704			280,994			285,186

Equity
Common stock	437			432			434
Additional paid-in capital	138,682			125,831			131,398
Accumulated other comprehensive income (loss)	15,511			(21		)	16,676
Retained earnings	385,624			325,059			328,191
Total Brown Shoe Company, Inc. shareholders’ equity	540,254			451,301			476,699
Noncontrolling interests	763			658			663
Total equity	541,017			451,959			477,362
Total liabilities and equity	$	1,209,860		$	1,086,911		$	1,149,403

See notes tocondensedconsolidated financial statements.

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2,

August 3,

August 2,

August 3,
($ thousands, except per share amounts)
2014

2013

2014

2013
Net sales
$
635,877

$
621,706

$
1,227,039

$
1,210,362
Cost of goods sold

376,235

367,080

725,056

715,720
Gross profit

259,642

254,626

501,983

494,642
Selling and administrative expenses

228,340

231,071

441,955

444,950
Restructuring and other special charges, net

–

743

–

1,262
Impairment of assets held for sale

–

–

–

4,660
Operating earnings

31,302

22,812

60,028

43,770
Interest expense

(5,125)

(5,192)

(10,431)

(10,913)
Interest income

109

82

185

150
Earnings before income taxes from continuing operations

26,286

17,702

49,782

33,007
Income tax provision

(8,247)

(4,081)

(16,267)

(12,027)
Net earnings from continuing operations

18,039

13,621

33,515

20,980
Discontinued operations:

Earnings (loss) from discontinued operations, net of tax benefit of $0, $2,588, $0 and $6,171, respectively

–

620

–

(5,017)
Disposition/impairment of discontinued operations, net of $0 tax

–

1,042

–

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

–

1,662

–

(16,529)
Net earnings

18,039

15,283

33,515

4,451
Net (loss) earnings attributable to noncontrolling interests

(25)

(74)

22

(144)
Net earnings attributable to Brown Shoe Company, Inc.
$
18,064

$
15,357

$
33,493

$
4,595

Basic earnings (loss) per common share:

From continuing operations
$
0.41

$
0.32

$
0.77

$
0.51
From discontinued operations

–

0.04

–

(0.40)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders
$
0.41

$
0.36

$
0.77

$
0.11

Diluted earnings (loss) per common share:

From continuing operations
$
0.41

$
0.31

$
0.76

$
0.50
From discontinued operations

–

0.04

–

(0.40)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders
$
0.41

$
0.35

$
0.76

$
0.10

Dividends per common share
$
0.07

$
0.07

$
0.14

$
0.14



BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

	(Unaudited)
	Thirteen Weeks Ended						Thirty-nine Weeks Ended
($ thousands, except per share amounts)	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
Net sales	$	729,277		$	702,788		$	1,956,316		$	1,913,150
Cost of goods sold	438,547			424,548			1,163,603			1,140,268
Gross profit	290,730			278,240			792,713			772,882
Selling and administrative expenses	237,517			233,572			679,472			678,522
Restructuring and other special charges, net	—			—			—			1,262
Impairment of assets held for sale	—			—			—			4,660
Operating earnings	53,213			44,668			113,241			88,438
Interest expense	(5,207		)	(5,254		)	(15,637		)	(16,167		)
Interest income	109			132			294			282
Earnings before income taxes from continuing operations	48,115			39,546			97,898			72,553
Income tax provision	(14,878		)	(12,495		)	(31,146		)	(24,522		)
Net earnings from continuing operations	33,237			27,051			66,752			48,031
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax (expense) benefit of $0, ($114), $0 and $6,057, respectively	—			233			—			(4,784		)
Disposition/impairment of discontinued operations, net of tax of $0	—			—			—			(11,512		)
Net earnings (loss) from discontinued operations	—			233			—			(16,296		)
Net earnings	33,237			27,284			66,752			31,735
Net earnings (loss) attributable to noncontrolling interests	124			(30		)	146			(174		)
Net earnings attributable to Brown Shoe Company, Inc.	$	33,113		$	27,314		$	66,606		$	31,909

Basic earnings (loss) per common share:
From continuing operations	$	0.76		$	0.63		$	1.53		$	1.12
From discontinued operations	—			—			—			(0.38		)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.76		$	0.63		$	1.53		$	0.74

Diluted earnings (loss) per common share:
From continuing operations	$	0.75		$	0.62		$	1.52		$	1.11
From discontinued operations	—			0.01			—			(0.38		)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.75		$	0.63		$	1.52		$	0.73

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

See notes tocondensedconsolidated financial statements.

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Unaudited)

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2,

August 3,

August 2,

August 3,
($ thousands)

2014

2013

2014

2013
Net earnings
$
18,039

$
15,283

$
33,515

$
4,451
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

244

(900)

1,131

(1,590)
Pension and other post retirement benefits adjustments

(33)

136

(56)

281
Derivative financial instruments

(723)

512

(1,110)

398
Other comprehensive loss, net of tax

(512)

(252)

(35)

(911)
Comprehensive income

17,527

15,031

33,480

3,540
Comprehensive (loss) income attributable to noncontrolling interests

(28)

(61)

7

(89)
Comprehensive income attributable to Brown Shoe Company, Inc.
$
17,555

$
15,092

$
33,473

$
3,629



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

	(Unaudited)						(Unaudited)
	Thirteen Weeks Ended						Thirty-nine Weeks Ended
($ thousands)	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
Net earnings	$	33,237		$	27,284		$	66,752		$	31,735
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment	(1,159		)	(100		)	(28		)	(1,690		)
Pension and other postretirement benefits adjustments	(28		)	138			(84		)	419
Derivative financial instruments	57			(32		)	(1,053		)	366
Other comprehensive (loss) income, net of tax	(1,130		)	6			(1,165		)	(905		)
Comprehensive income	32,107			27,290			65,587			30,830
Comprehensive income (loss) attributable to noncontrolling interests	93			(25		)	100			(114		)
Comprehensive income attributable to Brown Shoe Company, Inc.	$	32,014		$	27,315		$	65,487		$	30,944

See notes tocondensedconsolidated financial statements.

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Twenty-six Weeks Ended

August 2,

August 3,
($ thousands)

2014

2013
Operating Activities

Net earnings
$
33,515

$
4,451
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation

17,162

17,636
Amortization of capitalized software

6,392

6,467
Amortization of intangible assets

1,976

3,233
Amortization of debt issuance costs and debt discount

1,257

1,256
Share-based compensation expense

2,961

2,935
Tax benefit related to share-based plans

(2,097)

(2,798)
Loss on disposal of facilities and equipment

772

191
Impairment charges for facilities and equipment

725

959
Impairment of assets held for sale

–

4,660
Disposition/impairment of discontinued operations

–

11,512
Net loss on sale of subsidiaries

–

576
Deferred rent

(2,033)

2,485
Provision for doubtful accounts

48

331
Changes in operating assets and liabilities, net of dispositions:

Receivables

3,655

(8,605)
Inventories

(109,619)

(112,625)
Prepaid expenses and other current and noncurrent assets

(2,845)

(6,372)
Trade accounts payable

114,874

96,932
Accrued expenses and other liabilities

1,696

11,729
Other, net

(1,948)

536
Net cash provided by operating activities

66,491

35,489

Investing Activities

Purchases of property and equipment

(23,511)

(27,797)
Capitalized software

(2,714)

(2,638)
Acquisition of trademarks

(65,065)

–
Net proceeds from sale of subsidiaries

–

69,347
Net cash (used for) provided by investing activities

(91,290)

38,912

Financing Activities

Borrowings under revolving credit agreement

456,000

685,000
Repayments under revolving credit agreement

(463,000)

(767,000)
Dividends paid

(6,110)

(6,048)
Issuance of common stock under share-based plans, net

(523)

(2,780)
Tax benefit related to share-based plans

2,097

2,798
Net cash used for financing activities

(11,536)

(88,030)
Effect of exchange rate changes on cash and cash equivalents

665

(1,457)
Decrease in cash and cash equivalents

(35,670)

(15,086)
Cash and cash equivalents at beginning of period

82,546

68,223
Cash and cash equivalents at end of period
$
46,876

$
53,137



BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)
	Thirty-nine Weeks Ended
($ thousands)	November 1, 2014			November 2, 2013
Operating Activities
Net earnings	$	66,752		$	31,735
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	26,034			26,645
Amortization of capitalized software	9,548			9,728
Amortization of intangible assets	2,963			4,741
Amortization of debt issuance costs and debt discount	1,885			1,885
Share-based compensation expense	4,568			4,066
Tax benefit related to share-based plans	(2,482		)	(2,581		)
Loss on disposal of facilities and equipment	1,400			960
Impairment charges for facilities and equipment	1,248			1,072
Impairment of assets held for sale	—			4,660
Disposition/impairment of discontinued operations	—			11,512
Net loss on sale of subsidiaries	—			576
Deferred rent	(1,022		)	3,837
Provision for doubtful accounts	298			388
Changes in operating assets and liabilities, net of dispositions:
Receivables	(9,328		)	(385		)
Inventories	(20,241		)	(41,180		)
Prepaid expenses and other current and noncurrent assets	(1,201		)	(6,748		)
Trade accounts payable	(23,661		)	(12,933		)
Accrued expenses and other liabilities	14,376			23,848
Other, net	(2,635		)	159
Net cash provided by operating activities	68,502			61,985

Investing Activities
Purchases of property and equipment	(36,531		)	(37,888		)
Capitalized software	(3,849		)	(3,715		)
Acquisition of trademarks	(65,065		)	—
Investment in nonconsolidated affiliate	(7,000		)	—
Net proceeds from sale of subsidiaries	—			69,347
Net cash (used for) provided by investing activities	(112,445		)	27,744

Financing Activities
Borrowings under revolving credit agreement	741,000			966,000
Repayments under revolving credit agreement	(734,000		)	(1,071,000		)
Dividends paid	(9,173		)	(9,073		)
Issuance of common stock under share-based plans, net	237			(2,406		)
Tax benefit related to share-based plans	2,482			2,581
Net cash provided by (used for) financing activities	546			(113,898		)
Effect of exchange rate changes on cash and cash equivalents	(69		)	(1,648		)
Decrease in cash and cash equivalents	(43,466		)	(25,817		)
Cash and cash equivalents at beginning of period	82,546			68,223
Cash and cash equivalents at end of period	$	39,080		$	42,406

See notes tocondensedconsolidated 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 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 1, 2014.



Note 2	Impact of New Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("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~~which 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~~Company adopted this guidance isduring the third quarter of 2014, which did not ~~expected to~~ have ~~a material~~an impact on the Company’s condensed consolidated financial statements.

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 Accounting Standards Codification (“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 principle 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.

~~In June 2014, the FASB issued ASU No. 2014-12,~~ ~~Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,~~ ~~to clarify existing guidance in ASC 718,~~ ~~Compensation – Stock Compensation~~. The guidance requires that performance targets achieved after the requisite service period be treated as performance conditions. As such, the performance target is not reflected in the estimation of the award’s grant date fair value. The guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The guidance may be adopted either prospectively for share-based payment awards granted or modified on or after the effective date, or retrospectively using a modified retrospective approach. ~~The adoption of this guidance in the first quarter of 2016 is not expected to have a material impact on the Company’s condensed consolidated financial statements.~~



Note 3	Discontinued Operations

The Company’s discontinued operations include the Avia and Nevados brands of American Sporting Goods Corporation, as well as the Etienne Aigner and Vera Wang brands. There were no net sales or ~~loss~~earnings (loss) from discontinued operations for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014. In aggregate, discontinued operations included net sales of ~~$3.8~~$1.2 million and ~~$24.3~~$25.5 million for the thirteen and thirty-nine weeks ended November 2, 2013. Discontinued operations also included earnings before income taxes of $0.3 million and a loss before income taxes of ~~$2.0 million and $11.2~~$10.8 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively. For the ~~thirteen and twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, discontinued operations also included ~~a $1.0 million gain and~~ $11.5 million of costs ~~respectively,~~ associated with the Company’s disposition/impairment of discontinued operations.

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 transition services, less working capital adjustments. The promissory note matured on November 14, 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.

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 of 2013, the Company recognized a gain upon disposition of subsidiary of $1.0 million ($1.0 million after-tax, $0.02 per diluted share). The impairment charge and gain upon disposition are reflected as disposition/impairment of discontinued operations, net of tax in the condensed consolidated statements of earnings. ASG was previously included in the Wholesale Operations segment. Discontinued operations include net sales of ~~$2.0 million~~zero and $20.3 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively. Discontinued operations include a loss before income taxes of ~~$2.6~~$0.1 million and ~~$1.4~~$1.5 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively.

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 of ~~$0.2 million~~zero and $0.4 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively. Discontinued operations include ~~earnings~~a loss before income taxes of ~~$0.1 million~~zero and ~~loss before income taxes of~~ $6.9 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively.

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 of ~~$1.6~~$1.2 million and ~~$3.6~~$4.8 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively. Discontinued operations include earnings before income taxes of ~~$0.6~~$0.4 million and a loss before income taxes of ~~$2.8~~$2.4 million for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013, respectively.

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



($ thousands)	November 1, 2014		November 2, 2013		February 1, 2014

Assets of Discontinued Operations
Current assets
Receivables, net	$	—	$	73	$	—
Inventories, net	—		75		111
Prepaid expenses and other current assets	—		33		8
Current assets - discontinued operations	—		181		119
Total assets - discontinued operations	$	—	$	181	$	119

Liabilities of Discontinued Operations
Current liabilities
Trade accounts payable	$	—	$	178	$	139
Other accrued expenses	—		1,932		569
Current liabilities - discontinued operations	—		2,110		708
Total liabilities - discontinued operations	$	—	$	2,110	$	708

August 2,

August 3,

February 1,
($ thousands)

2014

2013

2014

Assets of Discontinued Operations

Current assets

Receivables, net
$
–

$
387

$
–
Inventories, net

–

700

111
Prepaid expenses and other current assets

–

574

8
Current assets - discontinued operations

–

1,661

119
Total assets - discontinued operations
$
–

$
1,661

$
119

Liabilities of Discontinued Operations

Current liabilities

Trade accounts payable
$
–

$
942

$
139
Other accrued expenses

–

2,594

569
Current liabilities - discontinued operations

–

3,536

708
Total liabilities - discontinued operations
$
–

$
3,536

$
708

Earnings (loss) from discontinued operations, net of tax for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013 is as follows:

Thirteen Weeks Ended
Twenty-six Weeks Ended
($ thousands)
August 2, 2014

August 3, 2013
August 2, 2014

August 3, 2013
Net sales
$
–

$
3,775
$
–

$
24,312
Cost of goods sold

–

2,221

–

18,852
Gross profit

–

1,554

–

5,460
Selling and administrative expenses

–

1,020

–

5,881
Restructuring and other special charges, net

–

2,484

–

10,769
Operating loss

–

(1,950)

–

(11,190)
Interest expense

–

(18)

–

(87)
Interest income

–

–

–

89
Loss before income taxes from discontinued operations

–

(1,968)

–

(11,188)
Income tax benefit

–

2,588

–

6,171
Earnings (loss) from discontinued operations, net of tax
$
–

$
620
$
–

$
(5,017)



	Thirteen Weeks Ended					Thirty-nine Weeks Ended
($ thousands)	November 1, 2014		November 2, 2013			November 1, 2014		November 2, 2013
Net sales	$	—	$	1,171		$	—	$	25,482
Cost of goods sold	—		748			—		19,599
Gross profit	—		423			—		5,883
Selling and administrative expenses	—		60			—		5,942
Restructuring and other special charges, net	—		—			—		10,768
Operating earnings (loss)	—		363			—		(10,827		)
Interest expense	—		(16		)	—		(14		)
Earnings (loss) before income taxes from discontinued operations	—		347			—		(10,841		)
Income tax (provision) benefit	—		(114		)	—		6,057
Earnings (loss) from discontinued operations, net of tax	—		233			—		(4,784		)
Disposition/impairment of discontinued operations, net of tax	—		—			—		(11,512		)
Net earnings (loss) from discontinued operations	$	—	$	233		$	—	$	(16,296	)



Note 4	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 periods ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013:

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2,

August 3,

August 2,

August 3,
(thousands, except per share amounts)

2014

2013

2014

2013
NUMERATOR

Net earnings from continuing operations
$
18,039

$
13,621

$
33,515

$
20,980
Net loss (earnings) attributable to noncontrolling interests

25

74

(22)

144
Net earnings allocated to participating securities

(669)

(580)

(1,262)

(266)
Net earnings from continuing operations

17,395

13,115

32,231

20,858
Net earnings (loss) from discontinued operations

–

1,662

–

(16,529)
Net earnings allocated to participating securities

–

(71)

–

–
Net earnings (loss) from discontinued operations

–

1,591

–

(16,529)
Net earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities
$
17,395

$
14,706

$
32,231

$
4,329

DENOMINATOR

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

42,074

41,348

41,980

41,209
Dilutive effect of share-based awards for continuing operations and discontinued operations

202

316

218

267
Denominator for diluted continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders

42,276

41,664

42,198

41,476

Basic earnings (loss) per common share:

From continuing operations
$
0.41

$
0.32

$
0.77

$
0.51
From discontinued operations

–

0.04

–

(0.40)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders
$
0.41

$
0.36

$
0.77

$
0.11

Diluted earnings (loss) per common share:

From continuing operations
$
0.41

$
0.31

$
0.76

$
0.50
From discontinued operations

–

0.04

–

(0.40)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders
$
0.41

$
0.35

$
0.76

$
0.10



	Thirteen Weeks Ended						Thirty-nine Weeks Ended
($ thousands, except per share amounts)	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
NUMERATOR
Net earnings from continuing operations	$	33,237		$	27,051		$	66,752		$	48,031
Net (earnings) loss attributable to noncontrolling interests	(124		)	30			(146		)	174
Net earnings allocated to participating securities	(1,208		)	(1,097		)	(2,486		)	(2,098		)
Net earnings from continuing operations	31,905			25,984			64,120			46,107
Net earnings (loss) from discontinued operations	—			233			—			(16,296		)
Net (earnings) loss allocated to participating securities	—			(9		)	—			712
Net earnings (loss) from discontinued operations	—			224			—			(15,584		)
Net earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities	$	31,905		$	26,208		$	64,120		$	30,523

DENOMINATOR
Denominator for basic continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders	42,144			41,447			42,035			41,288
Dilutive effect of share-based awards for continuing operations and discontinued operations	184			319			210			283
Denominator for diluted continuing and discontinued earnings per common share attributable to Brown Shoe Company, Inc. shareholders	42,328			41,766			42,245			41,571

Basic earnings (loss) per common share:
From continuing operations	$	0.76		$	0.63		$	1.53		$	1.12
From discontinued operations	—			—			—			(0.38		)
Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.76		$	0.63		$	1.53		$	0.74

Diluted earnings (loss) per common share:
From continuing operations	$	0.75		$	0.62		$	1.52		$	1.11
From discontinued operations	—			0.01			—			(0.38		)
Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders	$	0.75		$	0.63		$	1.52		$	0.73

Options to purchase 64,497 and ~~134,247~~86,247 shares of common stock for the thirteen weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013, respectively, and 64,497 and ~~224,153~~214,403 shares of common stock for the ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013, 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 5~~

Note5	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 complete.

During the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 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 for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013:

Thirteen Weeks Ended

Twenty-six Weeks Ended
($ millions, except per share data)

Pre-tax Expense (Income)

After-tax Expense (Income)

Loss (Earnings) Per Diluted Share

Pre-tax Expense

After-tax Expense

Loss Per Diluted Share
August 3, 2013

Continuing Operations

Business exits and cost reductions
$
0.7
$
0.5

$
0.01
$
1.2
$
0.8

$
0.02
Non-cash impairments/dispositions

–

–

–

4.7

4.7

0.11
Total Continuing Operations

0.7

0.5

0.01

5.9

5.5

0.13
Discontinued Operations

Business exits and cost reductions

2.1

(0.7)

(0.01)

13.3

6.4

0.13
Non-cash impairments/dispositions

(1.0)

(1.0)

(0.02)

11.5

11.5

0.28
Total Discontinued Operations

1.1

(1.7)

(0.03)

24.8

17.9

0.41
Total
$
1.8
$
(1.2)

$
(0.02)
$
30.7
$
23.4

$
0.54



	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

All of the continuing operations portfolio realignment costs incurred during the ~~thirteen and twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013 are included in the Wholesale Operations segment. The expenses related to business exits and cost reductions of the Company’s continuing operations were recorded within restructuring and other special charges, net in the condensed consolidated statements of earnings. The expenses related to business exits and cost reductions of the Company’s discontinued operations were recorded within earnings (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 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.

The following is a summary of the charges and settlements by category of costs. The Company expects all portfolio realignment costs to be settled by the end of fiscal 2016.

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 2013

2.6

2.7

0.1

25.3

30.7

5.9

24.8
Amounts settled in 2013

(3.3)

(2.9)

(2.0)

(25.6)

(33.8)

(9.7)

(24.1)
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
Additional charges in second quarter 2014

–

–

–

–

–

–

–
Amounts settled in second quarter 2014

(0.4)

–

(0.1)

–

(0.5)

–

(0.5)
Reserve balance at August 2, 2014
$
0.2

$
–

$
1.2

$
–

$
1.4

$
1.4

$
–



																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 2013	2.6			2.7			0.1			25.3			30.7			5.9			24.8
Amounts settled in 2013	(3.3		)	(2.9		)	(2.0		)	(25.6		)	(33.8		)	(9.7		)	(24.1		)
Reserve balance at February 1, 2014	$	1.0		$	—		$	1.4		$	—		$	2.4		$	1.5		$	0.9
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
Amounts settled in second quarter 2014	(0.4		)	—			(0.1		)	—			(0.5		)	—			(0.5		)
Reserve balance at August 2, 2014	$	0.2		$	—		$	1.2		$	—		$	1.4		$	1.4		$	—
Amounts settled in third quarter 2014	(0.1		)	—			(0.1		)	—			(0.2		)	(0.2		)	—
Reserve balance at November 1, 2014	$	0.1		$	—		$	1.1		$	—		$	1.2		$	1.2		$	—

Sale of Sourcing and Supply Chain Assets

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. In anticipation of this transaction, the Company classified the related assets and liabilities of 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 ($4.7 million after tax, or $0.11 per diluted share) to adjust the assets to their estimated fair value. The promissory note ~~requires~~required 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 of ~~August 2,~~November 1, 2014 the Company has received a total of ~~$5.2~~$5.7 million of installment payments. As part of the Sale Agreement, the Company agreed to purchase, under specific performance criteria, 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 6	Business Segment Information

Following is a summary of certain key financial measures for the Company’s business segments for the periods ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013. All financial measures below exclude discontinued operations.

Famous

Wholesale

Specialty

($ thousands)

Footwear

Operations

Retail

Other

Total

Thirteen Weeks Ended August 2, 2014
External sales
$
393,631

$
194,269

$
47,977

$
–

$
635,877
Intersegment sales

554

53,277

–

–

53,831
Operating earnings (loss)

26,558

19,249

(2,786)

(11,719)

31,302
Segment assets - continuing operations

585,580

513,327

53,397

136,778

1,289,082

Thirteen Weeks Ended August 3, 2013

External sales
$
388,259

$
180,440

$
53,007

$
–

$
621,706
Intersegment sales

604

64,203

–

–

64,807
Operating earnings (loss)

28,969

8,196

(1,826)

(12,527)

22,812
Segment assets - continuing operations

529,944

428,664

83,852

136,899

1,179,359

Twenty-six Weeks Ended August 2, 2014
External sales
$
748,254

$
386,054

$
92,731

$
–

$
1,227,039
Intersegment sales

1,059

85,258

–

–

86,317
Operating earnings (loss)

54,429

33,003

(6,478)

(20,926)

60,028

Twenty-six Weeks Ended August 3, 2013

External sales
$
740,538

$
362,065

$
107,759

$
–

$
1,210,362
Intersegment sales

1,210

100,933

–

–

102,143
Operating earnings (loss)

58,011

11,303

(3,155)

(22,389)

43,770



	Famous		Wholesale		Specialty
($ thousands)	Footwear		Operations		Retail			Other			Total
Thirteen Weeks Ended November 1, 2014
External sales	$	435,380	$	242,562	$	51,335		$	—		$	729,277
Intersegment sales	552		39,852		—			—			40,404
Operating earnings (loss)	37,554		27,848		(355		)	(11,834		)	53,213
Segment assets - continuing operations	529,608		479,855		57,806			142,591			1,209,860

Thirteen Weeks Ended November 2, 2013
External sales	$	439,605	$	205,269	$	57,914		$	—		$	702,788
Intersegment sales	543		51,343		—			—			51,886
Operating earnings (loss)	37,047		16,782		221			(9,382		)	44,668
Segment assets - continuing operations	485,217		379,249		93,747			128,517			1,086,730

Thirty-nine Weeks Ended November 1, 2014
External sales	$	1,183,633	$	628,616	$	144,067		$	—		$	1,956,316
Intersegment sales	1,611		125,110		—			—			126,721
Operating earnings (loss)	91,983		60,851		(6,833		)	(32,760		)	113,241

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

The Other category 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

Twenty-six Weeks Ended

August 2,

August 3,

August 2,

August 3,
($ thousands)

2014

2013

2014

2013
Operating earnings
$
31,302

$
22,812

$
60,028

$
43,770
Interest expense

(5,125)

(5,192)

(10,431)

(10,913)
Interest income

109

82

185

150
Earnings before income taxes from continuing operations
$
26,286

$
17,702

$
49,782

$
33,007



	Thirteen Weeks Ended						Thirty-nine Weeks Ended
($ thousands)	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
Operating earnings	$	53,213		$	44,668		$	113,241		$	88,438
Interest expense	(5,207		)	(5,254		)	(15,637		)	(16,167		)
Interest income	109			132			294			282
Earnings before income taxes from continuing operations	$	48,115		$	39,546		$	97,898		$	72,553

~~Note 7~~

Note7	Goodwill and Intangible Assets

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

August 2,

August 3,

February 1,
($ thousands)

2014

2013

2014

Intangible Assets

Famous Footwear
$
2,800

$
2,800

$
2,800
Wholesale Operations

183,068

118,003

118,003
Specialty Retail

200

200

200
Total intangible assets

186,068

121,003

121,003
Accumulated amortization

(63,260)

(58,269)

(61,284)
Total intangible assets, net

122,808

62,734

59,719
Goodwill

Wholesale Operations

13,954

13,954

13,954
Total goodwill

13,954

13,954

13,954
Goodwill and intangible assets, net
$
136,762

$
76,688

$
73,673



($ thousands)	November 1, 2014			November 2, 2013			February 1, 2014
Intangible Assets
Famous Footwear	$	2,800		$	2,800		$	2,800
Wholesale Operations	183,068			118,003			118,003
Specialty Retail	200			200			200
Total intangible assets	186,068			121,003			121,003
Accumulated amortization	(64,248		)	(59,776		)	(61,284		)
Total intangible assets, net	121,820			61,227			59,719
Goodwill
Wholesale Operations	13,954			13,954			13,954
Total goodwill	13,954			13,954			13,954
Goodwill and intangible assets, net	$	135,774		$	75,181		$	73,673

Intangible assets consist primarily of owned and licensed trademarks, $21.0 million of which are not subject to amortization, with the remainder being amortized over useful lives ranging from four to 40 years as of ~~August 2,~~November 1, 2014. Amortization expense related to intangible assets was $1.0 million and $1.5 million for the thirteen weeks and ~~$2.0~~$3.0 million and ~~$3.2~~$4.5 million for the ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013, respectively.

On February 3, 2014, the Company entered into and simultaneously closed an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which the Company acquired the Franco Sarto trademarks. As consideration, the Company paid a cash purchase price of $65.0 million at the time of closing. As a result of entering into and 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, as well as transaction costs of $0.1 million, will be amortized over its useful life of 40 years.

~~Note 8~~

Note8	Shareholders’ Equity

The following tables set forth the changes in Brown Shoe Company, Inc. shareholders’ equity and noncontrolling interests for the ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013, respectively:




($ thousands)	Brown Shoe Company, Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity
Equity at February 1, 2014	$	476,699		$	663		$	477,362
Net earnings	66,606			146			66,752
Other comprehensive loss	(1,165		)	(46		)	(1,211		)
Dividends paid	(9,173		)	—			(9,173		)
Issuance of common stock under share-based plans, net	237			—			237
Tax benefit related to share-based plans	2,482			—			2,482
Share-based compensation expense	4,568			—			4,568
Equity at November 1, 2014	$	540,254		$	763		$	541,017

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

Noncontrolling Interests

Total Equity
Equity at February 1, 2014
$
476,699

$
663

$
477,362
Net earnings

33,493

22

33,515
Other comprehensive loss

(35)

(15)

(50)
Dividends paid

(6,110)

–

(6,110)
Issuance of common stock under share-based plans, net

(523)

–

(523)
Tax benefit related to share-based plans

2,097

–

2,097
Share-based compensation expense

2,961

–

2,961
Equity at August 2, 2014
$
508,582

$
670

$
509,252

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

Noncontrolling Interests

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

$
772

$
425,901
Net earnings (loss)

4,595

(144)

4,451
Other comprehensive (loss) income

(911)

55

(856)
Dividends paid

(6,048)

–

(6,048)
Issuance of common stock under share-based plans, net

(2,780)

–

(2,780)
Tax benefit related to share-based plans

2,798

–

2,798
Share-based compensation expense

2,935

–

2,935
Equity at August 3, 2013
$
425,718

$
683

$
426,401




($ 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

Accumulated Other Comprehensive Income (Loss)

The following table sets forth the changes in accumulated other comprehensive income (loss) by component for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013:

Accumulated

Foreign

Pension and Other

Other

Currency

Postretirement

Derivative

Comprehensive
($ thousands)
Translation

Transactions

Transactions

Income (Loss)
Balance February 1, 2014
$
2,356

$
13,582

$
738

$
16,676
Other comprehensive income (loss) before reclassifications

887

–

(333)

554
Amounts reclassified from accumulated other comprehensive income (loss)

–

(23)

(54)

(77)
Other comprehensive income (loss)

887

(23)

(387)

477
Balance May 3, 2014
$
3,243

$
13,559

$
351

$
17,153
Other comprehensive income (loss) before reclassifications

244

–

(761)

(517)
Amounts reclassified from accumulated other comprehensive income (loss)

–

(33)

38

5
Other comprehensive income (loss)

244

(33)

(723)

(512)
Balance August 2, 2014
$
3,487

$
13,526

$
(372)

$
16,641

Balance February 2, 2013
$
6,912

$
(5,947)

$
(81)

$
884
Other comprehensive loss before reclassifications

(690)

–

(27)

(717)
Amounts reclassified from accumulated other comprehensive income (loss)

–

145

(87)

58
Other comprehensive (loss) income

(690)

145

(114)

(659)
Balance May 4, 2013
$
6,222

$
(5,802)

$
(195)

$
225
Other comprehensive (loss) income before reclassifications

(900)

–

662

(238)
Amounts reclassified from accumulated other comprehensive income (loss)

–

136

(150)

(14)
Other comprehensive (loss) income

(900)

136

512

(252)
Balance August 3, 2013
$
5,322

$
(5,666)

$
317

$
(27)




($ thousands)	Foreign Currency Translation			Pension and Other Postretirement Transactions			Derivative Transactions			Accumulated Other Comprehensive Income (Loss)
Balance August 2, 2014	$	3,487		$	13,526		$	(372	)	$	16,641
Other comprehensive (loss) income before reclassifications	(1,159		)	—			80			(1,079		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			(28		)	(23		)	(51		)
Other comprehensive (loss) income	(1,159		)	(28		)	57			(1,130		)
Balance November 1, 2014	$	2,328		$	13,498		$	(315	)	$	15,511

Balance August 3, 2013	$	5,322		$	(5,666	)	$	317		$	(27	)
Other comprehensive (loss) income before reclassifications	(100		)	—			79			(21		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			138			(111		)	27
Other comprehensive (loss) income	(100		)	138			(32		)	6
Balance November 2, 2013	$	5,222		$	(5,528	)	$	285		$	(21	)

Balance February 1, 2014	$	2,356		$	13,582		$	738		$	16,676
Other comprehensive (loss) income before reclassifications	(28		)	—			(1,014		)	(1,042		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			(84		)	(39		)	(123		)
Other comprehensive (loss) income	(28		)	(84		)	(1,053		)	(1,165		)
Balance November 1, 2014	$	2,328		$	13,498		$	(315	)	$	15,511

Balance February 2, 2013	$	6,912		$	(5,947	)	$	(81	)	$	884
Other comprehensive (loss) income before reclassifications	(1,690		)	—			714			(976		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			419			(348		)	71
Other comprehensive (loss) income	(1,690		)	419			366			(905		)
Balance November 2, 2013	$	5,222		$	(5,528	)	$	285		$	(21	)

The following table sets forth the reclassifications out of accumulated other comprehensive income (loss) and the related tax effect by component for the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013:

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Affected Line Item in the

Thirteen Weeks Ended

Twenty-six Weeks Ended
Condensed Consolidated
($ thousands)

August 2, 2014

August 3, 2013

August 2, 2014

August 3, 2013
Statements of Earnings
Net losses (gains) from derivative financial instruments (1)
$
55

$
(230)

$
(23)

$
(362)
Costs of goods sold and selling and administrative expenses
Tax (benefit) provision

(17)

80

7

125
Income tax provision
Net losses (gains) from derivative financial instruments, net of tax

38

(150)

(16)

(237)

Pension and other postretirement benefits actuarial (gain) loss (2)

(65)

217

(115)

445
Selling and administrative expenses
Pension benefits prior service expense (2)

6

4

14

6
Selling and administrative expenses
Pension and other postretirement benefits adjustments

(59)

221

(101)

451

Tax provision (benefit)

26

(85)

45

(170)
Income tax provision
Pension and other postretirement benefits adjustments, net of tax

(33)

136

(56)

281

Amounts reclassified from accumulated other comprehensive income (loss)
$
5

$
(14)

$
(72)

$
44



	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
	Thirteen Weeks Ended						Thirty-nine Weeks Ended						Affected Line Item in the Condensed Consolidated Statements of Earnings
($ thousands)	November 1, 2014			November 2, 2013			November 1, 2014			November 2, 2013
Net gains from derivative financial instruments ⁽¹⁾	$	(30	)	$	(168	)	$	(53	)	$	(530	)	Costs of goods sold and selling and administrative expenses
Tax provision	7			57			14			182			Income tax provision
Net gains from derivative financial instruments, net of tax	(23		)	(111		)	(39		)	(348		)

Pension and other postretirement benefits actuarial (gain) loss ⁽²⁾	(58		)	216			(173		)	661			Selling and administrative expenses
Pension benefits prior service expense ⁽²⁾	7			4			21			10			Selling and administrative expenses
Pension and other postretirement benefits adjustments	(51		)	220			(152		)	671
Tax provision (benefit)	23			(82		)	68			(252		)	Income tax provision
Pension and other postretirement benefits adjustments, net of tax	(28		)	138			(84		)	419
Amounts reclassified from accumulated other comprehensive income (loss)	$	(51	)	$	27		$	(123	)	$	71


⁽¹⁾		^{See Note 11 and 12 to the condensed consolidated financial statements for additional information related to derivative financial instruments.}

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. 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 presented in selling and administrative expenses in the Company’s condensed consolidated statement of earnings. The fair value of 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 11 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 ~~August~~November 1, 2014, November 2, ~~2014, August 3,~~ 2013, and February 1, 2014. The Company did not have any transfers between Level 1 and Level 2 during 2013 or the ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014.

Fair Value Measurements
($ thousands)

Total

Level 1

Level 2

Level 3

Asset (Liability)

As of August 2, 2014:

Cash equivalents – money market funds
$
8,457

$
8,457

$
–

$
–

Non-qualified deferred compensation plan assets

2,765

2,765

–

–

Non-qualified deferred compensation plan liabilities

(2,765)

(2,765)

–

–

Deferred compensation plan liabilities for non-employee directors

(1,983)

(1,983)

–

–

Restricted stock units for non-employee directors

(8,103)

(8,103)

–

–

Performance share units

(895)

(895)

–

–

Derivative financial instruments, net

(376)

–

(376)

–

As of August 3, 2013:

Cash equivalents – money market funds
$
11,757

$
11,757

$
–

$
–

Non-qualified deferred compensation plan assets

1,867

1,867

–

–

Non-qualified deferred compensation plan liabilities

(1,867)

(1,867)

–

–

Deferred compensation plan liabilities for non-employee directors

(1,648)

(1,648)

–

–

Restricted stock units for non-employee directors

(7,203)

(7,203)

–

–

Performance share units

(1,311)

(1,311)

–

–

Derivative financial instruments, net

273

–

273

–

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

–



				Fair Value Measurements
($ thousands)	Total			Level 1			Level 2			Level 3
Asset (Liability)
As of November 1, 2014:
Cash equivalents – money market funds	$	7,463		$	7,463		$	—		$	—
Non-qualified deferred compensation plan assets	2,849			2,849			—			—
Non-qualified deferred compensation plan liabilities	(2,849		)	(2,849		)	—			—
Deferred compensation plan liabilities for non-employee directors	(1,923		)	(1,923		)	—			—
Restricted stock units for non-employee directors	(8,019		)	(8,019		)	—			—
Performance share units	(1,240		)	(1,240		)	—			—
Derivative financial instruments, net	(483		)	—			(483		)	—
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		)	—			—
Restricted stock units for non-employee directors	(7,068		)	(7,068		)	—			—
Performance share units	(1,868		)	(1,868		)	—			—
Derivative financial instruments, net	233			—			233			—
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 ~~$85.5~~$87.9 million were assessed for indicators of impairment and written down to their fair value, resulting in impairment charges of ~~$0.4~~$0.5 million for the thirteen weeks ended ~~August 2,~~November 1, 2014. Of the ~~$0.4~~$0.5 million impairment charge included in selling and administrative expenses, ~~$0.2~~$0.3 million related to the Famous Footwear segment and $0.2 million related to the Specialty Retail segment. An impairment charge of ~~$0.7~~$1.2 million was recorded in selling and administrative expenses for the ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014, of which ~~$0.4~~$0.7 million related to the Famous Footwear segment and ~~$0.3~~$0.5 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 was

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~~Refer to Note 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 disposition/impairment of discontinued operations, 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 was considered a Level 2 input as the assets were not sold on an active market. ~~See~~Refer to Note 3 and Note 5 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.

August 2, 2014

August 3, 2013

February 1, 2014

Carrying

Fair

Carrying

Fair

Carrying

Fair
($ thousands)

Amount

Value

Amount

Value

Amount

Value
Long-term debt – Senior Notes
$
199,104
$
210,750
$
198,917
$
212,500
$
199,010
$
210,500



	November 1, 2014				November 2, 2013				February 1, 2014
	Carrying		Fair		Carrying		Fair		Carrying		Fair
($ thousands)	Amount		Value		Amount		Value		Amount		Value
Long-term debt – Senior Notes	$	199,150	$	208,500	$	198,963	$	210,500	$	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 13	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 ~~31.4%~~30.9% and ~~23.1%~~31.6% for the thirteen weeks and ~~32.7%~~31.8% and ~~36.4%~~33.8% for the ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014 and ~~August 3,~~November 2, 2013, respectively. The increase in the Company’s effective tax rate for the thirteen weeks ended August 2, 2014 was primarily due to a lower anticipated full year mix of international earnings in lower tax jurisdictions as compared to the prior year. The effective tax rate was higher in the ~~first half of~~thirty-nine weeks ended November 2, 2013 due to the non-deductible nature of the $4.7 million impairment charge in the first quarter of 2013, as further described in Note 5 to the condensed consolidated financial statements.



Note 14	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 ~~twenty-six~~thirty-nine weeks ended ~~August 2,~~November 1, 2014, the Company, through its consolidated subsidiary, B&H Footwear, sold ~~$1.4~~$3.6 million and ~~$3.4~~$7.1 million, respectively, of Naturalizer footwear on a wholesale basis to CBI, with ~~$1.2~~$1.9 million and ~~$2.2~~$4.1 million in corresponding sales during the thirteen and ~~twenty-six~~thirty-nine weeks ended ~~August 3,~~November 2, 2013.



Note 15	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 $15.7 million as of ~~August 2,~~November 1, 2014. The Company expects to spend approximately $0.2 million in each of the next five years and $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 ~~August 2,~~November 1, 2014 were ~~$26.3~~$26.6 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 ~~August 2,~~November 1, 2014 is $9.8 million, of which ~~$8.8~~$8.9 million is recorded within other liabilities and ~~$1.0~~$0.9 million is recorded within other accrued expenses. Of the total $9.8 million reserve, $5.1 million is for on-site remediation and $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 $1.4 million at ~~August 2,~~November 1, 2014 ~~related~~ to complete the cleanup, maintenance and monitoring at these sites, which has been discounted at 6.4%. Of the $1.4 million reserve, $1.2 million is recorded in other liabilities and $0.2 million is recorded in other accrued expenses. 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 $11.2 million as of August 2, 2014 to complete the cleanup, maintenance and monitoring at all sites. Of the $11.2 million liability, $10.0 million is recorded in other liabilities and $1.2 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 16	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 revolving credit facility 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 AUGUST 2, 2014

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Assets

Current assets

Cash and cash equivalents
$
–

$
28,399

$
18,477

$
–

$
46,876
Receivables, net

85,285

2,491

37,708

–

125,484
Inventories, net

160,581

487,786

9,289

–

657,656
Prepaid expenses and other current assets

35,382

345

3,440

–

39,167
Intercompany receivable – current

1,958

502

18,663

(21,123)

–
Total current assets

283,206

519,523

87,577

(21,123)

869,183
Other assets

119,473

14,680

626

–

134,779
Goodwill and intangible assets, net

119,041

17,721

–

–

136,762
Property and equipment, net

26,934

119,626

1,798

–

148,358
Investment in subsidiaries

907,866

185,612

–

(1,093,478)

–
Intercompany receivable – noncurrent

450,516

518,996

245,863

(1,215,375)

–
Total assets
$
1,907,036

$
1,376,158

$
335,864

$
(2,329,976)

$
1,289,082

Liabilities and Equity

Current liabilities

Trade accounts payable
$
104,054

$
196,671

$
40,969

$
–

$
341,694
Other accrued expenses

73,399

76,691

9,062

–

159,152
Intercompany payable – current

6,143

312

14,668

(21,123)

–
Total current liabilities

183,596

273,674

64,699

(21,123)

500,846
Other liabilities

Long-term debt

199,104

–

–

–

199,104
Other liabilities

34,860

43,550

1,470

–

79,880
Intercompany payable – noncurrent

980,894

151,068

83,413

(1,215,375)

–
Total other liabilities

1,214,858

194,618

84,883

(1,215,375)

278,984
Equity

Brown Shoe Company, Inc. shareholders’ equity

508,582

907,866

185,612

(1,093,478)

508,582
Noncontrolling interests

–

–

670

–

670
Total equity

508,582

907,866

186,282

(1,093,478)

509,252
Total liabilities and equity
$
1,907,036

$
1,376,158

$
335,864

$
(2,329,976)

$
1,289,082



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 1, 2014
					Non-
($ thousands)	Parent		Guarantors		Guarantors		Eliminations			Total
Assets
Current assets
Cash and cash equivalents	$	—	$	23,217	$	15,863	$	—		$	39,080
Receivables, net	115,520		1,413		21,284		—			138,217
Inventories, net	128,709		431,679		7,389		—			567,777
Prepaid expenses and other current assets	33,828		971		3,046		—			37,845
Intercompany receivable – current	466		521		15,487		(16,474		)	—
Total current assets	278,523		457,801		63,069		(16,474		)	782,919
Other assets	124,472		14,785		621		—			139,878
Goodwill and intangible assets, net	118,416		17,358		—		—			135,774
Property and equipment, net	28,000		121,554		1,735		—			151,289
Investment in subsidiaries	935,580		190,534		—		(1,126,114		)	—
Intercompany receivable – noncurrent	410,794		524,296		252,220		(1,187,310		)	—
Total assets	$	1,895,785	$	1,326,328	$	317,645	$	(2,329,898	)	$	1,209,860

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	14,000	$	—	$	—	$	—		$	14,000
Trade accounts payable	53,944		129,350		19,768		—			203,062
Other accrued expenses	91,738		70,881		9,458		—			172,077
Intercompany payable – current	2,803		173		13,498		(16,474		)	—
Total current liabilities	162,485		200,404		42,724		(16,474		)	389,139
Other liabilities
Long-term debt	199,150		—		—		—			199,150
Other liabilities	36,267		44,082		205		—			80,554
Intercompany payable – noncurrent	957,629		146,262		83,419		(1,187,310		)	—
Total other liabilities	1,193,046		190,344		83,624		(1,187,310		)	279,704
Equity
Brown Shoe Company, Inc. shareholders’ equity	540,254		935,580		190,534		(1,126,114		)	540,254
Noncontrolling interests	—		—		763		—			763
Total equity	540,254		935,580		191,297		(1,126,114		)	541,017
Total liabilities and equity	$	1,895,785	$	1,326,328	$	317,645	$	(2,329,898	)	$	1,209,860

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THIRTEEN WEEKS ENDED AUGUST 2, 2014

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
183,598

$
445,199

$
56,496

$
(49,416)

$
635,877
Cost of goods sold

136,433

243,627

45,591

(49,416)

376,235
Gross profit

47,165

201,572

10,905

–

259,642
Selling and administrative expenses

57,149

177,231

(6,040)

–

228,340
Operating (loss) earnings

(9,984)

24,341

16,945

–

31,302
Interest expense

(5,125)

–

–

–

(5,125)
Interest income

12

66

31

–

109
Intercompany interest income (expense)

3,828

(4,535)

707

–

–
(Loss) earnings before income taxes

(11,269)

19,872

17,683

–

26,286
Income tax benefit (provision)

1,684

(7,962)

(1,969)

–

(8,247)
Equity in earnings of subsidiaries, net of tax

27,649

15,739

–

(43,388)

–
Net earnings

18,064

27,649

15,714

(43,388)

18,039
Less: Net loss attributable to noncontrolling interests

–

–

(25)

–

(25)
Net earnings attributable to Brown Shoe Company, Inc.
$
18,064

$
27,649

$
15,739

$
(43,388)

$
18,064

Comprehensive income
$
17,555

$
27,640

$
15,745

$
(43,413)

$
17,527
Less: Comprehensive loss attributable to noncontrolling interests

–

–

(28)

–

(28)
Comprehensive income attributable to Brown Shoe Company, Inc.
$
17,555

$
27,640

$
15,773

$
(43,413)

$
17,555



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 1, 2014
							Non-
($ thousands)	Parent			Guarantors			Guarantors			Eliminations			Total
Net sales	$	233,606		$	488,876		$	41,363		$	(34,568	)	$	729,277
Cost of goods sold	165,734			274,595			32,786			(34,568		)	438,547
Gross profit	67,872			214,281			8,577			—			290,730
Selling and administrative expenses	62,554			172,758			2,205			—			237,517
Operating earnings	5,318			41,523			6,372			—			53,213
Interest expense	(5,207		)	—			—			—			(5,207		)
Interest income	6			56			47			—			109
Intercompany interest income (expense)	3,608			(3,504		)	(104		)	—			—
Earnings before income taxes	3,725			38,075			6,315			—			48,115
Income tax benefit (provision)	551			(14,190		)	(1,239		)	—			(14,878		)
Equity in earnings of subsidiaries, net of tax	28,837			4,952			—			(33,789		)	—
Net earnings	33,113			28,837			5,076			(33,789		)	33,237
Less: Net earnings attributable to noncontrolling interests	—			—			124			—			124
Net earnings attributable to Brown Shoe Company, Inc.	$	33,113		$	28,837		$	4,952		$	(33,789	)	$	33,113

Comprehensive income	$	32,014		$	27,896		$	5,107		$	(32,910	)	$	32,107
Less: Comprehensive income attributable to noncontrolling interests	—			—			93			—			93
Comprehensive income attributable to Brown Shoe Company, Inc.	$	32,014		$	27,896		$	5,014		$	(32,910	)	$	32,014

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 2014

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
362,758

$
846,779

$
93,120

$
(75,618)

$
1,227,039
Cost of goods sold

263,899

461,993

74,782

(75,618)

725,056
Gross profit

98,859

384,786

18,338

–

501,983
Selling and administrative expenses

106,346

337,198

(1,589)

–

441,955
Operating (loss) earnings

(7,487)

47,588

19,927

–

60,028
Interest expense

(10,430)

(1)

–

–

(10,431)
Interest income

13

125

47

–

185
Intercompany interest income (expense)

7,802

(8,614)

812

–

–
(Loss) earnings before income taxes

(10,102)

39,098

20,786

–

49,782
Income tax benefit (provision)

2,148

(15,916)

(2,499)

–

(16,267)
Equity in earnings of subsidiaries, net of tax

41,447

18,265

–

(59,712)

–
Net earnings

33,493

41,447

18,287

(59,712)

33,515
Less: Net earnings attributable to noncontrolling interests

–

–

22

–

22
Net earnings attributable to Brown Shoe Company, Inc.
$
33,493

$
41,447

$
18,265

$
(59,712)

$
33,493

Comprehensive income
$
33,473

$
41,996

$
18,266

$
(60,255)

$
33,480
Less: Comprehensive income attributable to noncontrolling interests

–

–

7

–

7
Comprehensive income attributable to Brown Shoe Company, Inc.
$
33,473

$
41,996

$
18,259

$
(60,255)

$
33,473



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2014
							Non-
($ thousands)	Parent			Guarantors			Guarantors			Eliminations			Total
Net sales	$	596,364		$	1,335,655		$	134,483		$	(110,186	)	$	1,956,316
Cost of goods sold	429,633			736,588			107,568			(110,186		)	1,163,603
Gross profit	166,731			599,067			26,915			—			792,713
Selling and administrative expenses	168,900			509,956			616			—			679,472
Operating (loss) earnings	(2,169		)	89,111			26,299			—			113,241
Interest expense	(15,636		)	(1		)	—			—			(15,637		)
Interest income	19			181			94			—			294
Intercompany interest income (expense)	11,410			(12,118		)	708			—			—
(Loss) earnings before income taxes	(6,376		)	77,173			27,101			—			97,898
Income tax benefit (provision)	2,698			(30,106		)	(3,738		)	—			(31,146		)
Equity in earnings of subsidiaries, net of tax	70,284			23,217			—			(93,501		)	—
Net earnings	66,606			70,284			23,363			(93,501		)	66,752
Less: Net earnings attributable to noncontrolling interests	—			—			146			—			146
Net earnings attributable to Brown Shoe Company, Inc.	$	66,606		$	70,284		$	23,217		$	(93,501	)	$	66,606

Comprehensive income	$	65,487		$	69,892		$	23,373		$	(93,165	)	$	65,587
Less: Comprehensive income attributable to noncontrolling interests	—			—			100			—			100
Comprehensive income attributable to Brown Shoe Company, Inc.	$	65,487		$	69,892		$	23,273		$	(93,165	)	$	65,487



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2014
							Non-
($ thousands)	Parent			Guarantors			Guarantors			Eliminations		Total
Net cash (used for) provided by operating activities	$	(31,850	)	$	71,874		$	28,478		$	—	$	68,502

Investing activities
Purchases of property and equipment	(5,142		)	(31,092		)	(297		)	—		(36,531		)
Capitalized software	(3,787		)	(32		)	(30		)	—		(3,849		)
Acquisition of trademarks	(65,065		)	—			—			—		(65,065		)
Investment in nonconsolidated affiliate	(7,000		)	—			—			—		(7,000		)
Intercompany investing	(717		)	717			—			—		—
Net cash used for investing activities	(81,711		)	(30,407		)	(327		)	—		(112,445		)

Financing activities
Borrowings under revolving credit agreement	741,000			—			—			—		741,000
Repayments under revolving credit agreement	(734,000		)	—			—			—		(734,000		)
Dividends paid	(9,173		)	—			—			—		(9,173		)
Issuance of common stock under share-based plans, net	237			—			—			—		237
Tax benefit related to share-based plans	2,482			—			—			—		2,482
Intercompany financing	113,015			(48,183		)	(64,832		)	—		—
Net cash provided by (used for) financing activities	113,561			(48,183		)	(64,832		)	—		546
Effect of exchange rate changes on cash and cash equivalents	—			(69		)	—			—		(69		)
Decrease in cash and cash equivalents	—			(6,785		)	(36,681		)	—		(43,466		)
Cash and cash equivalents at beginning of period	—			30,002			52,544			—		82,546
Cash and cash equivalents at end of period	$	—		$	23,217		$	15,863		$	—	$	39,080



CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 1, 2014
					Non-
($ thousands)	Parent		Guarantors		Guarantors		Eliminations			Total
Assets
Current assets
Cash and cash equivalents	$	—	$	30,002	$	52,544	$	—		$	82,546
Receivables, net	84,428		2,349		42,440		—			129,217
Inventories, net	119,131		421,101		7,299		—			547,531
Prepaid expenses and other current assets	38,069		16,024		3,984		(24,941		)	33,136
Current assets – discontinued operations	119		—		—		—			119
Intercompany receivable – current	602		191		8,860		(9,653		)	—
Total current assets	242,349		469,667		115,127		(34,594		)	792,549
Other assets	123,066		15,864		691		—			139,621
Goodwill and intangible assets, net	55,225		18,448		—		—			73,673
Property and equipment, net	27,201		114,359		2,000		—			143,560
Investment in subsidiaries	865,700		165,970		—		(1,031,670		)	—
Intercompany receivable – noncurrent	457,507		482,180		230,572		(1,170,259		)	—
Total assets	$	1,771,048	$	1,266,488	$	348,390	$	(2,236,523	)	$	1,149,403

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	7,000	$	—	$	—	$	—		$	7,000
Trade accounts payable	72,349		116,604		37,649		—			226,602
Other accrued expenses	81,902		87,045		8,539		(24,941		)	152,545
Current liabilities – discontinued operations	708		—		—		—			708
Intercompany payable – current	4,689		766		4,198		(9,653		)	—
Total current liabilities	166,648		204,415		50,386		(34,594		)	386,855
Other liabilities
Long-term debt	199,010		—		—		—			199,010
Other liabilities	38,657		46,055		1,464		—			86,176
Intercompany payable – noncurrent	890,034		150,318		129,907		(1,170,259		)	—
Total other liabilities	1,127,701		196,373		131,371		(1,170,259		)	285,186
Equity
Brown Shoe Company, Inc. shareholders’ equity	476,699		865,700		165,970		(1,031,670		)	476,699
Noncontrolling interests	—		—		663		—			663
Total equity	476,699		865,700		166,633		(1,031,670		)	477,362
Total liabilities and equity	$	1,771,048	$	1,266,488	$	348,390	$	(2,236,523	)	$	1,149,403



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
Intercompany receivable – current	162		210		8,780		(9,152		)	—
Total current assets	229,383		482,437		49,233		(9,152		)	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 – noncurrent	431,414		483,444		225,061		(1,139,919		)	—
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
Intercompany payable – current	2,979		147		6,026		(9,152		)	—
Total current liabilities	108,222		220,299		34,589		(9,152		)	353,958
Other liabilities
Long-term debt	198,963		—		—		—			198,963
Other liabilities	29,395		51,192		1,444		—			82,031
Intercompany payable – noncurrent	903,320		149,076		87,523		(1,139,919		)	—
Total other liabilities	1,131,678		200,268		88,967		(1,139,919		)	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 (LOSS)
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
Operating earnings	2,201			36,956			5,511			—			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	509			41,110			(2,073		)	—			39,546
Income tax provision	(5,011		)	(6,822		)	(662		)	—			(12,495		)
Equity in earnings (loss) from continuing operations of subsidiaries, net of tax	31,583			(2,705		)	—			(28,878		)	—
Net earnings (loss) from continuing operations	27,081			31,583			(2,735		)	(28,878		)	27,051
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax	300			(44		)	(23		)	—			233
Equity in loss from discontinued operations of subsidiaries, net of tax	(67		)	(23		)	—			90			—
Net earnings (loss) from discontinued operations	233			(67		)	(23		)	90			233
Net earnings (loss)	27,314			31,516			(2,758		)	(28,788		)	27,284
Less: 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)	$	27,315		$	31,308		$	(2,758	)	$	(28,575	)	$	27,290
Less: Comprehensive loss attributable to noncontrolling interests	—			—			(25		)	—			(25		)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	27,315		$	31,308		$	(2,733	)	$	(28,575	)	$	27,315



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
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
Operating (loss) earnings	(30,557		)	102,586			16,409			—			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		)	—			—
(Loss) earnings before income taxes from continuing operations	(36,129		)	99,595			9,087			—			72,553
Income tax benefit (provision)	2,630			(26,995		)	(157		)	—			(24,522		)
Equity in earnings from continuing operations of subsidiaries, net of tax	81,704			9,104			—			(90,808		)	—
Net earnings from continuing operations	48,205			81,704			8,930			(90,808		)	48,031
Discontinued operations:
(Loss) earnings from discontinued operations, net of tax	(5,582		)	1,137			(339		)	—			(4,784		)
Disposition/impairment of discontinued operations, net of tax	—			1,042			(12,554		)	—			(11,512		)
Equity in loss from discontinued operations of subsidiaries, net of tax	(10,714		)	(12,893		)	—			23,607			—
Net loss from discontinued operations	(16,296		)	(10,714		)	(12,893		)	23,607			(16,296		)
Net earnings (loss)	31,909			70,990			(3,963		)	(67,201		)	31,735
Less: 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)	$	30,944		$	69,709		$	(7,285	)	$	(62,538	)	$	30,830
Less: Comprehensive loss attributable to noncontrolling interests	—			—			(114		)	—			(114		)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	30,944		$	69,709		$	(7,171	)	$	(62,538	)	$	30,944



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2013
							Non-
($ thousands)	Parent			Guarantors			Guarantors			Eliminations		Total
Net cash provided by (used for) operating activities	$	27,271		$	60,573		$	(25,859	)	$	—	$	61,985

Investing activities
Purchases of property and equipment	(3,389		)	(33,737		)	(762		)	—		(37,888		)
Capitalized software	(3,591		)	(117		)	(7		)	—		(3,715		)
Intercompany investing	(1,024		)	1,024			—			—		—
Net proceeds from sale of subsidiaries	—			69,347			—			—		69,347
Net cash (used for) provided by investing activities	(8,004		)	36,517			(769		)	—		27,744

Financing activities
Borrowings under revolving credit agreement	966,000			—			—			—		966,000
Repayments under revolving credit agreement	(1,071,000		)	—			—			—		(1,071,000		)
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
Intercompany financing	94,631			(97,780		)	3,149			—		—
Net cash (used for) provided by financing activities	(19,267		)	(97,780		)	3,149			—		(113,898		)
Effect of exchange rate changes on cash and cash equivalents	—			(1,648		)	—			—		(1,648		)
Decrease in cash and cash equivalents	—			(2,338		)	(23,479		)	—		(25,817		)
Cash and cash equivalents at beginning of period	—			32,060			36,163			—		68,223
Cash and cash equivalents at end of period	$	—		$	29,722		$	12,684		$	—	$	42,406

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 2014

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net cash (used for) provided by operating activities
$
(14,049)

$
54,088

$
26,452

$
–

$
66,491

Investing activities

Purchases of property and equipment

(2,810)

(20,496)

(205)

–

(23,511)
Capitalized software

(2,642)

(43)

(29)

–

(2,714)
Acquisition of trademarks

(65,065)

–

–

–

(65,065)
Intercompany investing

(624)

624

–

–

–
Net cash used for investing activities

(71,141)

(19,915)

(234)

–

(91,290)

Financing activities

Borrowings under revolving credit agreement

456,000

–

–

–

456,000
Repayments under revolving credit agreement

(463,000)

–

–

–

(463,000)
Dividends paid

(6,110)

–

–

–

(6,110)
Issuance of common stock under share-based plans, net

(523)

–

–

–

(523)
Tax benefit related to share-based plans

2,097

–

–

–

2,097
Intercompany financing

96,726

(36,441)

(60,285)

–

–
Net cash provided by (used for) financing activities

85,190

(36,441)

(60,285)

–

(11,536)
Effect of exchange rate changes on cash and cash equivalents

–

665

–

–

665
Decrease in cash and cash equivalents

–

(1,603)

(34,067)

–

(35,670)
Cash and cash equivalents at beginning of period

–

30,002

52,544

–

82,546
Cash and cash equivalents at end of period
$
–

$
28,399

$
18,477

$
–

$
46,876

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 1, 2014

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Assets

Current assets

Cash and cash equivalents
$
–

$
30,002

$
52,544

$
–

$
82,546
Receivables, net

84,428

2,349

42,440

–

129,217
Inventories, net

119,131

421,101

7,299

–

547,531
Prepaid expenses and other current assets

38,069

16,024

3,984

(24,941)

33,136
Current assets – discontinued operations

119

–

–

–

119
Intercompany receivable – current

602

191

8,860

(9,653)

–
Total current assets

242,349

469,667

115,127

(34,594)

792,549
Other assets

123,066

15,864

691

–

139,621
Goodwill and intangible assets, net

55,225

18,448

–

–

73,673
Property and equipment, net

27,201

114,359

2,000

–

143,560
Investment in subsidiaries

865,700

165,970

–

(1,031,670)

–
Intercompany receivable – noncurrent

457,507

482,180

230,572

(1,170,259)

–
Total assets
$
1,771,048

$
1,266,488

$
348,390

$
(2,236,523)

$
1,149,403

Liabilities and Equity

Current liabilities

Borrowings under revolving credit agreement
$
7,000

$
–

$
–

$
–

$
7,000
Trade accounts payable

72,349

116,604

37,649

–

226,602
Other accrued expenses

81,902

87,045

8,539

(24,941)

152,545
Current liabilities – discontinued operations

708

–

–

–

708
Intercompany payable – current

4,689

766

4,198

(9,653)

–
Total current liabilities

166,648

204,415

50,386

(34,594)

386,855
Other liabilities

Long-term debt

199,010

–

–

–

199,010
Other liabilities

38,657

46,055

1,464

–

86,176
Intercompany payable – noncurrent

890,034

150,318

129,907

(1,170,259)

–
Total other liabilities

1,127,701

196,373

131,371

(1,170,259)

285,186
Equity

Brown Shoe Company, Inc. shareholders’ equity

476,699

865,700

165,970

(1,031,670)

476,699
Noncontrolling interests

–

–

663

–

663
Total equity

476,699

865,700

166,633

(1,031,670)

477,362
Total liabilities and equity
$
1,771,048

$
1,266,488

$
348,390

$
(2,236,523)

$
1,149,403

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 3, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Assets

Current assets

Cash and cash equivalents
$
–

$
32,793

$
20,344

$
–

$
53,137
Receivables, net

86,129

2,014

31,911

–

120,054
Inventories, net

128,503

477,659

9,754

–

615,916
Prepaid expenses and other current assets

54,017

(860)

(1,312)

–

51,845
Current assets – discontinued operations

1,638

–

23

–

1,661
Intercompany receivable – current

1,657

366

4,572

(6,595)

–
Total current assets

271,944

511,972

65,292

(6,595)

842,613
Other assets

97,053

16,110

601

–

113,764
Goodwill and intangible assets, net

57,514

19,174

–

–

76,688
Property and equipment, net

26,637

118,878

2,440

–

147,955
Investment in subsidiaries

839,981

31,336

–

(871,317)

–
Intercompany receivable – noncurrent

348,967

600,401

174,877

(1,124,245)

–
Total assets
$
1,642,096

$
1,297,871

$
243,210

$
(2,002,157)

$
1,181,020

Liabilities and Equity

Current liabilities

Borrowings under revolving credit agreement
$
23,000

$
–

$
–

$
–

$
23,000
Trade accounts payable

77,854

193,996

37,956

–

309,806
Other accrued expenses

65,241

73,883

4,611

–

143,735
Current liabilities – discontinued operations

3,488

–

48

–

3,536
Intercompany payable – current

4,390

389

1,816

(6,595)

–
Total current liabilities

173,973

268,268

44,431

(6,595)

480,077
Other liabilities

Long-term debt

198,917

–

–

–

198,917
Other liabilities

24,049

50,559

1,017

–

75,625
Intercompany payable – noncurrent

819,439

139,063

165,743

(1,124,245)

–
Total other liabilities

1,042,405

189,622

166,760

(1,124,245)

274,542
Equity

Brown Shoe Company, Inc. shareholders’ equity

425,718

839,981

31,336

(871,317)

425,718
Noncontrolling interests

–

–

683

–

683
Total equity

425,718

839,981

32,019

(871,317)

426,401
Total liabilities and equity
$
1,642,096

$
1,297,871

$
243,210

$
(2,002,157)

$
1,181,020

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THIRTEEN WEEKS ENDED AUGUST 3, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
180,153

$
444,821

$
57,468

$
(60,736)

$
621,706
Cost of goods sold

138,906

241,656

47,254

(60,736)

367,080
Gross profit

41,247

203,165

10,214

–

254,626
Selling and administrative expenses

65,770

165,689

(388)

–

231,071
Restructuring and other special charges, net

167

576

–

–

743
Operating (loss) earnings

(24,690)

36,900

10,602

–

22,812
Interest expense

(5,192)

–

–

–

(5,192)
Interest income

10

68

4

–

82
Intercompany interest income (expense)

3,475

(3,607)

132

–

–
(Loss) earnings before income taxes from continuing operations

(26,397)

33,361

10,738

–

17,702
Income tax benefit (provision)

4,259

(9,607)

1,267

–

(4,081)
Equity in earnings from continuing operations of subsidiaries, net of tax

35,833

12,079

–

(47,912)

–
Net earnings from continuing operations

13,695

35,833

12,005

(47,912)

13,621
Discontinued operations:

Earnings (loss) from discontinued operations, net of tax

1,066

(410)

(36)

–

620
Disposition/impairment of discontinued operations, net of tax

–

1,042

–

–

1,042
Equity in earnings (loss) from discontinued operations of subsidiaries, net of tax

596

(36)

–

(560)

–
Net earnings (loss) from discontinued operations

1,662

596

(36)

(560)

1,662
Net earnings

15,357

36,429

11,969

(48,472)

15,283
Less: Net loss attributable to noncontrolling interests

–

–

(74)

–

(74)
Net earnings attributable to Brown Shoe Company, Inc.
$
15,357

$
36,429

$
12,043

$
(48,472)

$
15,357

Comprehensive income
$
15,092

$
35,956

$
8,393

$
(44,410)

$
15,031
Less: Comprehensive loss attributable to noncontrolling interests

–

–

(61)

–

(61)
Comprehensive income attributable to Brown Shoe Company, Inc.
$
15,092

$
35,956

$
8,454

$
(44,410)

$
15,092

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 3, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net sales
$
338,934

$
863,359

$
100,072

$
(92,003)

$
1,210,362
Cost of goods sold

255,236

471,612

80,875

(92,003)

715,720
Gross profit

83,698

391,747

19,197

–

494,642
Selling and administrative expenses

115,770

325,541

3,639

–

444,950
Restructuring and other special charges, net

686

576

–

–

1,262
Impairment of assets held for sale

–

–

4,660

–

4,660
Operating (loss) earnings

(32,758)

65,630

10,898

–

43,770
Interest expense

(10,822)

(91)

–

–

(10,913)
Interest income

13

132

5

–

150
Intercompany interest income (expense)

6,929

(7,186)

257

–

–
(Loss) earnings before income taxes from continuing operations

(36,638)

58,485

11,160

–

33,007
Income tax benefit (provision)

7,641

(20,173)

505

–

(12,027)
Equity in earnings from continuing operations of subsidiaries, net of tax

50,121

11,809

–

(61,930)

–
Net earnings from continuing operations

21,124

50,121

11,665

(61,930)

20,980
Discontinued operations:

(Loss) earnings from discontinued operations, net of tax

(5,882)

1,181

(316)

–

(5,017)
Disposition/impairment of discontinued operations, net of tax

–

1,042

(12,554)

–

(11,512)
Equity in loss from discontinued operations of subsidiaries, net of tax

(10,647)

(12,870)

–

23,517

–
Net loss from discontinued operations

(16,529)

(10,647)

(12,870)

23,517

(16,529)
Net earnings (loss)

4,595

39,474

(1,205)

(38,413)

4,451
Less: Net loss attributable to noncontrolling interests

–

–

(144)

–

(144)
Net earnings (loss) attributable to Brown Shoe Company, Inc.
$
4,595

$
39,474

$
(1,061)

$
(38,413)

$
4,595

Comprehensive income (loss)
$
3,629

$
38,401

$
(4,527)

$
(33,963)

$
3,540
Less: Comprehensive loss attributable to noncontrolling interests

–

–

(89)

–

(89)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.
$
3,629

$
38,401

$
(4,438)

$
(33,963)

$
3,629

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 3, 2013

Non-

($ thousands)

Parent

Guarantors

Guarantors

Eliminations

Total
Net cash provided by operating activities
$
1,555

$
26,015

$
7,919

$
–

$
35,489

Investing activities

Purchases of property and equipment

(1,656)

(25,612)

(529)

–

(27,797)
Capitalized software

(2,383)

(248)

(7)

–

(2,638)
Net proceeds from sale of subsidiaries

–

69,347

–

–

69,347
Net cash (used for) provided by investing activities

(4,039)

43,487

(536)

–

38,912

Financing activities

Borrowings under revolving credit agreement

685,000

–

–

–

685,000
Repayments under revolving credit agreement

(767,000)

–

–

–

(767,000)
Dividends paid

(6,048)

–

–

–

(6,048)
Issuance of common stock under share-based plans, net

(2,780)

–

–

–

(2,780)
Tax benefit related to share-based plans

2,798

–

–

–

2,798
Intercompany financing

90,514

(67,312)

(23,202)

–

–
Net cash provided by (used for) financing activities

2,484

(67,312)

(23,202)

–

(88,030)
Effect of exchange rate changes on cash and cash equivalents

–

(1,457)

–

–

(1,457)
Increase (decrease) in cash and cash equivalents

–

733

(15,819)

–

(15,086)
Cash and cash equivalents at beginning of period

–

32,060

36,163

–

68,223
Cash and cash equivalents at end of period
$
–

$
32,793

$
20,344

$
–

$
53,137



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



OVERVIEW

~~The financial~~

Strong operating results at our Wholesale Operations segment and steady performance at Famous Footwear were the primary drivers of our ~~second~~solid third quarter ~~of 2014 reflect the health of both our retail and wholesale businesses, as we continue to benefit from our portfolio realignment efforts.~~performance. Our Wholesale Operations segment reported improvements in net sales and gross profit asof 18.2% and 22.4%, respectively, while our ~~trend-right merchandise resonated with both consumers and retailers, while the~~ Famous Footwear segment delivered improvements in gross profit and operating earnings driven by solid performance during the back-to-school selling season. Same-store sales were up 1.6% for the 10 weeks that make up this key selling season. For the nine months ended November 1, 2014, our Famous Footwear segment achieved record-setting ~~second quarter net~~ sales.

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

Consolidated net sales increased $14.2 million, or 2.3%, to $635.9 million for the second quarter of 2014, compared to $621.7 million for the second quarter of 2013. In our Wholesale Operations segment, we saw continued improvement as net sales increased by $13.8 million, or 7.7%. Net sales of our Famous Footwear segment increased by $5.4 million, reflecting continued growth in same-store sales of 1.6%. Our Specialty Retail segment experienced a $5.0 million decline in net sales in the second quarter of 2014, primarily driven by a lower store count and lower e-commerce sales, partially offset by a 2.3% increase in same-store sales.

Consolidated operating earnings increased $8.5 million, or 37.2%, to $31.3 million in the second quarter of 2014, compared to $22.8 million for the second quarter of 2013, driven by higher sales and better leveraging of our expense base.

Consolidated net sales increased $26.5 million, or 3.8%, to $729.3 million for the third quarter of 2014, compared to $702.8 million for the third quarter of 2013. Our Wholesale Operations segment experienced continued improvement as net sales increased by $37.3 million, or 18.2%. Our Specialty Retail segment reported a decline in net sales of $6.6 million, primarily driven by a lower store count, a decrease in same-store sales, and a lower Canadian dollar exchange rate. Our Famous Footwear segment experienced slightly lower net sales of $4.2 million during the third quarter of 2014, reflecting a lower store count and a decline in same-store sales of 0.2%.

Consolidated net earnings attributable to Brown Shoe Company, Inc. were $18.1 million, or $0.41 per diluted share, in the second quarter of 2014, compared to net earnings of $15.4 million, or $0.35 per diluted share, in the second quarter of 2013.

Consolidated operating earnings increased $8.5 million, or 19.1%, to $53.2 million in the third quarter of 2014, compared to $44.7 million for the third quarter of 2013, driven by higher sales and better leveraging of our expense base.

Consolidated net earnings attributable to Brown Shoe Company, Inc. were $33.1 million, or $0.75 per diluted share, in the third quarter of 2014, compared to net earnings of $27.3 million, or $0.63 per diluted share, in the third quarter of 2013.

The following items impacted our ~~second~~third quarter results in 2014 and 2013 and should be considered in evaluating the comparability of our results:

Franco Sarto Trademarks Acquisition – On February 3, 2014, 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 second quarter of 2014 compared to net gains of $1.2 million after-tax, or $0.02 per diluted share, reported during the second 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.

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. Refer to Note 3 and Note 5 to the condensed consolidated financial statements for further discussion.

Our debt-to-capital ratio, as defined herein, decreased to ~~28.1%~~28.3% at ~~August 2,~~November 1, 2014, compared to ~~34.2%~~30.6% at ~~August 3,~~November 2, 2013 and 30.1% at February 1, 2014. The improvement from ~~August 3,~~November 2, 2013 was driven by our strong cash provided by operating activities, partially offset by the acquisition of the Franco Sarto trademarks and ~~lower~~higher borrowings under our revolving credit agreement. As of ~~August 2,~~November 1, 2014, we had no$14.0 million of outstanding borrowings under the revolving credit agreement. Our current ratio, as defined herein, was ~~1.74~~2.01 to 1 at ~~August 2,~~November 1, 2014, compared to ~~1.76~~2.12 to 1 at ~~August 3,~~November 2, 2013 and 2.05 to 1 at February 1, 2014. The decrease in the current ratio from February 1, 2014 to August 2, 2014 is primarily attributable to higher accounts payable and a decrease in our cash and cash equivalents and receivables, partially offset by an increase in inventory to support the higher level of anticipated sales as well as lower borrowings under our revolving credit agreement. The decrease in our cash and cash equivalents was due in part to the purchase of the Franco Sarto trademarks in early 2014, as discussed above.

Outlook for the Remainder of 2014

Despite ~~a continued,~~potential shifts in consumer sentiment and industry-wide ~~decline in traffic patterns and an overall tough retail~~trends for the promotional holiday environment, we ~~delivered strong financial results in~~see continued growth potential for the ~~second quarter.~~fourth quarter of 2014 and anticipate a solid end to the year. Based on our ~~second~~third quarter results, we expect consolidated net sales for the year to be between $2.58 billion and ~~$2.60~~$2.59 billion. We also expect to earn ~~$1.50 to $1.60~~between $1.65 and $1.69 per diluted share in 2014.

Following are the consolidated results and the results by segment:

CONSOLIDATED RESULTS

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2, 2014

August 3, 2013

August 2, 2014

August 3, 2013

% of

% of

% of

% of

Net

Net

Net

Net

($ millions)

Sales

Sales

Sales

Sales

Net sales
$
635.9

100.0
%

$
621.7

100.0
%
$
1,227.0

100.0
%

$
1,210.4

100.0
%
Cost of goods sold

376.3

59.2
%

367.1

59.0
%

725.0

59.1
%

715.8

59.1
%
Gross profit

259.6

40.8
%

254.6

41.0
%

502.0

40.9
%

494.6

40.9
%
Selling and administrative expenses

228.3

35.9
%

231.1

37.2
%

442.0

36.0
%

444.9

36.8
%
Restructuring and other special charges, net

–

–
%

0.7

0.1
%

–

–
%

1.2

0.1
%
Impairment of assets held for sale

–

–
%

–

–
%

–

–
%

4.7

0.4
%
Operating earnings

31.3

4.9
%

22.8

3.7
%

60.0

4.9
%

43.8

3.6
%
Interest expense

(5.1)

(0.8)
%

(5.2)

(0.9)
%

(10.4)

(0.8)
%

(11.0)

(0.9)
%
Interest income

0.1

0.0
%

0.1

0.0
%

0.2

–
%

0.2

0.0
%
Earnings before income taxes from continuing operations

26.3

4.1
%

17.7

2.8
%

49.8

4.1
%

33.0

2.7
%
Income tax provision

(8.2)

(1.3)
%

(4.0)

(0.6)
%

(16.3)

(1.4)
%

(12.0)

(0.9)
%
Net earnings from continuing operations

18.1

2.8
%

13.7

2.2
%

33.5

2.7
%

21.0

1.8
%
Discontinued operations:

Earnings (loss) from discontinued operations, net of tax

–

–
%

0.6

0.1
%

–

–
%

(5.0)

(0.4)
%
Disposition/impairment of discontinued operations, net of tax

–

–
%

1.1

0.2
%

–

–
%

(11.5)

(1.0)
%
Net earnings (loss) from discontinued operations

–

–
%

1.7

0.3
%

–

–
%

(16.5)

(1.4)
%
Net earnings

18.1

2.8
%

15.4

2.5
%

33.5

2.7
%

4.5

0.4
%
Net (loss) earnings attributable to noncontrolling interests

–

–
%

–

–
%

–

–
%

(0.1)

(0.0)
%
Net earnings attributable to Brown Shoe Company, Inc.
$
18.1

2.8
%

$
15.4

2.5
%
$
33.5

2.7
%

$
4.6

0.4
%



CONSOLIDATED RESULTS
	Thirteen Weeks Ended										Thirty-nine Weeks Ended
	November 1, 2014					November 2, 2013					November 1, 2014					November 2, 2013
				% of Net Sales					% of Net Sales					% of Net Sales					% of Net Sales

($ millions)
Net sales	$	729.3		100.0	%	$	702.8		100.0	%	$	1,956.3		100.0	%	$	1,913.2		100.0	%
Cost of goods sold	438.6			60.1	%	424.6			60.4	%	1,163.6			59.5	%	1,140.3			59.6	%
Gross profit	290.7			39.9	%	278.2			39.6	%	792.7			40.5	%	772.9			40.4	%
Selling and administrative expenses	237.5			32.6	%	233.5			33.2	%	679.5			34.7	%	678.5			35.5	%
Restructuring and other special charges, net	—			—	%	—			—	%	—			—	%	1.3			0.1	%
Impairment of assets held for sale	—			—	%	—			—	%	—			—	%	4.7			0.2	%
Operating earnings	53.2			7.3	%	44.7			6.4	%	113.2			5.8	%	88.4			4.6	%
Interest expense	(5.2		)	(0.7	)%	(5.3		)	(0.8	)%	(15.6		)	(0.8	)%	(16.1		)	(0.8	)%
Interest income	0.1			0.0	%	0.1			—	%	0.3			—	%	0.3			0.0	%
Earnings before income taxes from continuing operations	48.1			6.6	%	39.5			5.6	%	97.9			5.0	%	72.6			3.8	%
Income tax provision	(14.9		)	(2.1	)%	(12.4		)	(1.7	)%	(31.2		)	(1.6	)%	(24.6		)	(1.2	)%
Net earnings from continuing operations	33.2			4.5	%	27.1			3.9	%	66.7			3.4	%	48.0			2.6	%
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax	—			—	%	0.2			0.0	%	—			—	%	(4.8		)	(0.3	)%
Disposition/impairment of discontinued operations, net of tax	—			—	%	—			—	%	—			—	%	(11.5		)	(0.6	)%
Net earnings (loss) from discontinued operations	—			—	%	0.2			0.0	%	—			—	%	(16.3		)	(0.9	)%
Net earnings	33.2			4.5	%	27.3			3.9	%	66.7			3.4	%	31.7			1.7	%
Net earnings (loss) attributable to noncontrolling interests	0.1			0.0	%	—			—	%	0.1			0.0	%	(0.2		)	(0.0	)%
Net earnings attributable to Brown Shoe Company, Inc.	$	33.1		4.5	%	$	27.3		3.9	%	$	66.6		3.4	%	$	31.9		1.7	%

Net Sales

Net sales increased ~~$14.2~~$26.5 million, or ~~2.3%~~3.8%, to ~~$635.9~~$729.3 million for the ~~second~~third quarter of 2014, compared to ~~$621.7~~$702.8 million for the ~~second~~third quarter of 2013. Net sales at our Wholesale Operations ~~and Famous Footwear segments~~segment increased while net sales at our Specialty Retail ~~segment~~and Famous Footwear segments decreased. Our Wholesale Operations segment reported a ~~$13.8~~$37.3 million increase in net sales, driven by strong sales of our Sam Edelman, Naturalizer, Franco Sarto, Dr. Scholl’s, Vince, and Via Spiga brands during the quarter. Our Specialty Retail segment reported a $6.6 million decrease in net sales, due to a lower store count, a 6.9% decrease in same-store sales, and a lower Canadian dollar exchange rate. Net sales of our Famous Footwear segment decreased $4.2 million, reflecting a lower store count and a 0.2% decrease in same-store sales.

Net sales increased $43.1 million, or 2.3%, to $1,956.3 million for the nine months ended November 1, 2014, compared to $1,913.2 million for the nine months ended November 2, 2013. Our sales growth was led by our Wholesale Operations segment, which reported a $61.3 million increase in net sales, driven by strong sales of our Sam Edelman, Vince, ~~and~~ Dr. ~~Scholl’s brands, partially offset by decreases in our Naturalizer and~~Scholl's, Via Spiga, Franco Sarto, and Naturalizer brands. Our Famous Footwear segment reported a ~~$5.4~~$3.5 million increase in net sales, reflecting a same-store sales increase of 1.6%, partially offset by a lower store count. The impacts of an improved customer conversion rate and an increase in pairs per transaction were partially offset by a decrease in customer traffic. Net sales of our Specialty Retail segment decreased $5.0 million due to a lower store count, lower sales from our e-commerce subsidiary, and a lower Canadian dollar exchange rate, partially offset by an increase in same-store sales of 2.3%.

Net sales increased $16.6 million, or 1.4%, to $1,227.0 million for the first half of 2014, compared to $1,210.4 million for the first half of 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 a $24.0 million increase in net sales, driven by strong sales of our Vince, Sam Edelman, Via Spiga, and Dr. Scholl’s brands, partially offset by a decrease in our Naturalizer and Franco Sarto brands. Our Famous Footwear segment reported a $7.8 million increase in net sales, reflecting a same-store sales increase of 1.5%0.8%, partially offset by a lower store count. Famous ~~Footwear experienced~~Footwear's record-setting sales for the nine months ended November 1, 2014 were driven by an improved customer conversion rate, an increase in pairs per transaction, and higher average unit retail prices, partially offset by a decline in customer traffic. Net sales of our Specialty Retail segment decreased ~~$15.1~~$21.6 million due to a lower store count, lower sales from our e-commerce subsidiary, a ~~lower Canadian dollar exchange rate, and a~~ decrease in same-store sales of ~~1.5%.~~

3.5%, and a lower Canadian dollar exchange rate.

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.

Gross Profit

Gross profit increased ~~$5.0~~$12.5 million, or ~~2.0%~~4.5%, to ~~$259.6~~$290.7 million for the ~~second~~third quarter of 2014, compared to ~~$254.6~~$278.2 million for the ~~second~~third quarter of 2013, reflecting higher ~~sales~~gross profit in our Wholesale Operations and Famous Footwear segments, partially offset by lower ~~sales~~gross profit in our Specialty Retail segment. As a percentage of net sales, gross profit ~~declined~~increased to ~~40.8%~~39.9% for the ~~second~~third quarter of 2014, compared to ~~41.0%~~39.6% for the ~~second~~third quarter of 2013, driven by our Famous Footwear segment, which reported a gross profit rate of ~~45.1%~~43.4% for the ~~second~~third quarter of 2014, compared to ~~45.6%~~42.6% for the ~~second~~third quarter of 2013, and ~~a lower mix of retail sales during the quarter, partially offset by~~ improvement in the Wholesale Operations segment gross profit rate to ~~32.6%~~32.9% in the ~~second~~third quarter of 2014, compared to ~~31.0%~~31.8% in the ~~second~~third quarter of 2013. ~~Retail and~~The increase in our Wholesale Operations ~~net~~gross profit rate was driven by margin improvement from several of our brands as well as the elimination of the Franco Sarto royalty expense due to the acquisition of those trademarks in February 2014. These increases were partially offset by a lower mix of retail sales ~~were 69% and 31%, respectively, in~~during the ~~second quarter of 2014, compared to 71% and 29% in the second quarter of 2013.~~quarter. Gross profit rates in our retail businesses are higher, on average, than in our wholesale business.

~~Gross profit increased $7.4 million, or 1.5%~~Retail and Wholesale Operations net sales were 67% and 33%, ~~to $502.0 million for~~respectively, in the ~~first half~~third quarter of 2014, compared to ~~$494.6~~71% and 29% in the third quarter of 2013.

Gross profit increased $19.8 million, or 2.6%, to $792.7 million for the ~~first half of~~nine months ended November 1, 2014, compared to $772.9 million for the nine months ended November 2, 2013, reflecting higher sales and gross profit in our Wholesale Operations and Famous Footwear segments, partially offset by lower sales and gross profit in our Specialty Retail segment. As a percentage of net sales, gross profit was ~~40.9%~~40.5% for the ~~first half of~~nine months ended November 1, 2014, ~~consistent with~~compared to 40.4% for the ~~first half of~~nine months ended November 2, 2013. Our Wholesale Operations segment reported an improved gross profit rate of ~~32.5%~~32.6% for the ~~first half of~~nine months ended November 1, 2014, compared to ~~31.4%~~31.5% for the ~~first half~~nine months ended November 2, 2013 driven by margin improvement from several of ~~2013. This increase was~~our wholesale brands as well as the elimination of the Franco Sarto royalty. These increases were partially offset by a ~~decrease in our Specialty Retail segment gross profit rate to 40.2% in~~lower mix of retail sales during the ~~first half of 2014, from 42.0% in the first half of 2013.~~nine months ended November 1, 2014. Retail and Wholesale Operations net sales were ~~69%~~68% and ~~31%~~32%, respectively, in the ~~first half of~~nine months ended November 1, 2014, compared to 70% and 30% in the ~~first half of~~nine months ended November 2, 2013.

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 $2.8~~increased $4.0 million, or ~~1.2%~~1.7%, to ~~$228.3~~$237.5 million for the ~~second~~third quarter of 2014, compared to ~~$231.1~~$233.5 million in the ~~second~~third quarter of 2013 driven by ~~lower~~higher expenses in our Wholesale Operations and ~~Specialty Retail~~Famous Footwear segments, partially offset by ~~higher~~lower expenses in our ~~Famous Footwear~~Specialty Retail segment. On a consolidated basis, expenses for our cash and stock-based incentive plans were higher by $2.5 million in the third quarter of 2014 as compared to the third quarter of 2013. As a percentage of net sales, selling and administrative expenses decreased to ~~35.9%~~32.6% for the ~~second~~third quarter of 2014 from ~~37.2%~~33.2% for the ~~second~~third quarter of 2013, reflecting better leveraging of our expense base over higher net sales.

Selling and administrative expenses ~~decreased $2.9~~increased $1.0 million, or ~~0.7%~~0.1%, to ~~$442.0~~$679.5 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$444.9~~$678.5 million in the ~~first half of~~nine months ended November 2, 2013. ~~The decrease reflects lower expenses in our Specialty Retail and Wholesale Operations segments, partially offset by higher expenses in our Famous Footwear segment.~~ As a percentage of net sales, selling and administrative expenses decreased to ~~36.0%~~34.7% for the ~~first half of~~nine months ended November 1, 2014 from ~~36.8%~~35.5% for the ~~first half of~~nine months ended November 2, 2013, reflecting better leveraging of our expense base over higher net sales.

Restructuring and Other Special Charges, Net

We recorded no$1.3 million of restructuring and other special charges for the ~~second quarter or first half of 2014 compared to $0.7 million and $1.2 million for the second quarter and first half of~~nine months ended November 2, 2013 ~~respectively,~~ related to our portfolio realignment efforts, as further discussed in Note 5 to the condensed consolidated financial statements.

There were no corresponding charges during the nine months ended November 1, 2014.

Impairment of Assets Held for Sale

During the ~~first half of~~nine months ended November 2, 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 Note 5 to the condensed consolidated financial statements. There was no corresponding charge during the ~~first half of~~nine months ended November 1, 2014.

Operating Earnings

Operating earnings increased $8.5 million, or ~~37.2%~~19.1%, to ~~$31.3~~$53.2 million for the ~~second~~third quarter of 2014, compared to ~~$22.8~~$44.7 million for the ~~second~~third quarter of 2013, ~~driven primarily by~~reflecting higher net sales and ~~a decrease in~~gross profit rate, partially offset by higher selling and administrative expenses,as described above. As a percentage of net sales, operating earnings improved to ~~4.9%~~7.3% for the ~~second~~third quarter of 2014, compared to ~~3.7%~~6.4% for the ~~second~~third quarter of 2013.

Operating earnings increased ~~$16.2~~$24.8 million, or ~~37.1%~~28.0%, to ~~$60.0~~$113.2 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$43.8~~$88.4 million for the ~~first half of~~nine months ended November 2, 2013, driven by higher ~~net~~ sales and nomargins and the non-recurrence of the 2013 charges for impairment of assets held for sale andrestructuring and other special charges,net,as described above. As a percentage of net sales, operating earnings improved to ~~4.9%~~5.8% for the ~~first half of~~nine months ended November 1, 2014, compared to ~~3.6%~~4.6% for the ~~first half of~~nine months ended November 2, 2013.

Interest Expense

Interest expense decreased $0.1 million, or ~~1.3%~~0.9%, to ~~$5.1~~$5.2 million for the ~~second~~third quarter of 2014, compared to ~~$5.2~~$5.3 million for the ~~second~~third quarter ~~of 2013, primarily reflecting lower average borrowings under our revolving credit agreement.~~

~~Interest expense decreased $0.6 million, or 4.4%, to $10.4 million for the first half of 2014, compared to $11.0 million for the first half~~ of 2013, reflecting lower average borrowings under our revolving credit ~~agreement, partially offset by a higher~~agreement.

Interest expense decreased $0.5 million, or 3.3%, to $15.6 million for the nine months ended November 1, 2014, compared to $16.1 million for the nine months ended November 2, 2013, reflecting lower average ~~interest rate.~~

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 ~~31.4%~~30.9% for the ~~second~~third quarter of 2014, compared to our ~~second~~third quarter of 2013 rate of ~~23.1%~~31.6%. For the ~~first half of~~nine months ended November 1, 2014, our consolidated effective tax rate from continuing operations was ~~32.7%~~31.8%, as compared to ~~36.4%~~33.8% in the prior year. The increase in our effective tax rate for the second quarter of 2014 was primarily due to a lower anticipated full year mix of international earnings in lower-tax jurisdictions as compared to the prior year. The effective tax rate was higher in the ~~first half of~~nine months ended November 2, 2013 due to the non-deductible nature of the $4.7 million impairment charge discussed above.

Net Earnings from Continuing Operations

Net earnings from continuing operations increased ~~$4.4~~$6.1 million, or ~~32.4%~~22.9%, to ~~$18.1~~$33.2 million for the ~~second~~third quarter of 2014, compared to ~~$13.7~~$27.1 million for the ~~second~~third quarter of 2013, as a result of the factors described above.

Net earnings from continuing operations increased ~~$12.5~~$18.7 million, or ~~59.7%~~39.0%, to ~~$33.5~~$66.7 million for the ~~first half of~~nine months ended November 1, 2014 compared to ~~$21.0~~$48.0 million for the ~~first half of last year,~~nine months ended November 2, 2013, as a result of the factors described above.

NetEarnings (Loss)from Discontinued Operations

Net earnings from discontinued operations were ~~$1.7~~$0.2 million in the ~~second~~third quarter of 2013, with no corresponding net earnings during the ~~second~~third quarter of 2014. The net earnings in the ~~second~~third quarter of 2013 were primarily attributable to ~~a gain of $1.0 million recognized upon disposition of ASG,~~merchandise sold under the Vera Wang license agreement, as further ~~described~~discussed in Note 3 to the condensed consolidated financial statements.

Net loss from discontinued operations was ~~$16.5~~$16.3 million during the ~~first half of~~nine months ended November 2, 2013, with no corresponding net loss during the ~~first half of~~nine months ended November 1, 2014. The net loss is primarily related to a non-cash impairment charge resulting from the sale of our Avia and Nevados divisions of $12.6 million during the first quarter of 2013, reflecting the estimated fair value of those assets, partially offset by a gain of $1.0 million recognized upon the ~~sale,~~sale. There was also a $4.8 million net loss from discontinued operations, primarily related to merchandise sold under the Etienne Aigner license agreement, as further described in Note 3 to the condensed consolidated financial statements.

Net Earnings Attributable to Brown Shoe Company, Inc.

Net earnings attributable to Brown Shoe Company, Inc. were ~~$18.1~~$33.1 million and ~~$33.5~~$66.6 million during the ~~second~~third quarter and ~~first half of~~nine months ended November 1, 2014, compared to net earnings of ~~$15.4~~$27.3 million and ~~$4.6~~$31.9 million during the ~~second~~third quarter and ~~first half of~~nine months ended November 2, 2013, as a result of the factors described above.

FAMOUS FOOTWEAR

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2, 2014

August 3, 2013

August 2, 2014

August 3, 2013

% of

% of

% of

% of

($ millions, except sales per square

Net

Net

Net

Net

foot)

Sales

Sales

Sales

Sales

Operating Results

Net sales
$
393.6

100.0
%

$
388.2

100.0
%

$
748.3

100.0
%

$
740.5

100.0
%
Cost of goods sold

216.0

54.9
%

211.2

54.4
%

408.9

54.6
%

404.8

54.7
%
Gross profit

177.6

45.1
%

177.0

45.6
%

339.4

45.4
%

335.7

45.3
%
Selling and administrative expenses

151.0

38.4
%

148.0

38.1
%

285.0

38.1
%

277.7

37.5
%
Operating earnings
$
26.6

6.7
%

$
29.0

7.5
%

$
54.4

7.3
%

$
58.0

7.8
%

Key Metrics

Same-store sales % change

1.6
%

6.8
%

1.5
%

4.0
%

Same-store sales $ change
$
5.7

$
23.7

$
10.3

$
27.5

Sales change from new and closed stores, net
$
(0.3)

$
14.2

$
(2.5)

$
15.6

Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended)
$
55

$
53

$
105

$
101

Sales per square foot, excluding e-commerce (trailing twelve months)
$
212

$
207

$
212

$
207

Square footage (thousand sq. ft.)

6,962

7,183

6,962

7,183

Stores opened

17

19

28

31

Stores closed

16

14

37

27

Ending stores

1,035

1,059

1,035

1,059



FAMOUS FOOTWEAR
	Thirteen Weeks Ended										Thirty-nine Weeks Ended
	November 1, 2014					November 2, 2013					November 1, 2014					November 2, 2013
				% of Net Sales					% of Net Sales					% of Net Sales					% of Net Sales
($ millions, except sales per square
foot)
Operating Results
Net sales	$	435.4		100.0	%	$	439.6		100.0	%	$	1,183.6		100.0	%	$	1,180.1		100.0	%
Cost of goods sold	246.5			56.6	%	252.3			57.4	%	655.3			55.4	%	657.1			55.7	%
Gross profit	188.9			43.4	%	187.3			42.6	%	528.3			44.6	%	523.0			44.3	%
Selling and administrative expenses	151.3			34.8	%	150.3			34.2	%	436.3			36.8	%	427.9			36.2	%
Operating earnings	$	37.6		8.6	%	$	37.0		8.4	%	$	92.0		7.8	%	$	95.1		8.1	%

Key Metrics
Same-store sales % change	(0.2		)%			4.9		%			0.8		%			4.3		%
Same-store sales $ change	$	(0.9	)			$	19.5				$	9.3				$	47.0
Sales change from new and closed stores, net	$	(3.3	)			$	(16.7	)			$	(5.8	)			$	(1.1	)

Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)	$	61				$	59				$	166				$	160
Sales per square foot, excluding e-commerce (trailing twelve months)	$	213				$	208				$	213				$	208
Square footage (thousand sq. ft.)	6,983					7,095					6,983					7,095

Stores opened	12					11					40					42
Stores closed	6					22					43					49
Ending stores	1,041					1,048					1,041					1,048

Net Sales

~~Famous Footwear delivered a record-setting second quarter as net~~

Net sales ~~increased $5.4~~decreased $4.2 million, or ~~1.4%~~1.0%, to ~~$393.6~~$435.4 million for the ~~second~~third quarter of 2014, compared to ~~$388.2~~$439.6 million for the ~~second~~third quarter of ~~2013. Same-store~~2013 reflecting a lower store count and a decrease in same-store sales, including e-commerce, ~~increased 1.6%~~of 0.2% during the ~~second~~third quarter of 2014. Despite an overall decline in customer traffic, Famous Footwear reported an improved customer conversion rate and an increase in pairs per ~~transaction, partially offset by a decrease~~transaction. Famous Footwear experienced sales growth in ~~customer traffic. Performance in~~canvas, boots and sandals during the ~~quarter was driven by canvas footwear, as casual styles continued to resonate with consumers.~~quarter. During the ~~second~~third quarter of 2014, we opened 1712 new stores and closed 16six stores, resulting in ~~1,035~~1,041 stores and total square footage of 7.0 million at the end of the ~~second~~third quarter of 2014, compared to ~~1,059~~1,048 stores and total square footage of ~~7.2~~7.1 million at the end of the ~~second~~third quarter of 2013. Sales per square foot, excluding e-commerce, increased ~~4.4%~~1.8% to ~~$55~~$61 in the ~~second~~third quarter of 2014, compared to ~~$53~~$59 in the ~~second~~third quarter of ~~last year.~~2013. Members of our customer loyalty program, Rewards, continue to account for a majority of the segment’s sales, with approximately ~~72%~~75% of our net sales made to members of our Rewards program in the ~~second~~third quarter of 2014, compared to approximately ~~70%~~74% in the ~~second~~third quarter of 2013.

Net sales increased ~~$7.8~~$3.5 million, or ~~1.0%~~0.3%, to ~~$748.3~~$1,183.6 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$740.5~~$1,180.1 million for the ~~first half of~~nine months ended November 2, 2013. Same-store sales, including e-commerce, increased ~~1.5%~~0.8% during the first half of 2014. Despite an overall decline in customer traffic impacted by the cold weather during the first quarter, we experienced stronger sales during the second quarter as weather normalized, contributingnine months ended November 1, 2014, primarily due to an improved customer conversion rate, an increase in pairs per transaction, and higher average unit retail prices, partially offset by a decline in customer traffic. ~~We experienced sales growth~~Growth in canvas styles, women’s boots,

athletics, and ~~accessories.~~accessories also contributed to our increase in sales. During the ~~first half of~~nine months ended November 1, 2014, we opened 2840 new stores and closed 3743 stores. Sales per square foot, excluding e-commerce, increased ~~4.1%~~3.2% to ~~$105~~$166 in the ~~first half of~~nine months ended November 1, 2014, compared to ~~$101~~$160 in the ~~first half of last year.~~nine months ended November 2, 2013. On a trailing twelve-month basis, sales per square foot, excluding e-commerce, increased ~~2.2%~~2.1% to ~~$212~~$213 for the twelve months ended ~~August 2,~~November 1, 2014, compared to ~~$207~~$208 for the twelve months ended ~~August 3,~~November 2, 2013.

Gross Profit

Gross profit increased ~~$0.6~~$1.6 million, or ~~0.3%~~0.8%, to ~~$177.6~~$188.9 million for the ~~second~~third quarter of 2014, compared to ~~$177.0~~$187.3 million for the ~~second~~third quarter of 2013. As a percentage of net sales, our gross profit was 43.4% for the third quarter of 2014, compared to 42.6% for the third quarter of 2013. The increase in our gross profit rate was driven by a number of factors, including a better mix of higher margin products, higher average unit retail prices, and lower freight costs.

Gross profit increased $5.3 million, or 1.0%, to $528.3 million for the nine months ended November 1, 2014, compared to $523.0 million for the nine months ended November 2, 2013, due primarily to the growth in net sales. As a percentage of net sales, our gross profit was ~~45.1%~~44.6% for the second quarter of 2014, compared to 45.6% for the second quarter of 2013. The decrease in our gross profit rate was primarily driven by lower product margins in our boots and running categories and higher inventory markdowns.

Gross profit increased $3.7 million, or 1.1%, to $339.4 million for the first half of 2014, compared to $335.7 million for the first half of 2013, due primarily to the growth in net sales. As a percentage of net sales, our gross profit was 45.4% for the first half ofnine months ended November 1, 2014, compared to the gross profit rate of ~~45.3%~~44.3% for the ~~first half of 2013.~~

nine months ended November 2, 2013, reflecting the same factors described above.

Selling and Administrative Expenses

Selling and administrative expenses increased ~~$3.0~~$1.0 million, or ~~2.0%~~0.7%, to ~~$151.0~~$151.3 million for the ~~second~~third quarter of 2014, compared to ~~$148.0~~$150.3 million for the ~~second~~third quarter of 2013. The increase was primarily attributable to higher store rent and administrative expenses, partially offset by lower store employee compensation and store rent and depreciation expenses. As a percentage of net sales, selling and administrative expenses increased to 38.4% for the second quarter of 2014, compared to 38.1% for the second quarter of 2013.

Selling and administrative expenses increased $7.3 million, or 2.6%, to $285.0 million for the first half of 2014, compared to $277.7 million for the first half of 2013. The increase was primarily attributable to higher administrative expenses, store employee compensation, store rent and depreciation expenses, and marketing expenses. As a percentage of net sales, selling and administrative expenses increased to ~~38.1%~~34.8% for the ~~first half of 2014, compared to 37.5% for the first half of 2013.~~

~~Operating Earnings~~

~~Operating earnings decreased $2.4 million, or 8.3%, to $26.6 million for the second~~third quarter of 2014, compared to ~~$29.0~~34.2% for the third quarter of 2013.

Selling and administrative expenses increased $8.4 million, or 1.9%, to $436.3 million for the ~~second~~nine months ended November 1, 2014, compared to $427.9 million for the nine months ended November 2, 2013. The increase was primarily attributable to higher store rent and depreciation expenses and higher administrative expenses, partially offset by lower store employee compensation and marketing expenses. As a percentage of net sales, selling and administrative expenses increased to 36.8% for the nine months ended November 1, 2014, compared to 36.2% for the nine months ended November 2, 2013.

Operating Earnings

Operating earnings increased $0.6 million, or1.4%, to $37.6 million for thethird quarter of 2014, compared to $37.0 million for thethird quarter of 2013. The ~~decrease~~increase was due to ~~higher selling and administrative expenses and~~ a ~~lower~~higher gross profit rate, partially offset by higher ~~net sales,~~selling and administrative expenses, as described above. As a percentage of net sales, operating earnings ~~decreased~~ increasedto ~~6.7%~~8.6% for the ~~second~~third quarter of 2014, comparedto ~~7.5%~~8.4% for the ~~second~~third quarter of 2013.

Operating earnings decreased ~~$3.6~~$3.1 million, or ~~6.2%~~3.2%, to ~~$54.4~~$92.0 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$58.0~~$95.1 million for the ~~first half of~~nine months ended November 2, 2013. The decrease wasprimarilydue to higher selling and administrative expenses,partially offset by higher net sales and gross profit, as described above. As a percentage of net sales, operating earnings decreasedto ~~7.3% for the first half of 2014, compared to~~ 7.8% for the ~~first half of~~nine months ended November 1, 2014, comparedto 8.1% forthe nine months ended November 2, 2013.

WHOLESALE OPERATIONS

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2, 2014

August 3, 2013

August 2, 2014

August 3, 2013

% of

% of

% of

% of

Net

Net

Net

Net

($ millions)

Sales

Sales

Sales

Sales

Operating Results

Net sales
$
194.3
100.0
%

$
180.5
100.0
%

$
386.1
100.0
%

$
362.1
100.0
%
Cost of goods sold

131.0
67.4
%

124.6
69.0
%

260.8
67.5
%

248.4
68.6
%
Gross profit

63.3
32.6
%

55.9
31.0
%

125.3
32.5
%

113.7
31.4
%
Selling and administrative expenses

44.1
22.7
%

47.0
26.1
%

92.3
24.0
%

96.5
26.7
%
Restructuring and other special charges, net

–
–
%

0.7
0.4
%

–
–
%

1.2
0.3
%
Impairment of assets held for sale

–
–
%

–
–
%

–
–
%

4.7
1.3
%
Operating earnings
$
19.2
9.9
%

$
8.2
4.5
%

$
33.0
8.5
%

$
11.3
3.1
%

Key Metrics

Unfilled order position at end of period
$
314.5

$
257.7



WHOLESALE OPERATIONS
	Thirteen Weeks Ended								Thirty-nine Weeks Ended
	November 1, 2014				November 2, 2013				November 1, 2014				November 2, 2013
			% of Net Sales				% of Net Sales				% of Net Sales				% of Net Sales

($ millions)
Operating Results
Net sales	$	242.6	100.0	%	$	205.3	100.0	%	$	628.6	100.0	%	$	567.3	100.0	%
Cost of goods sold	162.8		67.1	%	140.1		68.2	%	423.5		67.4	%	388.4		68.5	%
Gross profit	79.8		32.9	%	65.2		31.8	%	205.1		32.6	%	178.9		31.5	%
Selling and administrative expenses	52.0		21.4	%	48.4		23.6	%	144.2		22.9	%	144.9		25.5	%
Restructuring and other special charges, net	—		—		—		—		—		—		1.2		0.2	%
Impairment of assets held for sale	—		—		—		—		—		—		4.7		0.8	%
Operating earnings	$	27.8	11.5	%	$	16.8	8.2	%	$	60.9	9.7	%	$	28.1	5.0	%

Key Metrics
Unfilled order position at end of period	$	333.4			$	311.7

Net Sales

Net sales increased ~~$13.8~~$37.3 million, or ~~7.7%~~18.2%, to ~~$194.3~~$242.6 million for the ~~second~~third quarter of 2014, compared to ~~$180.5~~$205.3 million forthe ~~second~~third quarter of 2013. The increase reflects strength in many of our brands including Sam Edelman, Naturalizer, Franco Sarto, Dr. Scholl's, Vince, and ~~Dr. Scholl’s, partially offset by decreases in our Naturalizer and Franco Sarto brands.~~ Via Spiga. Our unfilled order position increased ~~$56.8~~$21.7 million, or ~~22.1%~~7.0%, ~~from $257.7~~to $333.4 million as of ~~August 3, 2013 to $314.5~~November 1, 2014, from $311.7 million as of ~~August~~November 2, ~~2014~~2013 primarily due to growth in our ~~Dr. Scholl’s,~~Vince, Naturalizer, ~~Vince,~~ and ~~Franco Sarto brands.~~

~~Net sales increased $24.0 million, or 6.6%, to $386.1 million for the first half of 2014, compared to $362.1 million for the first half of 2013. The increase reflects strength in our Vince,~~ Sam Edelman ~~Via Spiga, and Dr. Scholl’s~~ brands, partially offset by a decrease in our ~~Naturalizer and~~Ryka brand.

Net sales increased $61.3 million, or 10.8%, to $628.6 million for the nine months ended November 1, 2014, compared to $567.3 million for the nine months ended November 2, 2013. The increase reflects strength in our Sam Edelman, Vince, Dr. Scholl's, Via Spiga, Franco Sarto, and Naturalizer brands.

Gross Profit

Gross profit increased ~~$7.4~~$14.6 million, or ~~13.3%~~22.4%, to ~~$63.3~~$79.8 million for the ~~second~~third quarter of 2014, compared to ~~$55.9~~$65.2 million for the ~~second~~third quarter of 2013, reflecting the increase in net sales volume and higher gross profit rate. As a percentage of net sales, our gross profit was ~~32.6%~~32.9% for the ~~second~~third quarter of 2014, compared to ~~31.0%~~31.8% for the ~~second~~third quarter of 2013. The increase in our gross profit rate was driven by margin improvement from several of our wholesale brands as well as lower royalty expense due to the acquisition of the Franco Sarto trademarks in the first quarter of 2014, partially offset by the reduced gross profit impact from lower sales of our wholesale brands through our retail divisions in the ~~second~~third quarter of 2014.

Gross profit increased ~~$11.6~~$26.2 million, or ~~10.2%~~14.7%, to ~~$125.3~~$205.1 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$113.7~~$178.9 million for the ~~first half of~~nine months ended November 2, 2013, reflecting the increase in net sales volume and ~~higher~~ gross ~~profit rate.~~profit. As a percentage of net sales, our gross profit increased to ~~32.5%~~32.6% for the ~~first half of~~nine months ended November 1, 2014, from ~~31.4%~~31.5% for the ~~first half of~~nine months ended November 2, 2013. The increase in our gross profit rate was driven by the same factors described above for the quarter.

Selling and Administrative Expenses

Selling and administrative expenses ~~decreased $2.9~~increased $3.6 million, or ~~6.2%~~7.4%, to ~~$44.1~~$52.0 million for the ~~second~~third quarter of 2014, compared to ~~$47.0~~$48.4 million for the ~~second~~third quarter of 2013, driven by higher marketing expenses and an increase in ~~part by lower warehouse expenses during the quarter.~~anticipated payments under our cash and stock-based incentive plans. As a percentage of net sales, selling and administrative expenses decreased to ~~22.7%~~21.4% for the ~~second~~third quarter of 2014, compared to ~~26.1%~~23.6% for the ~~second~~third quarter of 2013, reflecting better leveraging of our expense base over higher net sales.

Selling and administrative expenses decreased ~~$4.2~~$0.7 million, or ~~4.3%~~0.4%, to ~~$92.3~~$144.2 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$96.5~~$144.9 million for the ~~first half of 2013,~~nine months ended November 2, 2013. The decrease was driven in part by lower warehouse ~~expenses.~~expenses, partially offset by higher marketing expenses and an increase in anticipated payments under our cash and

stock-based incentive plans. As a percentage of net sales, selling and administrative expenses decreased to ~~24.0%~~22.9% for the ~~first half of~~nine months ended November 1, 2014, compared to ~~26.7%~~25.5% for the ~~first half of~~nine months ended November 2, 2013, reflecting better leveraging of our expense base over higher net sales.

Restructuring and Other Special Charges, Net

During the nine months ended November 2, 2013, we incurred no$1.2 million of restructuring and other special ~~charges during the second quarter and first half of 2014, compared to $0.7 million and $1.2 million during the second quarter and first half of 2013, respectively.~~charges. Our portfolio realignment efforts 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 Note 5 to the condensed consolidated financial statements.

There were no corresponding charges during the nine months ended November 1, 2014.

Impairment of Assets Held for Sale

Operating Earnings

Operating earnings increased $11.0 million, or 65.9%, to ~~$19.2~~$27.8 million for the ~~second~~third quarter of 2014, compared to ~~$8.2~~$16.8 million for the ~~second~~third quarter of 2013. The increase was primarily driven byhighernet salesand gross profit ~~rate.~~rate, partially offset by an increase in selling and administrative expenses. As a percentage of net sales, operating earnings increased to ~~9.9%~~11.5% for the ~~second~~third quarter of 2014, compared to ~~4.5%~~8.2% in the ~~second~~third quarter of 2013.

Operating earnings increased ~~$21.7~~$32.8 million, or 116.7%, to ~~$33.0~~$60.9 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$11.3~~$28.1 million for the ~~first half of~~nine months ended November 2, 2013. The increase was primarily driven byhighernet salesand gross profit rate and no expenses for impairment of assets held for sale ~~and~~ orrestructuring and other special charges. As a percentage of net sales, operating earnings increased to ~~8.5%~~9.7% for the ~~first half of~~nine months ended November 1, 2014, compared to ~~3.1% in~~ 5.0% forthe ~~first half of~~nine months ended November 2, 2013.

SPECIALTY RETAIL

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 2, 2014

August 3, 2013

August 2, 2014

August 3, 2013

% of

% of

% of

% of

($ millions, except sales per

Net

Net

Net

Net

square foot)

Sales

Sales

Sales

Sales

Operating Results

Net sales
$
48.0

100.0
%

$
53.0

100.0
%

$
92.7

100.0
%

$
107.8

100.0
%
Cost of goods sold

29.3

61.0
%

31.3

59.1
%

55.4

59.8
%

62.6

58.0
%
Gross profit

18.7

39.0
%

21.7

40.9
%

37.3

40.2
%

45.2

42.0
%
Selling and administrative expenses

21.5

44.8
%

23.6

44.3
%

43.8

47.2
%

48.4

44.9
%
Operating loss
$
(2.8)

(5.8)
%

$
(1.9)

(3.4)
%

$
(6.5)

(7.0)
%

$
(3.2)

(2.9)
%

Key Metrics

Same-store sales % change

2.3
%

4.8
%

(1.5)
%

2.3
%

Same-store sales $ change
$
0.8

$
1.6

$
(1.0)

$
1.6

Sales change from new and closed stores, net
$
(3.2)

$
(1.8)

$
(6.8)

$
(2.4)

Impact of changes in Canadian exchange rate on sales
$
(0.7)

$
(0.2)

$
(1.7)

$
(0.5)

Sales change of e-commerce subsidiary
$
(1.9)

$
(0.6)

$
(5.6)

$
(1.0)

Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended)
$
104

$
102

$
189

$
193

Sales per square foot, excluding e-commerce (trailing twelve months)
$
393

$
400

$
393

$
400

Square footage (thousand sq. ft.)

300

335

300

335

Stores opened

3

4

4

6

Stores closed

5

4

13

13

Ending stores

170

215

170

215



SPECIALTY RETAIL
	Thirteen Weeks Ended										Thirty-nine Weeks Ended
	November 1, 2014					November 2, 2013					November 1, 2014					November 2, 2013
				% of Net Sales					% of Net Sales					% of Net Sales					% of Net Sales
($ millions, except sales per square foot)				% of Net Sales					% of Net Sales					% of Net Sales					% of Net Sales
Operating Results
Net sales	$	51.3		100.0	%	$	57.9		100.0	%	$	144.1		100.0	%	$	165.7		100.0	%
Cost of goods sold	29.2			57.0	%	32.1			55.5	%	84.8			58.8	%	94.7			57.1	%
Gross profit	22.1			43.0	%	25.8			44.5	%	59.3			41.2	%	71.0			42.9	%
Selling and administrative expenses	22.5			43.7	%	25.6			44.1	%	66.1			45.9	%	73.9			44.7	%
Operating (loss) earnings	$	(0.4	)	(0.7	)%	$	0.2		0.4	%	$	(6.8	)	(4.7	)%	$	(2.9	)	(1.8	)%

Key Metrics
Same-store sales % change	(6.9		)%			0.6		%			(3.5		)%			1.7		%
Same-store sales $ change	$	(2.5	)			$	0.2				$	(3.5	)			$	1.8
Sales change from new and closed stores, net	$	(2.8	)			$	(1.3	)			$	(9.5	)			$	(3.7	)
Impact of changes in Canadian exchange rate on sales	$	(1.0	)			$	(0.9	)			$	(2.7	)			$	(1.4	)
Sales change of e-commerce subsidiary	$	(0.3	)			$	(2.9	)			$	(5.9	)			$	(3.9	)

Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)	$	100				$	109				$	289				$	302
Sales per square foot, excluding e-commerce (trailing twelve months)	$	384				$	400				$	384				$	400
Square footage (thousand sq. ft.)	304					325					304					325

Stores opened	3					4					7					10
Stores closed	1					34					14					47
Ending stores	172					185					172					185

Net Sales

Net sales decreased ~~$5.0~~$6.6 million, or ~~9.5%~~11.4%, to ~~$48.0~~$51.3 million for the ~~second~~third quarter of 2014, compared to ~~$53.0~~$57.9 million for the ~~second~~third quarter of 2013. The decrease in net sales reflects a 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 ~~$1.9 million~~6.9% decrease in same-store sales, a lower Canadian dollar exchange rate, and a decrease in net sales at our e-commerce ~~subsidiary, and a lower Canadian dollar exchange rate, partially offset by an increase in same-store sales of 2.3%.~~subsidiary. We opened three new retail stores and closed ~~five stores~~one store during the ~~second~~third quarter of 2014, resulting in a total of ~~170~~172 stores and total square footage of 0.3 million at the end of the ~~second~~third quarter of 2014, compared to ~~215~~185 stores (including 26two Naturalizer stores in China) and total square footage of 0.3 million at the end of the ~~second~~third quarter of 2013. During 2013, all Naturalizer stores in China were either closed or transferred to our joint venture partner. Sales per square foot, excluding e-commerce, ~~increased 2.4%~~decreased 8.5% to ~~$104~~$100 for the ~~second~~third quarter of 2014, compared to ~~$102~~$109 for the ~~second~~third quarter of 2013.

Net sales decreased ~~$15.1~~$21.6 million, or ~~13.9%~~13.0%, to ~~$92.7~~$144.1 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$107.8~~$165.7 million for the ~~first half of~~nine months ended November 2, 2013. The decrease in net sales reflects a 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 ~~$5.6~~$5.9 million decrease in net sales at our e-commerce subsidiary, a ~~lower Canadian dollar exchange rate, and a~~ decrease in same-store sales of ~~1.5%.~~3.5%, and a lower Canadian dollar exchange rate. Sales per square foot, excluding e-commerce, decreased ~~2.1%~~4.4% to ~~$189~~$289 for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$193~~$302 for the ~~first half of~~nine months ended November 2, 2013. On a trailing twelve-month basis, sales per square foot, excluding e-commerce, decreased ~~1.7%~~4.2% to ~~$393~~$384 for the twelve months ended ~~August 2,~~November 1, 2014 compared to $400 for the twelve months ended ~~August 3,~~November 2, 2013.

Gross Profit

Gross profit decreased ~~$3.0~~$3.7 million, or ~~13.7%~~14.4%, to ~~$18.7~~$22.1 million for the ~~second~~third quarter of 2014, compared to ~~$21.7~~$25.8 million for the ~~second~~third quarter of 2013, driven by the decrease in net sales and a lower gross profit rate. As a percentage of net sales, our gross profit decreased to ~~39.0%~~43.0% for the ~~second~~third quarter of 2014 from ~~40.9%~~44.5% for the ~~second~~third quarter of 2013. The decrease in our gross profit rate was primarily driven by an unfavorable sales mix of lower margin ~~product and higher inventory markdowns to clear inventory.~~

product.

Gross profit decreased ~~$7.9~~$11.7 million, or ~~17.6%~~16.4%, to ~~$37.3~~$59.3 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$45.2~~$71.0 million for the ~~first half of~~nine months ended November 2, 2013, driven by the decrease in net sales and a lower gross profit rate. As a percentage of net sales, our gross profit decreased to ~~40.2%~~41.2% for the ~~first half of~~nine months ended November 1, 2014 from ~~42.0%~~42.9% for the ~~first half of~~nine months ended November 2, 2013, reflecting ~~the same factors described above.~~

an unfavorable sales mix of lower margin product and higher inventory markdowns to clear inventory.

Selling and Administrative Expenses

Selling and administrative expenses decreased ~~$2.1~~$3.1 million, or ~~8.6%~~12.3%, to ~~$21.5~~$22.5 million for the ~~second~~third quarter of 2014, compared to ~~$23.6~~$25.6 million for the ~~second~~third quarter of 2013, reflecting lower facility and employee expenses as a result of our lower store count as well as a lower Canadian dollar exchange rate. As a percentage of net sales, selling and administrative expenses ~~increased~~decreased to ~~44.8%~~43.7% for the ~~second~~third quarter of 2014 from ~~44.3%~~44.1% for the ~~second~~third quarter of 2013.

Selling and administrative expenses decreased ~~$4.6~~$7.8 million, or ~~9.6%~~10.5%, to ~~$43.8~~$66.1 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$48.4~~$73.9 million for the ~~first half of~~nine months ended November 2, 2013, reflecting the ~~above named factors.~~same factors described above. As a percentage of net sales, selling and administrative expenses increased to ~~47.2%~~45.9% for the ~~first half of~~nine months ended November 1, 2014 from ~~44.9%~~44.7% for the ~~first half of~~nine months ended November 2, 2013, reflecting the de-leveraging of the expense base over lower net sales.

Operating ~~Loss~~

(Loss) Earnings

Specialty Retail reported an operating loss of ~~$2.8~~$0.4 million for the ~~second~~third quarter of 2014, compared to an operating ~~loss~~income of ~~$1.9~~$0.2 million for the ~~second~~third quarter of ~~2013. The increase in our operating loss was primarily~~2013, driven by lower net sales and gross profit rate, partially offset by lower selling and administrative expenses, as discussed above.

Specialty Retail reported an operating loss of ~~$6.5~~$6.8 million for the ~~first half of~~nine months ended November 1, 2014, compared to an operating loss of ~~$3.2~~$2.9 million for the ~~first half of~~nine months ended November 2, 2013. The increase in our operating loss was ~~primarily~~ driven by lower net sales and gross profit rate, partially offset by lower selling and administrative expenses, as discussed above.


~~OTHER~~

OTHER

The Other category includes unallocated corporate administrative expenses and other costs and recoveries. Costs of ~~$11.7~~$11.8 million were incurred for the ~~second~~third quarter of 2014 compared to costs of ~~$12.5~~$9.4 million for the ~~second~~third quarter of 2013. The $2.4 million increase was driven in part by higher anticipated payments under our cash and stock-based incentive plans and an increase in professional service fees. Unallocated corporate administrative expenses and other costs and recoveries were ~~$20.9~~$32.8 million for the ~~first half of~~nine months ended November 1, 2014, compared to ~~$22.4~~$31.8 million for the ~~first half of last year.~~

nine months ended November 2, 2013.



LIQUIDITY AND CAPITAL RESOURCES

Borrowings

August 2,

August 3,

February 1,

($ millions)

2014

2013

2014

Borrowings under revolving credit agreement

$
–

$
23.0

$
7.0

Long-term debt – Senior Notes

199.1

198.9

199.0

Total debt

$
199.1

$
221.9

$
206.0



	November 1,		November 2,		February 1,
($ millions)	2014		2013		2014
Borrowings under revolving credit agreement	$	14.0	$	—	$	7.0
Long-term debt – Senior Notes	199.2		199.0		199.0
Total debt	$	213.2	$	199.0	$	206.0

Total debt obligations ~~decreased $22.8~~increased $14.2 million to ~~$199.1~~$213.2 million at ~~August 2,~~November 1, 2014, compared to ~~$221.9~~$199.0 million at ~~August 3,~~November 2, 2013, and ~~decreased $6.9~~increased $7.2 million from $206.0 million at February 1, 2014 due to ~~lower~~higher borrowings under our revolving credit agreement, resulting from our strong cash provided by operating activities over the respective periods, partially offset by the $65 million acquisition of the Franco Sarto trademarks in the first quarter of 2014.agreement. As a result of ~~the~~ lower average borrowings under our revolving credit agreement, interest expense for the ~~first half of~~nine months ended November 1, 2014 decreased ~~$0.6~~$0.5 million to ~~$10.4~~$15.6 million, compared to ~~$11.0~~$16.1 million for the ~~first half of~~nine months ended November 2, 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 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 ~~August 2,~~November 1, 2014 in all material respects.

At ~~August 2,~~November 1, 2014, we had no$14.0 million of borrowings outstanding and $6.4 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was ~~$523.6~~$509.6 million at ~~August 2,~~November 1, 2014. ~~While we had no borrowings outstanding under the Credit Agreement as of August 2, 2014, we anticipate using the facility to fund prospective working capital needs.~~

$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. 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%



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

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 ~~August 2,~~November 1, 2014, we were in compliance with all covenants and restrictions relating to the 2019 Senior Notes in all material respects.

Working Capital and Cash Flow

Twenty-six Weeks Ended

August 2,

August 3,

Increase/

($ millions)

2014

2013

(Decrease)

Net cash provided by operating activities

$
66.5

$
35.5

$
31.0

Net cash (used for) provided by investing activities

(91.3)

38.9

(130.2)

Net cash used for financing activities

(11.5)

(88.0)

76.5

Effect of exchange rate changes on cash and cash equivalents

0.6

(1.5)

2.1

Decrease in cash and cash equivalents

$
(35.7)

$
(15.1)

$
(20.6)



	Thirty-nine Weeks Ended
	November 1,			November 2,			Increase/
($ millions)	2014			2013			(Decrease)
Net cash provided by operating activities	$	68.5		$	62.0		$	6.5
Net cash (used for) provided by investing activities	(112.4		)	27.7			(140.1		)
Net cash provided by (used for) financing activities	0.5			(113.9		)	114.4
Effect of exchange rate changes on cash and cash equivalents	(0.1		)	(1.6		)	1.5
Decrease in cash and cash equivalents	$	(43.5	)	$	(25.8	)	$	(17.7	)

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

Cash provided by operating activities was ~~$31.0~~$6.5 million higher in the ~~first half of~~nine months ended November 1, 2014 as compared to the ~~first half of~~nine months ended November 2, 2013, reflecting the following factors:

~~Higher net earnings;~~

A larger increase in trade accounts payable in the first half of 2014 compared to the comparable period in 2013 due to the timing of payments and payables associated with higher inventory levels at August 2, 2014; and

~~A decrease in accounts receivable in the first half of 2014 compared to an increase in the comparable period in 2013 due to strong customer collections; partially offset by~~

Higher net earnings; and

~~A smaller increase in accrued expenses and other liabilities in the first half of 2014 compared to the comparable period in 2013.~~

A smaller increase in inventories in the nine months ended November 1, 2014 compared to the comparable period in 2013; partially offset by

A larger decrease in trade accounts payable in the nine months ended November 1, 2014 compared to the comparable period in 2013 due to the timing of payments; and

A smaller increase in accrued expenses and other liabilities in the nine months ended November 1, 2014 compared to the comparable period in 2013 primarily due to the timing of payments.

Cash used for investing activities was ~~$130.2~~$140.1 million higher in the ~~first half of~~nine months ended November 1, 2014, as compared to the comparable period in 2013 due primarily to the ~~$65~~$65.1 million acquisition of the Franco Sarto trademarks in the first quarter of 2014, the $7.0 million minority investment in Jack Erwin, Inc. in August 2014, and the $69.3 million of net proceeds from the sale of subsidiaries in the ~~first half of~~nine months ended November 2, 2013. WeFor fiscal 2014, we expect purchases of property and equipment and capitalized software of approximately ~~$55~~$56 million to ~~$60 million in 2014.~~

$59 million.

Cash ~~used for~~provided by financing activities was ~~$76.5~~$114.4 million ~~lower~~higher for the ~~first half of~~nine months ended November 1, 2014 as compared to the comparable period in 2013 primarily due to ~~lower~~$7.0 million of net ~~repayments~~borrowings under our Credit ~~Agreement.~~

Agreement during the nine months ended November 1, 2014 compared to $105.0 million of net repayments during the nine months ended November 2, 2013.

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

August 2, 2014
August 3, 2013

February 1, 2014
Working capital ($ millions) (1)
$
368.3

$
362.5

$
405.7

Current ratio (2)
1.74:1
1.76:1

2.05:1

Debt-to-capital ratio (3)
28.1%
34.2%

30.1%



	November 1, 2014			November 2, 2013			February 1, 2014
Working capital ($ millions) ₍₁₎	$	393.8		$	397.9		$	405.7

Current ratio ₍₂₎	2.01:1			2.12:1			2.05:1

Debt-to-capital ratio ₍₃₎	28.3		%	30.6		%	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 ~~August 2,~~November 1, 2014 was ~~$368.3~~$393.8 million, which was ~~$37.4~~$11.9 million lower than at February 1, 2014 and ~~$5.8~~$4.1 million ~~higher~~lower than at ~~August 3,~~November 2, 2013. Our current ratio decreased to ~~1.74~~2.01 to 1 as of ~~August 2,~~November 1, 2014, compared to 2.05 to 1 at February 1, 2014, and ~~1.76~~2.12 to 1 at ~~August 3,~~November 2, 2013. The decreases in working capital and the current ratio from February 1, 2014 to ~~August 2,~~November 1, 2014 ~~are primarily attributable to~~reflect higher ~~accounts payable and~~accrued expenses, a decrease in ~~our cash~~prepaid expenses and ~~cash equivalents~~other current assets, and ~~receivables, partially offset by~~ higher ~~inventory levels and lower~~ borrowings under our revolving credit ~~agreement.~~agreement, partially offset by an increase in accounts receivable and higher inventory levels. Our debt-to-capital ratio was ~~28.1%~~28.3% as of ~~August 2,~~November 1, 2014, compared to 30.1% as of February 1, 2014 and ~~34.2%~~30.6% as of ~~August 3,~~November 2, 2013. The decrease in our debt-to-capital ratio from February 1, 2014 and ~~August 3,~~November 2, 2013 is due to the impact of our net earnings, ~~and lower~~partially offset by higher borrowings under our revolving credit agreement.

At ~~August 2,~~November 1, 2014, we had ~~$46.9~~$39.1 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.

As further discussed in Note 7 to the condensed consolidated financial statements, on February 3, 2014, we purchased the Franco Sarto trademarks for $65.0 million.

In addition, on August 29, 2014, we invested $7.0 million in Jack Erwin, Inc., a men’s shoe line offering a limited assortment of high-quality, handmade, men’s footwear directly to consumers.

We declared and paid dividends of $0.07 per share in both the ~~second~~third quarter of 2014 and the ~~second~~third quarter of 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, long-term debt, interest on long-term debt, minimum license commitments, borrowings under our revolving credit agreement, obligations for our supplemental executive retirement plan and other postretirement benefits, and obligations related to our restructuring initiatives.

Except for changes 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 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 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) rapidly changing fashion trends and purchasing patterns; (iii) intense competition within the footwear industry; (iv) the ability to accurately forecast sales and manage inventory levels; (v) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (vi) cybersecurity threats or other major disruption to the Company’s information technology systems; (vii) customer concentration 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 trade restrictions; (xi) compliance with applicable laws and standards with respect to ~~lead content in paint~~labor, trade and ~~other~~ product safety issues; (xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to attract, retain, and maintain good relationships with licensors and protect intellectual property rights; (xiv) the 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 Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended February 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 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 ~~August 2,~~November 1, 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 ~~August 2,~~November 1, 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 15 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 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 ~~second~~third quarter of 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)

May 4, 2014 – May 31, 2014

1,809
(2)
$
28.14
(2)
–

2,500,000

June 1, 2014 – July 5, 2014

16,825
(2)

28.06
(2)
–

2,500,000

July 6, 2014 – August 2, 2014

164
(2)

28.26
(2)
–

2,500,000

Total

18,798
(2)
$
28.07
(2)
–

2,500,000



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

Fiscal Period

August 3, 2014 – August 30, 2014	—			$	—			—	2,500,000

August 31, 2014 – October 4, 2014	6,682	(2	)	28.46		(2	)	—	2,500,000

October 5, 2014 – November 1, 2014	2,475	(2	)	26.11		(2	)	—	2,500,000

Total	9,157	(2	)	$	27.82	(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 ~~second~~third quarter of 2014; therefore, there were 2.5 million shares authorized to be purchased under the program as of ~~August 2,~~November 1, 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~~ 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 May 29, 2014, incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K dated and filed 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: ~~September 10,~~December 9, 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



	Contract Notional Amount
(U.S. $ equivalent in thousands)	August 2, 2014		August 3, 2013		February 1, 2014
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	20,973	$	20,397	$	20,197
Chinese yuan		14,524		15,128		15,278
Euro		12,331		7,064		11,270
Japanese yen		1,613		1,370		1,586
Other currencies		1,413		1,412		1,345
Total financial instruments	$	50,854	$	45,371	$	49,676



	Contract Notional Amount
(U.S. $ equivalent in thousands)	November 1, 2014		November 2, 2013		February 1, 2014
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	20,391	$	18,024	$	20,197
Chinese yuan	14,659		14,860		15,278
Euro	14,583		8,729		11,270
Japanese yen	1,505		1,657		1,586
Other currencies	1,540		1,372		1,345
Total financial instruments	$	52,678	$	44,642	$	49,676



	August 2,		August 3,		February 1,
($ thousands)		2014		2013		2014

Assets of Discontinued Operations
Current assets
Receivables, net	$	–	$	387	$	–
Inventories, net		–		700		111
Prepaid expenses and other current assets		–		574		8
Current assets - discontinued operations		–		1,661		119
Total assets - discontinued operations	$	–	$	1,661	$	119

Liabilities of Discontinued Operations
Current liabilities
Trade accounts payable	$	–	$	942	$	139
Other accrued expenses		–		2,594		569
Current liabilities - discontinued operations		–		3,536		708
Total liabilities - discontinued operations	$	–	$	3,536	$	708



	Thirteen Weeks Ended				Twenty-six Weeks Ended
($ thousands)	August 2, 2014		August 3, 2013		August 2, 2014		August 3, 2013
Net sales	$	–	$	3,775	$	–	$	24,312
Cost of goods sold		–		2,221		–		18,852
Gross profit		–		1,554		–		5,460
Selling and administrative expenses		–		1,020		–		5,881
Restructuring and other special charges, net		–		2,484		–		10,769
Operating loss		–		(1,950)		–		(11,190)
Interest expense		–		(18)		–		(87)
Interest income		–		–		–		89
Loss before income taxes from discontinued operations		–		(1,968)		–		(11,188)
Income tax benefit		–		2,588		–		6,171
Earnings (loss) from discontinued operations, net of tax	$	–	$	620	$	–	$	(5,017)



							Accumulated
	Foreign		Pension and Other				Other
	Currency		Postretirement		Derivative		Comprehensive
($ thousands)	Translation		Transactions		Transactions		Income (Loss)
Balance February 1, 2014	$	2,356	$	13,582	$	738	$	16,676
Other comprehensive income (loss) before reclassifications		887		–		(333)		554
Amounts reclassified from accumulated other comprehensive income (loss)		–		(23)		(54)		(77)
Other comprehensive income (loss)		887		(23)		(387)		477
Balance May 3, 2014	$	3,243	$	13,559	$	351	$	17,153
Other comprehensive income (loss) before reclassifications		244		–		(761)		(517)
Amounts reclassified from accumulated other comprehensive income (loss)		–		(33)		38		5
Other comprehensive income (loss)		244		(33)		(723)		(512)
Balance August 2, 2014	$	3,487	$	13,526	$	(372)	$	16,641

Balance February 2, 2013	$	6,912	$	(5,947)	$	(81)	$	884
Other comprehensive loss before reclassifications		(690)		–		(27)		(717)
Amounts reclassified from accumulated other comprehensive income (loss)		–		145		(87)		58
Other comprehensive (loss) income		(690)		145		(114)		(659)
Balance May 4, 2013	$	6,222	$	(5,802)	$	(195)	$	225
Other comprehensive (loss) income before reclassifications		(900)		–		662		(238)
Amounts reclassified from accumulated other comprehensive income (loss)		–		136		(150)		(14)
Other comprehensive (loss) income		(900)		136		512		(252)
Balance August 3, 2013	$	5,322	$	(5,666)	$	317	$	(27)


		Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)							Affected Line Item in the
		Thirteen Weeks Ended				Twenty-six Weeks Ended			Condensed Consolidated
($ thousands)		August 2, 2014		August 3, 2013		August 2, 2014		August 3, 2013	Statements of Earnings
Net losses (gains) from derivative financial instruments (1)	$	55	$	(230)	$	(23)	$	(362)	Costs of goods sold and selling and administrative expenses
Tax (benefit) provision		(17)		80		7		125	Income tax provision
Net losses (gains) from derivative financial instruments, net of tax		38		(150)		(16)		(237)

Pension and other postretirement benefits actuarial (gain) loss (2)		(65)		217		(115)		445	Selling and administrative expenses
Pension benefits prior service expense (2)		6		4		14		6	Selling and administrative expenses
Pension and other postretirement benefits adjustments		(59)		221		(101)		451
Tax provision (benefit)		26		(85)		45		(170)	Income tax provision
Pension and other postretirement benefits adjustments, net of tax		(33)		136		(56)		281
Amounts reclassified from accumulated other comprehensive income (loss)	$	5	$	(14)	$	(72)	$	44


⁽²⁾		^{See Note 10 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits.}



	Pension Benefits				Other Postretirement Benefits
	Thirteen Weeks Ended				Thirteen Weeks Ended
	August 2,		August 3,		August 2,		August 3,
($ thousands)		2014		2013		2014		2013
Service cost	$	2,239	$	2,583	$	–	$	–
Interest cost		3,560		3,304		12		35
Expected return on assets		(6,197)		(6,197)		–		–
Amortization of:
Actuarial loss (gain)		67		237		(132)		(20)
Prior service expense		6		4		–		–
Total net periodic benefit (income) cost	$	(325)	$	(69)	$	(120)	$	15


	Pension Benefits				Other Postretirement Benefits
	Twenty-six Weeks Ended				Twenty-six Weeks Ended
	August 2,		August 3,		August 2,		August 3,
($ thousands)		2014		2013		2014		2013
Service cost	$	4,826	$	5,474	$	–	$	–
Interest cost		7,116		6,635		24		70
Expected return on assets		(12,381)		(12,376)		–		–
Amortization of:
Actuarial loss (gain)		102		485		(217)		(40)
Prior service expense		14		6		–		–
Total net periodic benefit (income) cost	$	(323)	$	224	$	(193)	$	30



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

Foreign exchange forward contracts:

August 2, 2014	Prepaid expenses and other current assets	$	239	Other accrued expenses	$	615

August 3, 2013	Prepaid expenses and other current assets		467	Other accrued expenses		194

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



	Twenty-six Weeks Ended				Twenty-six Weeks Ended
($ in thousands)	August 2, 2014				August 3, 2013
Foreign exchange forward contracts: Income Statement Classification (Losses) Gains - Realized		Loss Recognized in OCI on Derivatives		Gain (Loss) Reclassified from Accumulated OCI into Earnings		Gain Recognized in OCI on Derivatives		Gain Reclassified from Accumulated OCI into Earnings

Net sales	$	(4)	$	16	$	117	$	148
Cost of goods sold		(757)		(11)		545		27
Selling and administrative expenses		(709)		18		210		187
Interest expense		(17)		–		10		–



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 2, 2014
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Assets
Current assets
Cash and cash equivalents	$	–	$	28,399	$	18,477	$	–	$	46,876
Receivables, net		85,285		2,491		37,708		–		125,484
Inventories, net		160,581		487,786		9,289		–		657,656
Prepaid expenses and other current assets		35,382		345		3,440		–		39,167
Intercompany receivable – current		1,958		502		18,663		(21,123)		–
Total current assets		283,206		519,523		87,577		(21,123)		869,183
Other assets		119,473		14,680		626		–		134,779
Goodwill and intangible assets, net		119,041		17,721		–		–		136,762
Property and equipment, net		26,934		119,626		1,798		–		148,358
Investment in subsidiaries		907,866		185,612		–		(1,093,478)		–
Intercompany receivable – noncurrent		450,516		518,996		245,863		(1,215,375)		–
Total assets	$	1,907,036	$	1,376,158	$	335,864	$	(2,329,976)	$	1,289,082

Liabilities and Equity
Current liabilities
Trade accounts payable	$	104,054	$	196,671	$	40,969	$	–	$	341,694
Other accrued expenses		73,399		76,691		9,062		–		159,152
Intercompany payable – current		6,143		312		14,668		(21,123)		–
Total current liabilities		183,596		273,674		64,699		(21,123)		500,846
Other liabilities
Long-term debt		199,104		–		–		–		199,104
Other liabilities		34,860		43,550		1,470		–		79,880
Intercompany payable – noncurrent		980,894		151,068		83,413		(1,215,375)		–
Total other liabilities		1,214,858		194,618		84,883		(1,215,375)		278,984
Equity
Brown Shoe Company, Inc. shareholders’ equity		508,582		907,866		185,612		(1,093,478)		508,582
Noncontrolling interests		–		–		670		–		670
Total equity		508,582		907,866		186,282		(1,093,478)		509,252
Total liabilities and equity	$	1,907,036	$	1,376,158	$	335,864	$	(2,329,976)	$	1,289,082



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THIRTEEN WEEKS ENDED AUGUST 2, 2014
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	183,598	$	445,199	$	56,496	$	(49,416)	$	635,877
Cost of goods sold		136,433		243,627		45,591		(49,416)		376,235
Gross profit		47,165		201,572		10,905		–		259,642
Selling and administrative expenses		57,149		177,231		(6,040)		–		228,340
Operating (loss) earnings		(9,984)		24,341		16,945		–		31,302
Interest expense		(5,125)		–		–		–		(5,125)
Interest income		12		66		31		–		109
Intercompany interest income (expense)		3,828		(4,535)		707		–		–
(Loss) earnings before income taxes		(11,269)		19,872		17,683		–		26,286
Income tax benefit (provision)		1,684		(7,962)		(1,969)		–		(8,247)
Equity in earnings of subsidiaries, net of tax		27,649		15,739		–		(43,388)		–
Net earnings		18,064		27,649		15,714		(43,388)		18,039
Less: Net loss attributable to noncontrolling interests		–		–		(25)		–		(25)
Net earnings attributable to Brown Shoe Company, Inc.	$	18,064	$	27,649	$	15,739	$	(43,388)	$	18,064

Comprehensive income	$	17,555	$	27,640	$	15,745	$	(43,413)	$	17,527
Less: Comprehensive loss attributable to noncontrolling interests		–		–		(28)		–		(28)
Comprehensive income attributable to Brown Shoe Company, Inc.	$	17,555	$	27,640	$	15,773	$	(43,413)	$	17,555



UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 2014
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	362,758	$	846,779	$	93,120	$	(75,618)	$	1,227,039
Cost of goods sold		263,899		461,993		74,782		(75,618)		725,056
Gross profit		98,859		384,786		18,338		–		501,983
Selling and administrative expenses		106,346		337,198		(1,589)		–		441,955
Operating (loss) earnings		(7,487)		47,588		19,927		–		60,028
Interest expense		(10,430)		(1)		–		–		(10,431)
Interest income		13		125		47		–		185
Intercompany interest income (expense)		7,802		(8,614)		812		–		–
(Loss) earnings before income taxes		(10,102)		39,098		20,786		–		49,782
Income tax benefit (provision)		2,148		(15,916)		(2,499)		–		(16,267)
Equity in earnings of subsidiaries, net of tax		41,447		18,265		–		(59,712)		–
Net earnings		33,493		41,447		18,287		(59,712)		33,515
Less: Net earnings attributable to noncontrolling interests		–		–		22		–		22
Net earnings attributable to Brown Shoe Company, Inc.	$	33,493	$	41,447	$	18,265	$	(59,712)	$	33,493

Comprehensive income	$	33,473	$	41,996	$	18,266	$	(60,255)	$	33,480
Less: Comprehensive income attributable to noncontrolling interests		–		–		7		–		7
Comprehensive income attributable to Brown Shoe Company, Inc.	$	33,473	$	41,996	$	18,259	$	(60,255)	$	33,473


UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 3, 2013
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Assets
Current assets
Cash and cash equivalents	$	–	$	32,793	$	20,344	$	–	$	53,137
Receivables, net		86,129		2,014		31,911		–		120,054
Inventories, net		128,503		477,659		9,754		–		615,916
Prepaid expenses and other current assets		54,017		(860)		(1,312)		–		51,845
Current assets – discontinued operations		1,638		–		23		–		1,661
Intercompany receivable – current		1,657		366		4,572		(6,595)		–
Total current assets		271,944		511,972		65,292		(6,595)		842,613
Other assets		97,053		16,110		601		–		113,764
Goodwill and intangible assets, net		57,514		19,174		–		–		76,688
Property and equipment, net		26,637		118,878		2,440		–		147,955
Investment in subsidiaries		839,981		31,336		–		(871,317)		–
Intercompany receivable – noncurrent		348,967		600,401		174,877		(1,124,245)		–
Total assets	$	1,642,096	$	1,297,871	$	243,210	$	(2,002,157)	$	1,181,020

Liabilities and Equity
Current liabilities
Borrowings under revolving credit agreement	$	23,000	$	–	$	–	$	–	$	23,000
Trade accounts payable		77,854		193,996		37,956		–		309,806
Other accrued expenses		65,241		73,883		4,611		–		143,735
Current liabilities – discontinued operations		3,488		–		48		–		3,536
Intercompany payable – current		4,390		389		1,816		(6,595)		–
Total current liabilities		173,973		268,268		44,431		(6,595)		480,077
Other liabilities
Long-term debt		198,917		–		–		–		198,917
Other liabilities		24,049		50,559		1,017		–		75,625
Intercompany payable – noncurrent		819,439		139,063		165,743		(1,124,245)		–
Total other liabilities		1,042,405		189,622		166,760		(1,124,245)		274,542
Equity
Brown Shoe Company, Inc. shareholders’ equity		425,718		839,981		31,336		(871,317)		425,718
Noncontrolling interests		–		–		683		–		683
Total equity		425,718		839,981		32,019		(871,317)		426,401
Total liabilities and equity	$	1,642,096	$	1,297,871	$	243,210	$	(2,002,157)	$	1,181,020


UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THIRTEEN WEEKS ENDED AUGUST 3, 2013
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	180,153	$	444,821	$	57,468	$	(60,736)	$	621,706
Cost of goods sold		138,906		241,656		47,254		(60,736)		367,080
Gross profit		41,247		203,165		10,214		–		254,626
Selling and administrative expenses		65,770		165,689		(388)		–		231,071
Restructuring and other special charges, net		167		576		–		–		743
Operating (loss) earnings		(24,690)		36,900		10,602		–		22,812
Interest expense		(5,192)		–		–		–		(5,192)
Interest income		10		68		4		–		82
Intercompany interest income (expense)		3,475		(3,607)		132		–		–
(Loss) earnings before income taxes from continuing operations		(26,397)		33,361		10,738		–		17,702
Income tax benefit (provision)		4,259		(9,607)		1,267		–		(4,081)
Equity in earnings from continuing operations of subsidiaries, net of tax		35,833		12,079		–		(47,912)		–
Net earnings from continuing operations		13,695		35,833		12,005		(47,912)		13,621
Discontinued operations:
Earnings (loss) from discontinued operations, net of tax		1,066		(410)		(36)		–		620
Disposition/impairment of discontinued operations, net of tax		–		1,042		–		–		1,042
Equity in earnings (loss) from discontinued operations of subsidiaries, net of tax		596		(36)		–		(560)		–
Net earnings (loss) from discontinued operations		1,662		596		(36)		(560)		1,662
Net earnings		15,357		36,429		11,969		(48,472)		15,283
Less: Net loss attributable to noncontrolling interests		–		–		(74)		–		(74)
Net earnings attributable to Brown Shoe Company, Inc.	$	15,357	$	36,429	$	12,043	$	(48,472)	$	15,357

Comprehensive income	$	15,092	$	35,956	$	8,393	$	(44,410)	$	15,031
Less: Comprehensive loss attributable to noncontrolling interests		–		–		(61)		–		(61)
Comprehensive income attributable to Brown Shoe Company, Inc.	$	15,092	$	35,956	$	8,454	$	(44,410)	$	15,092


UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 3, 2013
						Non-
($ thousands)		Parent		Guarantors		Guarantors		Eliminations		Total
Net sales	$	338,934	$	863,359	$	100,072	$	(92,003)	$	1,210,362
Cost of goods sold		255,236		471,612		80,875		(92,003)		715,720
Gross profit		83,698		391,747		19,197		–		494,642
Selling and administrative expenses		115,770		325,541		3,639		–		444,950
Restructuring and other special charges, net		686		576		–		–		1,262
Impairment of assets held for sale		–		–		4,660		–		4,660
Operating (loss) earnings		(32,758)		65,630		10,898		–		43,770
Interest expense		(10,822)		(91)		–		–		(10,913)
Interest income		13		132		5		–		150
Intercompany interest income (expense)		6,929		(7,186)		257		–		–
(Loss) earnings before income taxes from continuing operations		(36,638)		58,485		11,160		–		33,007
Income tax benefit (provision)		7,641		(20,173)		505		–		(12,027)
Equity in earnings from continuing operations of subsidiaries, net of tax		50,121		11,809		–		(61,930)		–
Net earnings from continuing operations		21,124		50,121		11,665		(61,930)		20,980
Discontinued operations:
(Loss) earnings from discontinued operations, net of tax		(5,882)		1,181		(316)		–		(5,017)
Disposition/impairment of discontinued operations, net of tax		–		1,042		(12,554)		–		(11,512)
Equity in loss from discontinued operations of subsidiaries, net of tax		(10,647)		(12,870)		–		23,517		–
Net loss from discontinued operations		(16,529)		(10,647)		(12,870)		23,517		(16,529)
Net earnings (loss)		4,595		39,474		(1,205)		(38,413)		4,451
Less: Net loss attributable to noncontrolling interests		–		–		(144)		–		(144)
Net earnings (loss) attributable to Brown Shoe Company, Inc.	$	4,595	$	39,474	$	(1,061)	$	(38,413)	$	4,595

Comprehensive income (loss)	$	3,629	$	38,401	$	(4,527)	$	(33,963)	$	3,540
Less: Comprehensive loss attributable to noncontrolling interests		–		–		(89)		–		(89)
Comprehensive income (loss) attributable to Brown Shoe Company, Inc.	$	3,629	$	38,401	$	(4,438)	$	(33,963)	$	3,629



							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)

May 4, 2014 – May 31, 2014	1,809	(2)	$	28.14	(2)	–		2,500,000

June 1, 2014 – July 5, 2014	16,825	(2)		28.06	(2)	–		2,500,000

July 6, 2014 – August 2, 2014	164	(2)		28.26	(2)	–		2,500,000

Total	18,798	(2)	$	28.07	(2)	–		2,500,000