1
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 April 30, 1994
[ ] 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 GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 43-0197190
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8400 Maryland Avenue
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
As of May 27, 1994, 17,909,693 shares of the registrant's common stock were
outstanding.
2
BROWN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
-----------------
April 30, May 1, January 29,
1994 1993 1994
--------- --------- -----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 21,264 $ 12,184 $ 16,892
Receivables, net of allowances of
$10,713 at April 30, 1994,
$8,572 at May 1, 1993, and
$11,425 at January 29, 1994 103,685 106,700 109,968
Inventories (net of adjustment to
last-in, first-out cost of
$53,720 at April 30, 1994,
$66,573 at May 1, 1993, and
$52,849 at January 29, 1994) 381,523 365,973 375,465
Net Current Assets of Discontinued
Operations 34,893 58,579 38,942
Other Current Assets 70,529 38,877 70,598
--------- --------- ---------
Total Current Assets 611,894 582,313 611,865
Property, Plant and Equipment 224,674 235,435 232,942
Less allowances for depreciation
and amortization (126,023) (135,966) (135,512)
--------- --------- ---------
98,651 99,469 97,430
Net Noncurrent Assets of
Discontinued Operations 5,075 22,041 7,062
Other Assets 56,060 54,782 55,377
--------- --------- ---------
$ 771,680 $ 758,605 $ 771,734
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 145,166 $ 97,196 $ 146,090
Accounts Payable 106,083 114,894 105,437
Accrued Expenses 113,308 84,354 108,287
Income Taxes 1,386 5,315 3,788
Current Maturities of Long-Term Debt 3,112 26,701 7,709
--------- --------- ---------
Total Current Liabilities 369,055 328,460 371,311
Long-Term Debt and Capitalized
Lease Obligations 135,289 118,403 135,324
Other Liabilities 30,852 26,886 31,236
Stockholders' Equity
Common Stock 66,426 65,419 66,075
Additional Capital 38,085 31,639 35,979
Cumulative Translation Adjustment (4,402) (1,609) (3,287)
Unamortized Value of Restricted Stock (6,409) (7,119) (6,827)
Retained Earnings 142,784 196,526 141,923
--------- --------- ---------
236,484 284,856 233,863
--------- --------- ---------
$ 771,680 $ 758,605 $ 771,734
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
2
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
Three Months Ended
--------------------
April 30, May 1,
1994 1993
--------- --------
Net Sales $ 427,218 $ 389,072
Cost of Goods Sold 272,244 249,492
--------- ---------
Gross Profit 154,974 139,580
--------- ---------
Selling and Administrative Expenses 138,741 127,414
Interest Expense 4,355 4,749
Other (Income) Expense (651) 350
--------- ---------
Earnings from Continuing Operations Before
Income Taxes and Cumulative Effect of
Accounting Change 12,529 7,067
Income Tax Provision 4,598 2,584
Earnings from Continuing Operations Before
Cumulative Effect of Accounting Change 7,931 4,483
Cumulative Effect of Change in Accounting
for Postemployment Benefits - (2,214)
Loss from Discontinued Operations, Net of Taxes - (284)
--------- --------
NET EARNINGS $ 7,931 $ 1,985
========= =========
NET EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ .45 $ .26
Cumulative Effect of Accounting Change - (.13)
Discontinued Operations - (.02)
--------- ---------
NET EARNINGS PER COMMON SHARE $ .45 $ .11
========= =========
Weighted Average Number of
Outstanding Shares
of Common Stock 17,451 17,190
DIVIDENDS PER COMMON SHARE $ .40 $ .40
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
Three Months Ended
------------------------
April 30, May 1,
1994 1993
--------- ---------
Net Cash Provided (Used) by Operating Activities of:
Continuing operations $ 16,279 $ 359
Discontinued operations (3,942) (7,778)
--------- --------
Net Cash Provided (Used) by Operating Activities 12,337 (7,419)
Investing Activities
Capital expenditures (7,961) (6,102)
Proceeds from sales of assets of discontinued
operations 9,978 -
Other 383 31
--------- --------
Net Cash Provided (Used) by Investing Activities 2,400 (6,071)
Financing Activities
Increase/(decrease) in short-term notes payable (924) 85,551
Principal payments of long-term debt (4,635) (75,024)
Dividends paid (7,070) (6,973)
Proceeds from issuance of common stock 2,264 495
--------- --------
Net Cash Provided (Used) by Financing Activities (10,365) 4,049
--------- --------
Increase (Decrease) in Cash and Cash Equivalents 4,372 (9,441)
Cash and Cash Equivalents at Beginning of Period 16,892 21,625
--------- --------
Cash and Cash Equivalents at End of Period $ 21,264 $ 12,184
========= ========
See Notes to Condensed Consolidated Financial Statements.
5
BROWN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
------------------------------
The accompanying condensed consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and reflect all adjustments
which management believes necessary (which include only normal recurring
accruals and the effect on LIFO inventory valuation of estimated annual
inflationary cost increases and year-end inventory levels) to present fairly
the results of operations. These statements, however, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flow in conformity with generally
accepted accounting principles.
The Corporation's business is subject to seasonal influences, and interim
results may not necessarily be indicative of results which may be expected for
any other interim period or for the year as a whole.
For further information refer to the consolidated financial statements and
footnotes included in the Corporation's Annual Report and Form 10-K for the
period ended January 29, 1994.
Note B - Earnings Per Share
---------------------------
Net earnings per share of Common Stock is computed by dividing net earnings by
the weighted average number of shares outstanding. The dilutive effect of
stock options is not significant and is therefore excluded from the
calculation.
Note C - Inventories
--------------------
The components of inventory are as follows ($000):
April 30, May 1, January 29,
1994 1993 1994
--------- -------- -----------
Finished Goods $358,546 $347,317 $352,243
Work in Process 5,462 3,393 6,291
Raw Materials and Supplies 17,515 15,263 16,931
-------- -------- --------
$381,523 $365,973 $375,465
======== ======== ========
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
REVIEW BY INDEPENDENT AUDITORS
At the Corporation's request, its independent auditors, Ernst & Young, have
performed a review of the accompanying financial statements. Their review was
performed in accordance with the standards for such reviews by the American
Institute of Certified Public Accountants.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
---------------------
Quarter ended April 30, 1994 compared to the Quarter ended May 1, 1993
----------------------------------------------------------------------
Consolidated net sales for the first quarter ended April 30, 1994, were $427.2
million, an increase of 9.8% from last year's first quarter.
Earnings from continuing operations of $7.9 million for the first quarter of
1994 compare to $4.5 million last year, an increase of 76.9%.
Sales from the footwear retailing operations increased 15.1% from the first
quarter of 1993. Famous Footwear's sales increased 24.7% due to a same-store
increase of 6.1% and 95 more units. The Canadian retailing operation's sales
also showed improvement, posting an increase of 8.8%. Sales of the Naturalizer
stores increased 5.3% over last year's first quarter, reflecting same-store
sales gains of 2.6%. These increases were partially offset by an overall sales
decline of 40.2% at the Connie and Regal stores, reflecting 64 fewer units in
operation as a result of the phasing out of these stores as part of the
corporation's restructuring.
Sales from footwear wholesaling activities increased 10.1% over the same period
last year. Pagoda's sales increased 16.5%, and Brown Shoe's increased 3.6%.
Pagoda's increase was primarily driven by higher licensed product sales,
primarily the Dr. Scholl's line; while Brown Shoe's branded lines showed
improvement, especially in the NaturalSport brand.
Cloth World's first quarter sales decreased 6.2% with same-store sales
declining 2.3% and 14 fewer units in operation. Sales decreases were recorded
in all major departments with the exception of home decorating and craft
fabrics.
Gross profit as a percentage of sales increased to 36.3% from 35.9% for the
same period last year. Cloth World and Naturalizer experienced increased
margins, while Pagoda and Famous Footwear posted modest declines. Brown Shoe's
gross profit percentage was flat with last year's. Cloth World experienced
strong margin increases in the crafts category, while tight inventory
management produced reduced markdowns at Naturalizer stores. Lower sourcing
margins on Brazilian footwear and higher markdowns on children's shoes
contributed to Pagoda's decreased margin.
Selling and administrative expenses as a percentage of sales decreased slightly
to 32.5% from 32.7%. Expenses continue to be tightly controlled in all areas
of the corporation.
Other income/expense is a net income of $0.7 million in 1994 compared to
expense of $0.4 million in 1993. The prior year amount includes $1.0 million
in costs to close the company's tannery.
Overall, operating earnings improved at all companies in the first quarter of
1994 over the same period in 1993.
8
Discontinued Operations
-----------------------
The discontinuance of the Wohl Leased Department business, which was announced
in January 1994, is proceeding as planned. The corporation has entered
negotiations with all 26 lessors and has completed contracts and withdrawn from
operating in 14 of the department-store groups, including the largest, Carter
Hawley Hale. As leased department assets are sold or liquidated, cash flow
will be primarily used to repay short-term borrowings.
Restructuring
-------------
The restructuring initiatives also announced in January 1994 are proceeding as
planned. During the first quarter of 1994, four manufacturing facilities and
14 retail stores were closed. The majority of the store closings are expected
to occur in the second half of 1994 and first quarter of 1995. Staff
reductions will be occurring throughout fiscal 1994 as Brown Shoe Company and
Pagoda proceed with the merging of the operations of the two companies.
Financial Condition
A summary of key financial data and ratios at the dates indicated is as
follows:
April 30, May 1, January 29,
1994 1993 1994
--------- ------- -----------
Working Capital (millions) $242.8 $253.9 $240.6
Current Ratio 1.7 1.8 1.6
Total Debt as a Percentage of
Total Capitalization 54.5% 46.0% 55.3%
Cash flow from operating activities of continuing operations for the first
three months of fiscal 1994 was approximately $15.9 million higher than in the
first three months of 1993. The increase was primarily the result of higher
earnings and decreased accumulation of inventories, which were partially offset
by lower increases of accounts payable and accrued expenses. Cash flow used
by discontinued operations decreased by $3.8 million. In addition, the sale
of certain discontinued assets results in $10.0 million of cash flow during the
first quarter of 1994.
Financing activities in the first quarter of 1993 reflect an increase in notes
payable and a decrease in current maturities of long-term debt, which is
partially due to the rearrangement of $75 million of the corporation's long-
term debt. The corporation took steps to rearrange its debt structure to take
advantage of lower interest rates. In January 1993 the corporation issued $50
million in 6.47% senior notes to partially refinance its $75 million 8-1/8%
debentures that were originally due in 1996. In the interim period, prior to
redemption, these proceeds were used to reduce short-term commercial paper
borrowing. In April 1993 the corporation called for redemption of these
debentures. They were paid with proceeds from the issuance of commercial
paper.
The increase in the ratio of total debt as a percentage of total capitalization
at April 30, 1994, compared to the end of the first quarter last year, has been
caused by an increase in short-term borrowings used largely to fund the growth
at Famous Footwear, as well as the impact on stockholders' equity of
restructuring and discontinued operations disposal charges recorded in January
1994. In spite of the increase in this ratio, the Corporation's financial
condition and debt to capitalization ratios continue to provide additional
borrowing capacity, if needed.
9
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings
--------------------------
There have been no material developments during the quarter ended April 30,
1994, in the legal proceedings described in the Corporation's Form 10-K for
the period ended January 29, 1994.
Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
At the Annual Meeting of Stockholders held on May 26, 1994, three proposals
described in the Notice of Annual Meeting of Stockholders dated April 20,
1994, were voted upon.
1. The stockholders elected three directors, Mr. Joseph L. Bower, Ms. Joan
F. Lane, and Mr. Harry E. Rich, for terms of three years each, and Mr.
Morton I. Sosland for a term of two years. The voting for each
director is as follows:
Directors For Withheld
---------- --------
Joseph L. Bower 15,094,039 195,763
Joan F. Lane 15,087,798 202,004
Harry E. Rich 15,183,866 105,936
Morton I. Sosland 15,092,660 197,142
2. The proposal to ratify and approve the prior adoption by the Board of
Directors of the Brown Group, Inc. Stock Option and Restricted Stock
Plan of 1994 and the allocation of 750,000 of the Corporation's shares
thereto was approved by a vote of 14,232,471 in favor to 925,962
against, with 131,369 abstaining.
3. The proposal to ratify the appointment of Ernst & Young as the
Corporation's independent auditors was approved by a vote of 15,202,189
in favor to 18,780 against, with 68,833 abstaining.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Listing of Exhibits
(10)(d) Stock Option and Restricted Stock Plan of 1994,
incorporated herein by reference to Exhibit 3 to the
corporation's definitive proxy statement dated April 20,
1994.
(11) Computation of Earnings Per Share (Page 12)
(15) Letter re: unaudited interim financial information
(Page 13)
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the quarter ended
April 30, 1994.
10
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 GROUP, INC.
Date: June 10, 1994 /s/ Harry E. Rich
-------------------------------
Harry E. Rich
Executive Vice President
and Chief Financial Officer and
On Behalf of the Corporation as
the Principal Financial Officer
11
ERNST & YOUNG
Gateway One, Suite 1400
701 Market Street
St. Louis, MO 63101
(314) 259-1000
INDEPENDENT ACCOUNTANTS' REPORT
Stockholders and Board of Directors
Brown Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheets of
Brown Group, Inc., as of April 30, 1994, and May 1, 1993, and the related
condensed consolidated statements of earnings for the three-month periods ended
April 30, 1994, and May 1, 1993, and the condensed consolidated statements of
cash flows for the three-month periods ended April 30, 1994, and May 1, 1993.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Brown Group, Inc. as of
January 29, 1994, and the related consolidated statement of earnings, stockholders'
equity, and cash flows for the year then ended and in our report dated March
4, 1993, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 30, 1993 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
May 24, 1994
\s\ Ernst & Young
12
EXHIBIT 11
PART II - OTHER INFORMATION
---------------------------
COMPUTATION OF EARNINGS PER SHARE
BROWN GROUP, INC.
(Thousands, except per share)
Three Months Ended
----------------------
April 30, May 1,
1994 1993
--------- -------
PRIMARY
Weighted average shares outstanding 17,451 17,190
Net effect of dilutive stock options based on
the treasury stock method using average market price 110 55
--------- --------
TOTAL 17,561 17,245
========= ========
Earnings from continuing operations
before accounting change $ 7,931 $ 4,483
Cumulative effect of accounting change -- (2,214)
Discontinued operations -- (284)
--------- --------
Net Earnings $ 7,931 $ 1,985
========= ========
Earnings per share from continuing operations
before accounting change $ .45 $ .26
Cumulative effect of accounting change -- (.13)
Discontinued operations -- (.02)
--------- --------
Net earnings per share (1) $ .45 $ .11
========= ========
FULLY DILUTED
Weighted average shares outstanding 17,451 17,190
Net effect of dilutive stock options based on
the treasury stock method using the period-end market
price, if higher than the average market price 130 66
--------- --------
TOTAL 17,581 17,256
========= ========
Earnings from continuing operations
before accounting change $ 7,931 $ 4,483
Cumulative effect of accounting change -- (2,214)
Discontinued operations -- (284)
--------- --------
Net Earnings $ 7,931 $ 1,985
========= ========
Earnings per share from continuing operations
before accounting change $ .45 $ .26
Cumulative effect of accounting change -- (.13)
Discontinued operations -- (.02)
--------- --------
Net earnings per share (1) $ .45 $ .11
========= ========
(1) The dilutive effect of stock options was not
included in weighted average shares outstanding
for purposes of calculating earnings per share
because dilution was less than 3% and not material.
13
EXHIBIT 15
Acknowledge Letter
Stockholders and Board of Directors
Brown Group, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 Numbers 2-58347 and 33-22328) pertaining to the employee stock
purchase plan and employee stock appreciation plans, respectively, and in the
Registrant Statement (Form S-3 Number 33-21477) for the registration of debt
of Brown Group, Inc., of our report dated May 24, 1994, relating to the
unaudited condensed consolidated interim financial statements of Brown Group,
Inc. which are included in its Form 10-Q for the quarter ended April 30, 1994.
Pursuant to rule 436(c) of the Securities Act of 1933, our report is not part
of the Registration Statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
May 24, 1994
\s\ Ernst & Young