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 May 4, 1996
[ ] 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)
8300 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 June 1, 1996, 17,968,702 shares of the registrant's common stock were
outstanding.
2
BROWN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
----------------------------------
May 4, April 29, February 3,
1996 1995 1996
---------- --------- -----------
ASSETS
- ------
Current Assets
Cash and Cash Equivalents $ 22,146 $ 20,457 $ 35,058
Receivables, net of allowances of
$10,916 at May 4, 1996,
$12,012 at April 29, 1995, and
$11,267 at February 3, 1996 76,582 91,159 86,417
Inventories, net of adjustment to
last-in, first-out cost of
$24,968 at May 4, 1996,
$37,566 at April 29, 1995, and
$27,672 at February 3, 1996 374,272 336,746 342,282
Other Current Assets 42,340 54,753 41,581
--------- --------- ---------
Total Current Assets 515,340 503,115 505,338
Property and Equipment 198,374 208,783 191,457
Less allowances for depreciation
and amortization (112,089) (114,436) (103,737)
--------- --------- ---------
86,285 94,347 87,720
Other Assets 68,881 62,895 67,998
--------- --------- ---------
$ 670,506 $ 660,357 $ 661,056
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Notes Payable $ 144,500 $ 75,231 $ 112,000
Accounts Payable 95,847 105,925 106,113
Accrued Expenses 63,925 87,051 71,491
Income Taxes 4,400 9,262 4,335
Current Maturities of Long-Term Debt 2,000 52,799 2,000
--------- --------- ---------
Total Current Liabilities 310,672 330,268 295,939
Long-Term Debt and Capitalized
Lease Obligations 104,022 57,465 105,470
Other Liabilities 27,167 33,169 28,011
Shareholders' Equity
Common Stock 67,224 67,261 67,242
Additional Capital 45,892 46,634 46,015
Cumulative Translation Adjustment (4,574) (4,507) (4,913)
Unamortized Value of Restricted Stock (7,056) (9,483) (7,822)
Retained Earnings 127,159 139,550 131,114
--------- --------- ---------
228,645 239,455 231,636
--------- --------- ---------
$ 670,506 $ 660,357 $ 661,056
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
3
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
Three Months Ended
--------------------
May 4, April 29,
1996 1995
-------- ---------
Net Sales $355,785 $357,442
Cost of Goods Sold 219,908 237,247
-------- --------
Gross Profit 135,877 120,195
-------- --------
Selling and Administrative Expenses 130,684 123,916
Interest Expense 4,733 3,916
Other (Income) Expense (401) (608)
-------- --------
Earnings (Loss) Before Income Taxes 861 (7,029)
Income Tax (Provision) Benefit (334) 2,618
-------- --------
NET EARNINGS (LOSS) $ 527 $ (4,411)
======== ========
NET EARNINGS (LOSS) PER COMMON SHARE $ .03 $ (.25)
======== ========
Weighted Average Number of
Outstanding Shares
of Common Stock 17,615 17,608
======== ========
DIVIDENDS PER COMMON SHARE $ .25 $ .40
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
Three Months Ended
----------------------
May 4, April 29,
1996 1995
---------- ----------
Net Cash Provided (Used) by Operating Activities $ (36,119) $ 6,505
Investing Activities:
Capital expenditures (4,185) (7,537)
Other 824 1,120
--------- ---------
Net Cash Provided (Used) by Investing Activities (3,361) (6,417)
Financing Activities:
Increase/(decrease) in short-term notes payable 32,500 9,146
Principal payments of long-term debt (1,450) (13)
Dividends paid (4,482) (7,181)
Payments for purchase of treasury stock -- (824)
Proceeds from issuance of common stock -- 319
--------- ---------
Net Cash Provided (Used) by Financing Activities 26,568 1,447
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (12,912) 1,535
Cash and Cash Equivalents at Beginning of Period 35,058 18,922
--------- ---------
Cash and Cash Equivalents at End of Period $ 22,146 $ 20,457
========= =========
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 February 3, 1996.
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):
May 4, April 29, February 3,
1996 1995 1996
-------- --------- -----------
Finished Goods $364,997 $318,369 $329,184
Work in Process 2,106 2,215 1,843
Raw Materials and Supplies 7,169 16,162 11,255
-------- -------- --------
$374,272 $336,746 $342,282
======== ======== ========
During fiscal 1996, the remaining domestically manufactured footwear at Brown
Shoe Company will be sold resulting in a liquidation of LIFO inventory layers.
The effect of this liquidation was to increase first quarter 1996 pretax
earnings by $3.1 million.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Quarter ended May 4, 1996 compared to the Quarter ended April 29, 1995
----------------------------------------------------------------------
Consolidated net sales for the first quarter ended May 4, 1996, were $355.8
million, a decrease of .5% from last year's first quarter.
Net earnings of $.5 million for the first quarter of 1996 compares to a loss
of $4.4 million last year.
Sales from the footwear retailing operations increased 10% from the first
quarter of 1995. Famous Footwear's total sales increased 11% reflecting a
same-store sales decrease of 1.9%, offset by the sales from 77 more units in
operation. Famous Footwear now operates 789 stores. The Canadian retailing
operation's sales increased 20% with a same-store sales increase of 12% and
five more units than the prior year. Naturalizer's mall-based stores' total
sales increased 6.5% in the quarter and 6.4% on a same-store basis, reflecting
strong consumer acceptance of the updated styling of the Naturalizer product
and increasing interest in the NaturalSport line of casual and walking shoes.
These improved sales were partially offset by lower sales at 40 outlet mall
stores transferred from Famous Footwear at the beginning of fiscal 1996. This
decline was due to low inventory levels and poor weather during this transition
period. Both Famous Footwear and the Naturalizer Retail division's sales and
store counts for fiscal 1995 have been restated to reflect the transfer of
these stores.
Sales from footwear wholesaling businesses decreased from the same period last
year. Outside sales at Brown Shoe and Pagoda decreased 5% and 20%,
respectively, primarily reflecting lower shipments of private label makeup
shoes as a result of the closing of the remaining domestic factories and the
timing of Pagoda's shipments compared to last year.
Gross profit as a percent of sales increased to 38.2% from 33.6% for the same
period last year. This improvement primarily reflects the shift of all
remaining production of Brown Shoe products to offshore factories, a pretax
LIFO credit of $3.1 million from the liquidation of footwear manufactured in
closed domestic plants, and a higher percentage of sales coming from the
Corporation's retail operations which carry higher margin rates than the
wholesaling operations.
Selling and administrative expenses as a percent of sales increased to 36.7%
from 34.7% for the same period last year, reflecting a higher percentage of the
Corporation's sales occurring at Famous Footwear which carries a higher expense
rate than the wholesaling divisions.
Other income was $.4 million compared to $.6 million in 1995 and consists
primarily of royalty income.
7
In summary, first quarter results are encouraging. They reflect a good
consumer response to product improvements and marketing programs, better
acceptance of the Corporation's brands and the positive impact of the steps
taken last year to reduce costs and improve all aspects of operations. The
opportunity has been created for sales increases to bring better earnings to
the bottom line, and results are expected to improve in the seasonally stronger
second and third quarters.
Financial Condition
-------------------
A summary of key financial data and ratios at the dates indicated is as
follows:
May 4, April 29, February 3,
1996 1995 1996
------- --------- -----------
Working Capital (millions) $204.7 $172.8 $209.4
Current Ratio 1.7 1.5 1.7
Total Debt as a Percentage of
Total Capitalization 52.3% 43.7% 48.7%
Net Debt (Total Debt less Cash and
Cash Equivalents) as a Percentage
of Total Capitalization 50.0% 40.8% 44.3%
Cash flow from operating activities for the first three months of fiscal 1996
was a net use of $36.1 million versus a net generation of $6.5 million last
year. The 1996 usage primarily reflects an increase in inventory at Famous
Footwear (due to 77 more stores) and lower accounts payable (due to the timing
of purchases). In 1995's first quarter, cash was generated from operations
primarily due to sizeable reductions in inventory levels at Brown Shoe and
Pagoda in anticipation of reduced future sales.
Financing activities in the first quarter of fiscal 1996 reflect an increase
in notes payable which were drawn under the Corporation's Bank Credit
Agreement.
The increase in the ratio of total debt as a percentage of total capitalization
at May 4, 1996, compared to the end of fiscal 1995, is due primarily to the
Corporation's additional borrowings to finance higher inventories. At the end
of the quarter, $144.5 million was borrowed under the Corporation's $200
million Bank Credit Agreement.
8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
---------------------------
There have been no material developments during the quarter ended May 4,
1996, in the legal proceedings described in the Corporation's Form 10-K for
the period ended February 3, 1996.
Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
At the Annual Meeting of Shareholders held on May 23, 1996, two proposals
described in the Notice of Annual Meeting of Shareholders dated April 17,
1996, were voted upon.
1. The shareholders elected four directors, Mr. John Peters MacCarthy,
Mr. John D. Macomber, Mr. William E. Maritz, and General Edward C.
Meyer, Retired, for terms of three years each; Mr. Daniel R. Toll for
a term of two years; and Mr. Jerry E. Ritter for a term of one year.
The voting for each director was as follows:
Directors For Withheld
--------- ---------- --------
John Peters MacCarthy 14,447,612 385,563
John D. Macomber 14,450,048 383,127
William E. Maritz 14,439,754 393,421
General Edward C. Meyer, Retired 14,448,541 384,634
Daniel R. Toll 14,439,922 393,253
Jerry E. Ritter 14,459,411 373,764
2. The proposal to ratify and approve an amendment to the Brown Group,
Inc. Stock Option and Restricted Stock Plan of 1994 was approved by a
vote of 13,760,168 in favor to 852,941 against, with 220,066
abstaining.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Listing of Exhibits
(3) (i) (a) Certificate of Incorporation of the
Corporation as amended through
February 16, 1984, incorporated
herein by reference to Exhibit 3 to
the Corporation's Report on Form 10-K
for the fiscal year ended November 1,
1986.
(i) (b) Amendment of Certificate of
Incorporation of the Corporation
filed February 20, 1987, incorporated
herein by reference to Exhibit 3 to
the Corporation's Report on Form 10-K
for the fiscal year ended January 30,
1988.
(ii) Bylaws of the Corporation as amended
through May 23, 1996, filed herewith.
(Page 11)
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(11) Computation of Earnings Per Share
(Page 10)
(27) Financial Data Schedule (Page 24)
(b) Reports on Form 8-K:
The Corporation filed a current report on Form 8-K dated
March 7, 1996, in response to Item 5, which announced
a new Shareholders' Rights Plan.
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 11, 1996 /s/ Harry E. Rich
------------------- -------------------------------
Executive Vice President
and Chief Financial Officer and
On Behalf of the Corporation as
the Principal Financial Officer
10
EXHIBIT 11
PART II - OTHER INFORMATION
COMPUTATION OF EARNINGS PER SHARE
BROWN GROUP, INC.
(Thousands, except per share)
Three Months Ended
----------------------
May 4, April 29,
1996 1995
---------- ---------
PRIMARY
Weighted average shares outstanding 17,615 17,608
Net effect of dilutive stock options based on
the treasury stock method using average market price -- 25
---------- ---------
TOTAL 17,615 17,633
========== =========
Net earnings (loss) $ 527 $ (4,411)
========== =========
Net earnings (loss) per share (1) $ .03 $ (.25)
========== =========
FULLY DILUTED
Weighted average shares outstanding 17,615 17,608
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 21 52
---------- ---------
TOTAL 17,636 17,660
========== =========
Net earnings (loss) $ 527 $ (4,411)
========== =========
Net earnings (loss) per share (1) $ .03 $ (.25)
========== =========
(1) The dilutive effect of stock options was not
included in weighted average shares outstanding
for purposes of calculating earnings per share