UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended November 1, 1997
[ ] 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 November 29, 1997, 18,020,177 shares of the registrant's common stock
were outstanding.
BROWN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
-------------------------
November 1, November 2, February 1,
1997 1996 1997
----------- ----------- -----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 25,496 $ 28,091 $ 38,686
Receivables, net of allowances of
$10,512 at November 1, 1997,
$11,049 at November 2, 1996, and
$10,203 at February 1, 1997 85,598 87,425 90,246
Inventories, net of adjustment to
last-in, first-out cost of
$16,984 at November 1, 1997,
$19,646 at November 2, 1996, and
$18,846 at February 1, 1997 393,972 408,813 398,803
Other Current Assets 35,471 39,378 37,040
--------- --------- ---------
Total Current Assets 540,537 563,707 564,775
Property and Equipment 210,262 206,458 202,229
Less allowances for depreciation
and amortization (126,701) (121,676) (116,849)
--------- --------- ---------
83,561 84,782 85,380
Other Assets 72,795 71,653 72,220
--------- --------- ---------
$ 696,893 $ 720,142 $ 722,375
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 32,000 $ 42,000 $ 62,000
Accounts Payable 124,007 130,247 124,697
Accrued Expenses 87,647 75,596 71,053
Income Taxes 16,794 5,410 4,005
Current Maturities of Long-Term Debt 2,000 2,000 2,000
--------- --------- ---------
Total Current Liabilities 262,448 255,253 263,755
Long-Term Debt and Capitalized
Lease Obligations 197,027 199,023 197,025
Other Liabilities 23,282 25,446 24,558
Shareholders' Equity
Common Stock 67,579 67,359 67,387
Additional Capital 46,755 46,340 46,310
Cumulative Translation Adjustment (7,298) (3,600) (4,433)
Unamortized Value of Restricted Stock (4,601) (6,274) (5,700)
Retained Earnings 111,701 136,595 133,473
--------- --------- ---------
214,136 240,420 237,037
--------- --------- ---------
$ 696,893 $ 720,142 $ 722,375
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------ ------------------------
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net Sales $ 433,886 $ 420,347 $1,204,524 $1,166,115
Cost of Goods Sold 278,056 264,160 756,625 729,530
--------- --------- ---------- ----------
Gross Profit 155,830 156,187 447,899 436,585
--------- --------- ---------- ----------
Selling and Administrative Expenses 146,871 134,061 419,624 395,531
Interest Expense 5,145 4,445 16,274 13,700
Other (Income) Expense 395 (672) 305 (812)
--------- --------- ---------- ----------
Earnings Before Income Taxes 3,419 18,353 11,696 28,166
Income Tax 16,742 5,448 19,947 9,220
--------- --------- ---------- ----------
NET EARNINGS (LOSS) $ (13,323) $ 12,905 $ (8,251) $ 18,946
========= ========= ========== ==========
NET EARNINGS (LOSS) PER
COMMON SHARE $ (.75) $ .73 $ (.46) $ 1.07
========= ========= ========== ==========
Weighted Average Number of
Outstanding Shares
of Common Stock 17,806 17,702 17,779 17,651
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .75 $ .75
========= ========= ========== ==========
See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
Thirty-Nine Weeks Ended
-----------------------
November 1, November 2,
1997 1996
----------- -----------
Net Cash Provided (Used) by Operating Activities $ 45,223 $ (1,758)
Investing Activities:
Capital expenditures (15,311) (13,810)
Other 390 1,100
---------- ---------
Net Cash Used by Investing Activities (14,921) (12,710)
Financing Activities:
Decrease in short-term notes payable (30,000) (70,000)
Repurchase of long-term debt - (6,450)
Proceeds from issuance of long-term debt - 100,000
Proceeds from issuance of common stock 29
Dividends paid (13,521) (13,465)
Debt issuance expense - (2,584)
---------- ---------
Net Cash Provided (Used) by Financing Activities (43,492) 7,501
---------- ---------
Decrease in Cash and Cash Equivalents (13,190) (6,967)
Cash and Cash Equivalents at Beginning of Period 38,686 35,058
---------- ---------
Cash and Cash Equivalents at End of Period $ 25,496 $ 28,091
========== ==========
See Notes to Condensed Consolidated Financial Statements.
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 Company'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 Company's Annual Report and Form 10-K for the period
ended February 1, 1997.
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.
In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," was issued which the Company is required to adopt at the
end of fiscal 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
interim and annual periods. The impact of the provisions of SFAS No. 128 on
the calculation of Basic and Diluted earnings per share for the thirteen and
thirty-nine week periods ended November 1, 1997 and November 2, 1996 is not
material.
Note C - Inventories
--------------------
During fiscal 1996, the remaining domestically manufactured footwear at Brown
Shoe Company was sold resulting in a liquidation of LIFO inventory layers. The
effect of this liquidation was to increase pretax earnings by $4.0 million in
the thirty-nine weeks ended November 2, 1996.
Note D - Restructuring Charges
------------------------------
Included in the Consolidated Statements of Earnings for the thirteen weeks and
thirty nine weeks ended November 1, 1997 is an after tax non-recurring charge
of $21.0 million for the cost of reducing the company's investment in Pagoda
International's operations. The charge includes $13.0 million of which $7.9
million is reflected in Cost of Goods Sold for inventory write-down, $4.2
million in Selling and Administrative Expenses for bad debt, severance, and
other restructuring expenses, and $.9 million in Other (Income) Expense for
the disposal of fixed assets. In addition, an $8.0 million provision for
income taxes was recorded for the repatriation of approximately $23.5 million
of foreign cash to the United States. Taxes were not previously provided on
these accumulated earnings as they were considered to be permanently reinvested
in the Company's international operations. No activity has been reflected
against the reserve in the third quarter. The $21.0 million charge resulted
in a reduction of earnings of $1.18 per share for the thirteen weeks and
thirty nine weeks ended November 1, 1997.
Subsequent to November 1, 1997, Pagoda International signed a letter of intent
with Calcados Dilly Ltda., a Brazilian footwear manufacturing and marketing
company. According to the terms of the agreement, Dilly, Ltda. will assume all
distribution responsibilities in Brazil and will act as a distributor of the
Company's children's character licensed footwear brands and le coq sportif.
Dilly, Ltda. will begin purchasing of the Brazilian inventories no later than
February 1, 1998 for a period not to exceed thirty months. In addition, the
Company plans to continue as a licensee and supplier of children's character
licensed footwear in Europe, but negotiations are underway to shift inventory
ownership and marketing to various distributors.
Note E: Condensed Consolidating Financial Information
-----------------------------------------------------
Certain of the Company's debt is unconditionally and jointly and severally
guaranteed by certain wholly-owned domestic subsidiaries of the Company.
Accordingly, condensed consolidating balance sheets as of November 1, 1997 and
November 2, 1996, and the related condensed consolidating statements of
earnings and cash flows for the thirty-nine weeks ended November 1, 1997 and
November 2, 1996, are provided. These 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 this information, presented in lieu of complete
financial statements for each of the guarantor subsidiaries, provides
meaningful information to allow investors to determine the nature of the assets
held by, and the operations and cash flows of, each of the consolidating
groups.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 1, 1997
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
-------- ------------ ------------ ------------ ------------
Assets
Current Assets
Cash and cash equivalents . . $ 1,081 $ (2,866) $ 27,281 $ - $ 25,496
Receivables, net. . . . . . . 29,090 12,400 44,108 - 85,598
Inventory, net. . . . . . . . 60,234 315,310 33,135 (14,707) 393,972
Other current assets. . . . . 3,616 20,315 6,349 5,191 35,471
-------- -------- -------- -------- ----------
Total Current Assets . . . . 94,021 345,159 110,873 (9,516) 540,537
Property and Equipment, net. . . 18,107 58,206 7,248 - 83,561
Other Assets . . . . . . . . . . 43,561 16,571 12,872 (209) 72,795
Investment in Subsidiaries . . . 250,657 44,215 3,811 (298,683) -
-------- -------- -------- --------- ----------
Total Assets . . . . . . . . $406,346 $464,151 $134,804 $(308,408) $ 696,893
======== ======== ======== ========= ==========
Liabilities &
Shareholders' Equity
Current Liabilities
Notes payable . . . . . . . . $ 32,000 $ - $ - $ - $ 32,000
Accounts payable. . . . . . . 5,793 92,957 25,257 - 124,007
Accrued expenses. . . . . . . 25,040 41,306 16,184 5,117 87,647
Income taxes. . . . . . . . . 3,781 11,804 694 515 16,794
Current maturities of
long-term debt . . . . . . . 2,000 - - - 2,000
-------- -------- -------- --------- ----------
Total Current Liabilities. 68,614 146,067 42,135 5,632 262,448
Long-Term Debt and Capitalized
Lease Obligations. . . . . . 197,027 - 75 (75) 197,027
Other Liabilities. . . . . . . . 20,704 2,077 592 (91) 23,282
Intercompany Payable (Receivable) (94,135) 86,854 17,331 (10,050) -
Shareholders' Equity . . . . . . 214,136 229,153 74,671 (303,824) 214,136
-------- -------- -------- --------- ----------
Total Liabilities and
Shareholders' Equity . $406,346 $464,151 $134,804 $(308,408) $ 696,893
======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
-------- ------------ ------------- ------------ ------------
Net Sales. . . . . . . . . . . . $193,682 $922,032 $286,098 $(197,288) $1,204,524
Cost of goods sold . . . . . . . 137,950 578,452 237,610 (197,387) 756,625
-------- -------- -------- --------- ----------
Gross profit . . . . . . . . . . 55,732 343,580 48,488 99 447,899
Selling and
administrative expenses. 55,501 308,397 56,849 (1,123) 419,624
Interest expense . . . . . . . . 16,173 2 99 - 16,274
Intercompany interest
(income) expense. . . . . . . (11,414) 11,425 (11) - -
Other (income) expense . . . . . (2,907) 337 1,653 1,222 305
Equity in (earnings)
of subsidiaries . . . . . . . 6,138 11,887 - (18,025) -
-------- -------- -------- --------- ----------
Earnings (Loss) Before
Income Taxes . . . . . . . . (7,759) 11,532 (10,102) 18,025 11,696
Income tax provision (benefit) . 492 17,670 1,785 - 19,947
-------- -------- -------- -------- ----------
Net Earnings (Loss) . . . . . $ (8,251) $ (6,138) $(11,887) $ 18,025 $ (8,251)
======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
-------- ------------ ------------- ------------ ------------
Net Cash Provided (Used) by
Operating Activities . . . . $ 24,028 $ 19,519 $(11,979) $ 13,655 $ 45,223
Investing Activities:
Capital expenditures . . . . (2,588) (11,647) (1,076) - (15,311)
Other. . . . . . . . . . . . 383 - 7 - 390
-------- -------- -------- --------- --------
Net Cash Used by
Investing Activities . . . . (2,205) (11,647) (1,069) - (14,921)
Financing Activities:
Increase (decrease) in
short-term notes payable . . (30,000) - - - (30,000)
Proceeds from issuance of
common stock . . . . . . . . 29 - - - 29
Dividends paid. . . . . . . . (13,521) - - - (13,521)
Intercompany financing. . . . 22,880 (17,048) 10,022 (15,854) -
-------- -------- -------- --------- --------
Net Cash Provided (Used) by
Financing Activities. . . . . (20,612) (17,048) 10,022 (15,854) (43,492)
Increase (Decrease) in Cash
and Cash Equivalents. . . . . 1,211 (9,176) (3,026) (2,199) (13,190)
Cash and Cash Equivalents at
Beginning of Period . . . . . (130) 6,310 30,307 2,199 38,686
-------- -------- -------- --------- --------
Cash and Cash Equivalents at
End of Period . . . . . . . . $ 1,081 $ (2,866) $ 27,281 $ - $ 25,496
======== ======== ======== ======== ========
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 1996
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
-------- ------------ ------------- ------------ ------------
Assets
Current Assets
Cash and cash equivalents . . . $ 1,204 $ 7,993 $ 18,894 $ - $ 28,091
Receivables, net. . . . . . . . 32,339 12,820 42,266 - 87,425
Inventory, net. . . . . . . . . 68,012 305,520 48,529 (13,248) 408,813
Other current assets. . . . . . 9,565 17,764 8,073 3,976 39,378
-------- -------- -------- --------- --------
Total Current Assets . . . . . 111,120 344,097 117,762 (9,272) 563,707
Property and Equipment, net. . . . 17,789 58,927 8,066 - 84,782
Other Assets . . . . . . . . . . . 42,860 16,036 13,112 (355) 71,653
Investment in Subsidiaries . . . . 260,982 52,932 3,811 (317,725) -
-------- -------- -------- --------- --------
Assets . . . . . . . . . $432,751 $471,992 $142,751 $(327,352) $720,142
======== ======== ======== ========= ========
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable . . . . . . . . . $ 42,000 $ - $ - $ - $ 42,000
Accounts payable. . . . . . . . 3,959 99,861 26,427 - 130,247
Accrued expenses. . . . . . . . 28,762 35,974 13,374 (2,514) 75,596
Income taxes. . . . . . . . . . 1,084 3,120 2,292 (1,086) 5,410
Current maturities of
long-term debt . . . . . . . . 2,000 - - - 2,000
-------- -------- -------- --------- --------
Total Current Liabilities . 77,805 138,955 42,093 (3,600) 255,253
Long-Term Debt and Capitalized
Lease Obligations. . . . . . . 199,023 - 125 (125) 199,023
Other Liabilities. . . . . . . . . 20,619 2,944 496 1,387 25,446
Intercompany Payable (Receivable). (105,116) 97,874 9,392 (2,150) -
Shareholders' Equity . . . . . . . 240,420 232,219 90,645 (322,864) 240,420
-------- -------- -------- --------- --------
Total Liabilities and
Shareholders' Equity . . $432,751 $471,992 $142,751 $(327,352) $720,142
======== ======== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
-------- ------------ ------------- ------------ ------------
Net Sales. . . . . . . . . . . . . $190,659 $887,925 $304,664 $(217,133) $1,166,115
Cost of goods sold . . . . . . . . 136,593 566,661 243,512 (217,236) 729,530
-------- -------- -------- --------- ----------
Gross profit. . . . . . . . . . 54,066 321,264 61,152 103 436,585
Selling and
administrative expenses . . . . 54,899 289,709 51,802 (879) 395,531
Interest expense . . . . . . . . . 13,296 211 193 - 13,700
Intercompany interest
(income) expense. . . . . . . . (10,607) 10,637 (30) - -
Other (income) expense . . . . . . (3,504) 170 1,540 982 (812)
Equity in (earnings)
of subsidiaries . . . . . . . . (17,557) (5,386) - 22,943 -
-------- -------- -------- --------- ----------
Earnings (Loss) Before
Income Taxes . . . . . . . . . 17,539 25,923 7,647 (22,943) 28,166
Income tax provision (benefit) . . (1,407) 8,366 2,261 - 9,220
-------- -------- -------- --------- ----------
Net Earnings (Loss) . . . . . . $ 18,946 $ 17,557 $ 5,386 $ (22,943) $ 18,946
======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
-------- ------------ ------------- ------------ ------------
Net Cash Provided (Used) by
Operating Activities . . . . . $(22,926) $ 28,786 $(9,272) $ 1,654 $ (1,758)
Investing Activities:
Capital expenditures . (833) (11,216) (1,761) - (13,810)
Other . . . . . . . 1,096 4 - - 1,100
-------- -------- ------- ------- ---------
Net Cash Provided (Used) by
Investing Activities . 263 (11,212) (1,761) - (12,710)
Financing Activities:
Increase (decrease) in
short-term notes payable . (70,000) - - - (70,000)
Repurchase of long-term debt . (6,450) - - - (6,450)
Process from issuance of
long-term debt . . 100,000 - - - 100,000
Dividends paid. . . (13,465) - - (13,465)
Intercompany financing 16,657 (18,547) 3,544 (1,654) -
Debt issuance expense. (2,584) - - - (2,584)
-------- -------- ------- ------- ---------
Net Cash Provided (Used) by
Financing Activities . 24,158 (18,547) 3,544 (1,654) 7,501
Increase (Decrease) in Cash and
Cash Equivalents. . 1,495 (973) (7,489) - (6,967)
Cash and Cash Equivalents at
Beginning of Period (291) 8,966 26,383 - 35,058
-------- -------- ------- ------- ---------
Cash and Cash Equivalents at
End of Period . . . $ 1,204 $ 7,993 $18,894 $ - $28,091
======== ======== ======= ======= =======
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------
Results of Operations
---------------------
Quarter ended November 1, 1997 compared to the Quarter ended November 2, 1996
-----------------------------------------------------------------------------
Consolidated net sales for the fiscal quarter ended November 1, 1997, were
$433.9 million, compared to $420.3 million in the quarter ended November 2,
1996.
A net loss of $13.3 million for the third quarter of 1997 compares to net
earnings of $12.9 million for the third quarter of 1996. The 1997 loss
includes an aftertax, non-recurring charge of $21.0 million for the cost of
reducing the company's investment in its Pagoda International division's
operations. The 1997 loss also includes a $5.0 million loss from Pagoda
International operations compared to breakeven results in 1996. The 1996
results include a $1.6 million benefit from a reduction in tax valuation
reserves.
Third quarter 1997 sales from the footwear retailing operations increased 8.6%
from the third quarter of 1996. Famous Footwear's total sales of $243.1
million increased 8.9% from last year representing a same-store sales increase
of 1.0% and 29 more stores in operation, reflecting a total of 812 stores in
operation. The Naturalizer Retail division's total sales increased 6.1% in the
1997 quarter to $33.1 million, resulting from an increase of 2.7% on a same-
store basis and one less store in operation. The Canadian retailing operation's
sales of $13.5 million increased 10.1%, which resulted from a same-store sales
increase of 7.4% and six more stores in operation than in the third quarter of
1996.
Sales from footwear wholesaling businesses decreased 6.1% to $144.2 million
compared to $153.6 million in last year's third quarter. The sales decline was
primarily caused by lower sales at the Brown Branded Marketing division and
the Pagoda International operations.
Gross profit as a percent of sales decreased to 35.9% from 37.2% for the same
period last year. Excluding the restructuring charge impact, the gross profit
as a percent of sales was 37.7% resulting in a slight increase over prior year
primarily due to the higher margins at Famous Footwear.
Selling and administrative expenses as a percent of sales increased to 33.9%
from 31.9% for the same period last year. Selling and administrative expenses
as a percent of sales were 32.9% excluding the restructuring charge impact.
The increase reflects a higher expense rate at the company's wholesaling
operations and the effect from a greater mix of retail sales.
Excluding the restructuring charge and operating losses from Pagoda
International, the consolidated tax rate was 40.8% of consolidated pre-tax
income for the third quarter of 1997 compared to 29.7% in last year's quarter,
which reflected a $1.6 million reduction in tax valuation reserves.
Nine Months ended November 1, 1997 compared to the Nine Months ended
November 1, 1996
--------------------------------------------------------------------
Consolidated net sales for the first nine months of 1997 were $1,204.5 million,
an increase of 3.3% from the first nine months of 1996 total of $1,166.1
million.
A net loss of $8.3 million for the first nine months of 1997 compares to net
earnings of $18.9 million for the first nine months of 1996. The 1997 loss
includes an aftertax, non-recurring charge of $21.0 million related to Pagoda
International's operations. The 1997 loss also includes a $9.1 million loss
from Pagoda International operations compared to a $2.6 million loss in 1996.
The 1996 results include aftertax credits of $2.6 million from liquidation of
LIFO inventories and $1.6 million from a reduction in tax valuation reserves.
Sales from the footwear retailing operations increased 7.0% to $795.0 million
from the first nine months of 1996. Famous Footwear's total sales for the
first nine months of 1997 increased 8.1% to $656.8 million, reflecting a 1.4%
increase in same-store sales and 29 more units in operation. Naturalizer
Retail division's total sales decreased 0.7% to $98.9 million in the first nine
months of 1997 with a corresponding 1.5% decline on a same-store basis. Sales
from the Canadian retailing operation during 1997 increased 9.4% to $39.3
million, with a same-store sales increase of 6.3% and six more units than in
the nine-month period ended November 2, 1996.
Sales from footwear wholesaling businesses for the first nine months of 1997
decreased 3.2% to $409.5 million from the same period last year. These higher
1996 sales were reflected at the Pagoda Division and primarily resulted from
the sale of footwear for Disney's "Hunchback of Notre Dame" movie in the prior
year.
Gross profit as a percent of sales decreased to 37.2% for the nine-month period
ended November 1, 1997 from 37.4% for the nine-month period ended November 2,
1996. Excluding the restructuring charge impact, the gross profit as a percent
of sales was 37.8% resulting in an increase over prior year primarily due to
a higher mix of retail sales.
Selling and administrative expenses as a percent of sales increased to 34.8%
for the first nine months of 1997 from 33.9% for the first nine months of 1996.
The increase reflects lower sales in the wholesale operations as the
restructuring charge has no significant impact on the first nine months of 1997
expenses.
The consolidated tax rate was 35.3% excluding the restructuring charge and
losses from Pagoda International operations. This tax rate compares to the
1996 tax rate of 35.2% excluding the impact of the reversal of the tax
valuation reserve.
Financial Condition
-------------------
A summary of key financial data and ratios at the dates indicated is as
follows:
November 1, November 2, February 1,
1997 1996 1997
----------- ----------- -----------
Working Capital (millions) $278.1 $308.5 $301.0
Current Ratio 2.1:1 2.2:1 2.1:1
Total Debt as a Percentage of
Total Capitalization 51.9% 50.3% 52.4%
Net Debt (Total Debt less Cash and
Cash Equivalents) as a Percentage
of Total Capitalization 49.0% 47.2% 48.4%
Cash flow from operating activities for the first nine months of fiscal 1997
was a net generation of $45.2 million versus a use of $1.8 million last year.
In 1997's first nine months, cash flow improved primarily as a result of lower
accounts receivable and continued improvement in inventory management.
The decrease in the ratio of total debt as a percentage of total capitalization
at November 1, 1997, compared to the end of fiscal 1996, is due primarily to
the Company's lower level of short-term notes payable. At November 1, 1997,
$32.0 million was borrowed and $17.3 million of letters of credit were
outstanding under the Company's $155 million revolving bank Credit Agreement.
As a result of the $21.0 million restructuring charge during the third quarter
of 1997, the Company amended its revolving Credit Agreement and its 7.36%
Senior Note Agreement to modify certain financial covenants.
Forward Looking Statements
--------------------------
From time to time, the Company publishes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially. In Exhibit 99 to the Company's fiscal
1996 Annual Report on Form 10-K, detailed factors that could cause variations
in results to occur are listed and discussed. Such Exhibit is incorporated
herein by reference.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
--------------------------
There have been no material developments during the quarter ended November
1, 1997, in the legal proceedings described in the Company's Form 10-K for
the period ended February 1, 1997.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Listing of Exhibits
(3) (i) (a) Certificate of Incorporation of the
Company as amended through February
16, 1984, incorporated herein by
reference to Exhibit 3 to the
Company's Report on Form 10-K for the
fiscal year ended November 1, 1986.
(i) (b) Amendment of Certificate of
Incorporation of the Company filed
February 20, 1987, incorporated
herein by reference to Exhibit 3 to
the Company's Report on Form 10-K for
the fiscal year ended January 30,
1988.
(ii) Bylaws of the Company as amended
through February 1, 1997,
incorporated herein by reference to
Exhibit 3 to the Company's Report on
Form 10-K for the fiscal year ended
February 1, 1997.
(4) (b) (iv) Amendment No. 1, dated October 8,
1997, to the Credit Agreement between
the Company and the Lenders named
therein, NationsBank, N.A., as Agent,
and First Chicago Capital Markets,
Inc., as Syndication Agent, filed
herewith.
(c) (i) Amendment No. 2, dated October 7,
1997, to the Senior Note Agreement
between the Company and Prudential
Insurance Company of America, as
amended, filed herewith.
(11) Computation of Earnings Per Share
(Page 16)
(27) Financial Data Schedule (Page 17)
(99.1) Discussion of Certain Risk Factors
That Could Affect the Company's
Operating Results as incorporated
herein by reference to the Company's
Report on Form 10-K for the fiscal
year ended February 1, 1997.
(b) Reports on Form 8-K:
The Corporation filed a current report on Form 8-K dated
August 8, 1997 in response to Items 5 and 7, amending its
Rights Agreement to replace Boatmen's Trust Company as rights
agent with First Chicago Trust Company of New York.
The Corporation filed a current report on Form 8-K dated
October 9, 1997 in response to Items 5 and 7, which announced
the decision to substantially reduce its investment in its
Pagoda International division.
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: December 12, 1997 /s/ Harry E. Rich
---------------------------------
Executive Vice President
and Chief Financial Officer and
On Behalf of the Corporation as
the Principal Financial Officer
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
BROWN GROUP, INC.
(Thousands, except per share)
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------ ------------------------
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
----------- ----------- ----------- -----------
PRIMARY
Weighted average shares outstanding 17,806 17,702 17,779 17,651
Net effect of dilutive stock options
based on the treasury stock method
using average market price 42 119 58 21
--------- --------- --------- ----------
TOTAL 17,848 17,821 17,837 17,672
========= ========= ========= ==========
Net earnings (loss) $ (13,323) $ 12,905 $ (8,251) $ 18,946
========= ========= ========= ==========
Net earnings (loss) per share (1) $ (.75) $ .73 $ (.46) $ 1.07
========= ========= ========= ==========
FULLY DILUTED
Weighted average shares outstanding 17,806 17,702 17,779 17,651
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 42 137 58 56
--------- --------- --------- ----------
TOTAL 17,848 17,839 17,837 17,707
========= ========= ========= ==========
Net earnings (loss) $ (13,323) $ 12,905 $ (8,251) $ 18,946
========= ========= ========= ==========
Net earnings (loss) per share (1) $ (.75) $ .73 $ (.46) $ 1.07
========= ========= ========= ==========
(1) The dilutive effect of stock options was not
included in weighted average shares outstanding
for purposes of calculating earnings per share