-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KMdr5SwryCgZYvVuRkQJSZ+taJC65IupBBHfz64YgBBLd2kQXgU6kZolzWKuT8Xx JAJbks58QGeh2YH5aj2Sdw== 0000014707-95-000017.txt : 19951211 0000014707-95-000017.hdr.sgml : 19951211 ACCESSION NUMBER: 0000014707-95-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951208 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROWN GROUP INC CENTRAL INDEX KEY: 0000014707 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 430197190 STATE OF INCORPORATION: NY FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02191 FILM NUMBER: 95600253 BUSINESS ADDRESS: STREET 1: 8400 MARYLAND AVE STREET 2: P O BOX 29 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3148544000 MAIL ADDRESS: STREET 1: P O BOX 29 CITY: ST LOUIS STATE: MO ZIP: 63166 FORMER COMPANY: FORMER CONFORMED NAME: BROWN SHOE CO INC DATE OF NAME CHANGE: 19720327 10-Q 1 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 October 28, 1995 [ ] 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 25, 1995, 17,932,477 shares of the registrant's common stock were outstanding. 2 BROWN GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands) (Unaudited) October 28, October 29, January 28, 1995 1994 1995 ----------- ----------- ----------- ASSETS Current Assets Cash and Cash Equivalents $ 28,662 $ 31,382 $ 18,922 Receivables, net of allowances of $10,880 at October 28, 1995, $11,361 at October 29, 1994, and $11,664 at January 28, 1995 94,420 115,271 98,079 Inventories (net of adjustment to last-in, first-out cost of $29,682 at October 28, 1995, $37,351 at October 29, 1994, and $37,286 at January 28, 1995) 356,340 322,901 322,029 Net Current Assets of Discontinued Operations - (429) - Other Current Assets 47,907 60,978 39,930 -------- --------- --------- Total Current Assets 527,329 530,103 478,960 Property, Plant and Equipment 213,895 199,818 203,227 Less allowances for depreciation and amortization (119,111) (105,930) (110,323) -------- --------- --------- 94,784 93,888 92,904 Net Noncurrent Assets of Discontinued Operations - 1,739 - Other Assets 64,447 58,908 64,651 -------- --------- --------- $686,560 $ 684,638 $ 636,515 ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes Payable $106,500 $ 59,450 $ 41,085 Accounts Payable 106,966 97,261 85,045 Accrued Expenses 89,802 102,624 92,231 Income Taxes 12,890 6,824 (642) Current Maturities of Long-Term Debt 2,756 2,078 2,063 -------- --------- --------- Total Current Liabilities 318,914 268,237 219,782 Long-Term Debt and Capitalized Lease Obligations 107,469 135,214 133,213 Other Liabilities 29,873 30,324 33,793 Stockholders' Equity Common Stock 67,251 67,437 67,388 Additional Capital 46,224 46,537 46,957 Cumulative Translation Adjustment (4,367) (3,221) (5,556) Unamortized Value of Restricted Stock (8,027) (11,468) (10,878) Retained Earnings 129,223 151,578 151,816 -------- --------- --------- 230,304 250,863 249,727 -------- --------- --------- $686,560 $ 684,638 $ 636,515 ======== ========= =========
See Notes to Condensed Consolidated Financial Statements. 3 BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Thousands, except per share) Three Months Ended Nine Months Ended October 28, October 29, October 28, October 29, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Net Sales $406,921 $406,934 $1,107,224 $1,129,422 Cost of Goods Sold 262,912 267,422 726,511 738,649 -------- -------- ---------- Gross Profit 144,009 139,512 380,713 390,773 -------- -------- ---------- ---------- Selling and Administrative Expenses 125,004 113,315 370,345 334,011 Interest Expense 3,858 3,988 11,738 12,477 Other (Income) Expense (2,364) (844) 1,058 (1,991) -------- -------- ---------- ---------- Earnings (Loss)from Continuing Operations Before Income Taxes 17,511 23,053 (2,428) 46,276 Income Tax 7,796 8,127 649 16,483 -------- -------- ---------- ---------- Earnings (Loss) from Continuing Operations 9,715 14,926 (3,077) 29,793 Earnings (Loss) from Discontinued Operations, Net of Taxes - 777 - 1,282 -------- -------- ---------- ---------- NET EARNINGS (LOSS) $ 9,715 $ 15,703 $ (3,077) $ 31,075 ======== ======== ========== ========== NET EARNINGS (LOSS) PER COMMON SHARE: Continuing Operations $ .55 $ .85 $ (.17) $ 1.70 Discontinued Operations - .04 - .07 -------- -------- ---------- ---------- NET EARNINGS (LOSS) PER COMMON SHARE $ .55 $ .89 $ (.17) $ 1.77 ======== ======== ========== ========== Weighted Average Number of Outstanding Shares of Common Stock 17,584 17,595 17,590 17,530 DIVIDENDS PER COMMON SHARE $ .25 $ .40 $ 1.05 $ 1.20 ======== ======== =========== ==========
See Notes to Condensed Consolidated Financial Statements. 4 BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Thousands) Nine Months Ended October 28, October 29, 1995 1994 ----------- ----------- Net Cash Provided (Used) by Operating Activities of: Continuing operations $ 10,110 $ 28,434 Discontinued operations - (498) -------- -------- Net Cash Provided by Operating Activities 10,110 27,936 Investing Activities Capital expenditures (24,312) (23,804) Proceeds from sales of assets of discontinued operations - 118,519 Other 2,822 817 -------- -------- Net Cash Provided (Used) by Investing Activities (21,490) 95,532 Financing Activities Increase/(decrease) in short-term notes payable 40,415 (86,640) Principal payments of long-term debt (56) (5,746) Dividends paid (18,842) (21,420) Payments for purchase of treasury stock (824) - Other 427 4,828 -------- -------- Net Cash Provided (Used) by Financing Activities 21,120 (108,978) -------- -------- Increase in Cash and Cash Equivalents 9,740 14,490 Cash and Cash Equivalents at Beginning of Period 18,922 16,892 -------- -------- Cash and Cash Equivalents at End of Period $ 28,662 $ 31,382 ======== ========
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 28, 1995. 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):
October 28, October 29, January 28, 1995 1994 1995 ----------- ----------- ----------- Finished Goods $339,795 $303,191 $298,235 Work in Process 2,193 3,115 4,193 Raw Materials and Supplies 14,352 16,595 19,601 -------- -------- -------- $356,340 $322,901 $322,029
======== ======== ======== During fiscal 1995, inventory quantities will be reduced at one of the Corporation's divisions, which will result in a liquidation of LIFO inventory layers. On an aftertax basis, the effect of this liquidation is to increase third quarter's and year-to-date net income by $3.2 million and $5.6 million, respectively. 6 Note D - Contingencies ---------------------- The Corporation has completed remediation efforts at its closed New York tannery and two associated landfills. As such, in September 1995, state environmental authorities reclassified the status of the site to one that has been properly closed and that requires only continued maintenance and monitoring. This change in status has allowed the Corporation to reliably estimate the future liability for monitoring and maintenance based on a specific site plan. Accordingly, in the third quarter of 1995, the estimated liability related to this site of $5.3 million was discounted, using a 6.4% rate, resulting in a $2.0 million reduction in the previously recorded liability of $4.7 million. This increase in third quarter earnings was included in Other (Income) Expense on the Condensed Consolidated Statements of Earnings. The expected payments for the next five years are approximately $.2 million per year with the balance due thereafter. At October 28, 1995, the total accrued environmental liabilities for all sites, including the above discounted liability, total $3.2 million. Note E - Long-Term and Short-Term Financing Arrangements -------------------------------------------------------- In October 1995, the Corporation refinanced $50 million of 6.47% unsecured Senior notes due in February 1996 with $50 million of 7.36% unsecured Senior notes. The new debt agreement requires annual payments of $10 million in 1999 through 2003. The Corporation also amended certain terms of its $200 million revolving bank Credit Agreement, which will now expire in December 1999. At October 28, 1995, $105.0 million has been borrowed under this agreement. Interest on borrowings under this agreement are at varying rates and at the Corporation's option, based on one of the following: the Eurodollar rate, the competitive bid rate, the First National Bank of Chicago's corporate base rate or the Federal funds rate. A commitment fee of .125% is payable on the unused portion of the agreement. The Senior notes and Credit Agreement contain covenants which, among other provisions, require the maintenance of certain financial ratios related to fixed charge coverage and long-term debt-to-capital, establish minimum levels of net worth and working capital, and limit the sale of assets and the level of liens and certain investments. 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------- Results of Operations --------------------- Quarter ended October 28, 1995 compared to the Quarter ended October 29, 1994 ----------------------------------------------------------------------------- Consolidated net sales for the third quarter ended October 28, 1995, were $406.9 million, flat with last year's third quarter. Earnings from continuing operations of $9.7 million for the third quarter of 1995 compares to earnings of $14.9 million last year. Net earnings of $9.7 million for the third quarter of 1995 compares to net earnings of $15.7 million last year. The 1995 earnings include an aftertax credit of $3.2 million from the liquidation of LIFO inventories associated with the factory closings, which was announced in the second quarter. Last year's net earnings figure reflects aftertax income from discontinued operations of $.8 million. Sales from the footwear retailing operations increased 13% from the third quarter of 1994. Famous Footwear's sales increased 19% due to 143 more units in operation with a same-store decrease of 2.7%. The Canadian retailing operation's sales increased 3.0% with a same-store decrease of 1.0%. Naturalizer stores' sales decreased 13.0% over last year's third quarter, reflecting same-store sales loss of 7.2%, excluding sales from close-out locations temporarily opened last year as part of the company restructuring program, and a net decrease of 26 units. These same-store sales decreases reflect the continuing difficult footwear and apparel retail business. Sales from footwear wholesaling activities decreased 16% over the same period last year. Pagoda's sales decreased 16% and Brown Shoe's decreased 17%. The decline was due to weakness in the Corporation's retail customers' business and decreases in shipments of branded footwear. Gross profit as a percent of sales increased to 35.4% from 34.3% for the same period last year. Retailing footwear activities experienced a decrease in gross profit as a percent of sales of 2.5% due to promotional nature of the current retail environment. Wholesale margins increased by 3.4%. The overall gross profit and wholesale gross profit were positively impacted by the credit recorded from the LIFO liquidation associated with the plant closures announced in the second quarter. Selling and administrative expenses as a percentage of sales increased to 30.7% from 27.8%, primarily due to reduced sales levels at the wholesale operations and to costs associated with the rapid expansion at Famous Footwear. Other income for the third quarter of 1995 was $2.4 million compared to income of $.8 million for the same period last year. The income in 1994 consisted primarily of royalty income. The increase in other income in 1995 is primarily due to a $2.0 million reduction in the environmental liability related to favorable reclassification of the Corporation's closed tannery site. Year-to-Date 1995 compared to Year-to-Date 1994 ----------------------------------------------- Consolidated net sales of $1,107.2 million were 2% lower than the first nine months of last year. 8 The loss from continuing operations of $3.1 million for the first nine months of 1995 compares to earnings of $29.8 million last year. Fiscal 1995 includes an aftertax charge of $9.6 million for plant closures recorded in the second quarter of fiscal 1995, which was partially offset by an aftertax credit of $5.6 million from the liquidation of LIFO inventories. The net loss for the first nine months of 1995 was $3.1 million compared to net earnings of $31.1 million for the same period last year. Last year's net earnings reflect aftertax earnings from discontinued operations of $1.3 million. Sales in the footwear retailing operations increased 14% compared to the first nine months of last year. Sales at Famous Footwear increased 22%, while decreasing 1.4% on a same-store basis. There were 820 Famous Footwear stores in operation at the end of the third quarter, 143 more than at the same time last year. The Canadian retailing operation's sales improved, increasing by 4%, including a same-store increase of .3%. The Naturalizer retailing operation's sales declined 10%, including a same-store decrease of 5.4%. At the end of the third quarter, there were 321 Naturalizer stores in operation, 26 less than in 1994. These same-store sales decreases reflect the difficult footwear and apparel retail business. Sales from footwear wholesaling activities decreased by 20%. Pagoda's sales decreased 17% and Brown Shoe's decreased 28%. The declines were primarily due to weakness in the Corporation's retail customers' businesses, the sale of the men's business, and decreased shipments of branded footwear. Gross profit as a percentage of sales decreased to 34.4% from 34.6% for the same period last year. Retailing footwear activities experienced a decrease in gross profit as a percent of sales of 2.3% due to the promotional nature of the current retail environment. Wholesale margins decreased by 1.2%. The overall gross profit and wholesale gross profit were negatively impacted by the charges recorded to close the remaining manufacturing facilities in the second quarter of $10.1 million partially offset by a year-to-date $8.6 million LIFO credit from the liquidation of manufactured inventories of $8.6 million. Selling and administrative expenses as a percentage of sales increased to 33.4% from 29.6% for the same period in 1994, primarily due to reduced sales levels at the wholesale operations and to costs associated with the rapid expansion and lower same-store sales of Famous Footwear. Other (income) expense is a net expense of $1.1 million in the first nine months of 1995 compared to income of $2.0 million in the same period last year. The income in 1994 consisted primarily of royalty income. In 1995, royalty income, in addition to a $2.0 million credit related to the Corporation's environmental liability, was more than offset by a $4.3 million charge related to factory closures. Fiscal 1995 Fourth Quarter Outlook ---------------------------------- Retail sales of footwear and apparel have been poor for most of 1995, particularly in the discount arena where Famous Footwear competes. We expect this to continue. With our tight cost control and the structural changes we have made, Brown Group plans to operate profitably in the fourth quarter. 9 Financial Condition ------------------- A summary of key financial data and ratios at the dates indicated is as follows:
October 28, October 29, January 28, 1995 1994 1995 ----------- ----------- ----------- Working Capital (millions) $208.4 $261.9 $259.2 Current Ratio 1.7 2.0 2.2 Total Debt as a Percentage of Total Capitalization 48.5% 44.0% 41.4% Net Debt (Total Debt less Cash and Cash Equivalents) as a Percentage of Total Capitalization 45.0% 39.7% 38.7%
Cash flow from operating activities of continuing operations for the first nine months of fiscal 1995 was $17.8 million less than in the first nine months of 1994. The decrease was primarily the result of lower earnings and increased inventories at Famous Footwear, partially offset by reduced restructuring reserve usage and lower accounts receivable at Brown and Pagoda. Financing activities in the first nine months of fiscal 1995 reflect an increase in notes payable which is due primarily to lower earnings and additional investment in Famous Footwear. In the first nine months of 1994, the corporation was able to reduce total debt with proceeds from the sale of assets from the discontinued leased department and Cloth World businesses. In October 1995, the Corporation refinanced $50 million of 6.47% unsecured Senior notes due in February 1996 with $50 million of 7.36% unsecured Senior notes. The new debt agreement requires annual principal payments of $10 million in 1999 through 2003. In addition, the Corporation amended certain terms of its $200 million revolving bank Credit Agreement, which will now expire in 1999. At October 28, 1995, $105.0 million has been borrowed under this agreement. Interest on borrowings under this Agreement are at varying rates, and at the Corporation's option, based on the Eurodollar rate, the competitive bid rate, the First National Bank of Chicago's corporate base rate, or the Federal funds rate. A commitment fee of .125% is payable on the unused portion of the Agreement. The Senior notes and the Credit Agreement contain covenants which, among other provisions, require the maintenance of certain financial ratios related to fixed charge coverage and long-term debt-to-capital, establish minimum levels of net worth and working capital, and limit the sale of assets and the level of liens and certain investments. 10 The increase in the ratio of total debt as a percentage of total capitalization at October 28, 1995 compared to the end of the third quarter in 1994, is due primarily to the lower earnings and additional investment in Famous Footwear in 1995 and the Corporation paying down short-term debt in the third quarter of fiscal 1994 with additional cash flow generated from discontinued operations. The current ratio decreased to 1.7 to 1 from 2.0 to 1 at the end of 1994. The decline was due to lower earnings and additonal investment in Famous Footwear. In September 1995, the Corporation's long-term debt rating was downgraded to Baa3 by Moody's Investors Service and to BB+ by Standard & Poor's Corporation. The Corporation's commercial paper rating was also downgraded to Prime-3 by Moody's and to B by Standard & Poor's. At the end of the second quarter, in view of prevailing business conditions, the Board of Directors at their September 7, 1995 meeting, reduced the regular quarterly dividend to 25 cents per share from the previous level of 40 cents per share. PART II - OTHER INFORMATION --------------------------- Item 1 - Legal Proceedings -------------------------- There have been no material developments during the quarter ended October 28, 1995, in the legal proceedings described in the Corporation's Form 10-K for the period ended January 28, 1995. Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (a) Listing of Exhibits (11) Computation of Earnings Per Share (Page 11) (27) Financial Data Schedule (Page 12) (b) Reports on 8-K There were no reports on Form 8-K for the quarter ended October 28, 1995. 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 GROUP, INC. Date: December 8, 1995 /s/ Harry E. Rich Executive Vice President and Chief Financial Officer and On Behalf of the Corporation as the Principal Financial Officer 11 EXHIBIT 11 PART II - OTHER INFORMATION COMPUTATION OF EARNINGS PER SHARE BROWN GROUP, INC. (Thousands, except per share)
Three Months Ended Nine Months Ended October 28, October 29, October 28, October 29, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- PRIMARY Weighted average shares outstanding 17,584 17,595 17,590 17,530 Net effect of dilutive stock options based on the treasury stock method using average market price - 79 9 102 -------- --------- --------- --------- TOTAL 17,584 17,674 17,599 17,632 ======== ========= ========= ========= Earnings (loss) from continuing operations $ 9,715 $ 14,926 $ (3,077) $ 29,793 Discontinued operations - 777 - 1,282 -------- --------- --------- --------- Net earnings (loss) $ 9,715 $ 15,703 $ (3,077) $ 31,075 ======== ========= ========= ========= Earnings (loss) per share from continuing operations $ .55 $ .85 $ (.17) $ 1.70 Discontinued operations - .04 - .07 -------- --------- --------- --------- Net earnings (loss) per share (1) $ .55 $ .89 $ (.17) $ 1.77 ======== ========= ========= ========= FULLY DILUTED Weighted average shares outstanding 17,584 17,595 17,590 17,530 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 - 79 29 110 -------- --------- --------- --------- TOTAL 17,584 17,674 17,619 17,640 ======== ========= ========= ========= Earnings (loss) from continuing operations $ 9,715 $ 14,926 $ (3,077) $ 29,793 Discontinued operations - 777 - 1,282 -------- --------- --------- --------- Net earnings (loss) $ 9,715 $ 15,703 $ (3,077) $ 31,075 ======== ========= ========= ========= Earnings (loss) per share from continuing operations $ .55 $ .85 $ (.17) $ 1.70 Discontinued operations - .04 - .07 -------- --------- --------- --------- Net earnings (loss) per share (1) $ .55 $ .89 $ (.17) $ 1.77 ======== ========= ========= =========
(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. EX-27 2
5 9-MOS FEB-3-1996 OCT-28-1995 28,662 0 105,300 (10,880) 356,340 527,329 213,895 (119,111) 686,560 318,914 107,469 67,251 0 0 157,132 686,560 1,107,224 1,107,224 726,511 1,096,856 1,058 4,014 11,738 (2,428) 649 (3,077) 0 0 0 (3,077) (.17) (.17)
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