-----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, QrwBH8lR11PCp4AkkSfj4Rhl+H7WDP9lduG6xTLkrXUw+jtIZQy+oBtD+AxJsGnh JSJIvLoqLlGbBY1VvX1jUA== 0000014707-98-000019.txt : 19980612 0000014707-98-000019.hdr.sgml : 19980612 ACCESSION NUMBER: 0000014707-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980611 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: SEC FILE NUMBER: 001-02191 FILM NUMBER: 98646231 BUSINESS ADDRESS: STREET 1: 8300 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 UNITED STATESSECURITIES 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 2, 1998 [ ] 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 May 30, 1998, 18,049,727 shares of the registrant's common stock were outstanding. BROWN GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands)
(Unaudited) -------------------- May 2, May 3, January 31, 1998 1997 1998 --------- --------- ----------- ASSETS Current Assets Cash and Cash Equivalents $ 36,602 $ 28,168 $ 50,136 Receivables, net of allowances of $10,505 at May 2, 1998, $10,107 at May 3, 1997, and $9,925 at January 31, 1998 71,259 87,312 77,355 Inventories, net of adjustment to last-in, first-out cost of $15,199 at May 2, 1998, $17,578 at May 3, 1997, and $15,617 at January 31, 1998 370,438 401,123 380,177 Other Current Assets 30,300 39,257 30,862 --------- --------- --------- Total Current Assets 508,599 555,860 538,530 Property and Equipment 213,452 205,886 212,330 Less allowances for depreciation and amortization (133,086) (121,660) (129,586) --------- --------- --------- 80,366 84,226 82,744 Other Assets 74,574 71,784 73,714 --------- --------- --------- $ 663,539 $ 711,870 $ 694,988 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable $ 30,000 $ 53,000 $ 54,000 Accounts Payable 118,155 122,431 118,907 Accrued Expenses 82,232 74,417 93,191 Income Taxes 13,603 5,891 11,995 Current Maturities of Long-Term Debt 15,000 2,000 - --------- --------- --------- Total Current Liabilities 258,990 257,739 278,093 Long-Term Debt and Capitalized Lease Obligations 182,028 197,025 197,027 Other Liabilities 20,388 24,490 20,678 Shareholders' Equity Common Stock 67,685 67,612 67,685 Additional Capital 46,945 47,047 47,036 Cumulative Translation Adjustment (8,024) (6,514) (8,427) Unamortized Value of Restricted Stock (3,799) (6,037) (4,358) Retained Earnings 99,326 130,508 97,254 --------- --------- --------- 202,133 232,616 199,190 $ 663,539 $ 711,870 $ 694,988 ========= ========= ========= See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Thousands, except per share)
Thirteen Weeks Ended --------------------- May 2, May 3, 1998 1997 -------- -------- Net Sales $402,309 $391,815 Cost of Goods Sold 246,985 245,982 -------- -------- Gross Profit 155,324 145,833 -------- -------- Selling and Administrative Expenses 142,782 138,007 Interest Expense 5,632 5,765 Other Income (48) (436) -------- -------- Earnings Before Income Taxes 6,958 2,497 Income Tax Provision 3,087 955 -------- -------- NET EARNINGS $ 3,871 $ 1,542 ======== ======== BASIC EARNINGS PER COMMON SHARE $ .22 $ .09 ======== ======== DILUTED EARNINGS PER COMMON SHARE $ .22 $ .09 ======== ======== DIVIDENDS PER COMMON SHARE $ .10 $ .25 ======== ======== See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands)
Thirteen Weeks Ended ---------------------- May 2, May 3, 1998 1997 --------- --------- Net Cash Provided by Operating Activities $ 15,772 $ 7,066 Investing Activities: Capital expenditures (3,502) (4,395) Other - 318 --------- --------- Net Cash Used by Investing Activities (3,502) (4,077) Financing Activities: Decrease in short-term notes payable (24,000) (9,000) Dividends paid (1,804) (4,507) --------- --------- Net Cash Used by Financing Activities (25,804) (13,507) --------- --------- Decrease in Cash and Cash Equivalents (13,534) (10,518) Cash and Cash Equivalents at Beginning of Period 50,136 38,686 --------- --------- Cash and Cash Equivalents at End of Period $ 36,602 $ 28,168 ========= ========= 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 January 31, 1998. Note B - Earnings Per Share --------------------------- The following table sets forth the computation of basic and diluted earnings per share for the thirteen weeks ended (000's, except per share data): May 2, May 3, 1998 1997 --------- --------- Numerator: Net earnings - Basic and Diluted $ 3,871 $ 1,542 ========= ========= Denominator: Weighted average shares outstanding-Basic 17,625 17,566 Effect of potentially dilutive securities 261 211 --------- --------- Weighted average shares outstanding-Diluted 17,886 17,777 ========= ========= Basic earnings per share $ .22 $ .09 ========= ========= Diluted earnings per share $ .22 $ .09 ========= ========= Note C - Comprehensive Income ----------------------------- Effective February 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which established standards for the reporting and display of comprehensive income and its components. Comprehensive Income represents the change in Shareholders' Equity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity except those resulting from investments by owners and distributions to owners. Comprehensive income (loss) totaled $4,274,000 and $(539,000) for the thirteen week periods ended May 2, 1998 and May 3, 1997, respectively. The foreign currency translation adjustment for the applicable periods, which represents the only difference between net income and comprehensive income for the Company, amounted to a gain of $403,000 in the first quarter of 1998 and a loss of $(2,081,000) in the first quarter of 1997. Note D - Computer Software Costs -------------------------------- Effective February 1, 1998, the Company elected to adopt AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which requires the capitalization of certain costs, including internal payroll costs, incurred in connection with the development or acquisition of software for internal use. The adoption of this standard resulted in an increase in net earnings of $360,000 or $0.02 per diluted share for the thirteen weeks ended May 2, 1998. No restatement of prior year results was allowed or required. Note E - Pagoda International Restructuring Reserve --------------------------------------------------- In the first quarter of fiscal 1998, the Company utilized approximately $1.8 million of the $31.0 million initial restructuring reserve primarily to cover inventory markdowns as inventory continues to be liquidated. It is expected that the remaining reserve of $27.6 million will be utilized primarily in fiscal 1998. Note F - Condensed Consolidated 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 May 2, 1998 and May 3, 1997, and the related condensed consolidating statements of earnings and cash flows for the quarters ended May 2, 1998 and May 3, 1997, 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 May 2, 1998 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ---------- ------------ ------------- ------------ ------------ Assets - ------ Current Assets Cash and cash equivalents . . $ 1,075 $ 9,580 $ 30,947 $ (5,000) $ 36,602 Receivables, net. . . . . . . 28,440 12,696 30,123 - 71,259 Inventory, net. . . . . . . . 49,212 307,778 26,815 (13,367) 370,438 Other current assets. . . . . (424) 16,179 9,867 4,678 30,300 --------- --------- --------- --------- --------- Total Current Assets . . . . 78,303 346,233 97,752 (13,689) 508,599 Property and Equipment, net. . . 16,659 56,515 7,192 - 80,366 Other Assets . . . . . . . . . . 45,812 16,698 12,176 (112) 74,574 Investment in Subsidiaries . . . 237,428 32,711 3,811 (273,950) - --------- --------- --------- --------- --------- Total Assets . . . . . . . . $ 378,202 $ 452,157 $ 120,931 $(287,751) $ 663,539 ========= ========= ========= ========= ========= Liabilities & Shareholders' Equity - ---------------------------------- Current Liabilities Notes payable . . . . . . . . $ 30,000 $ - $ - $ - $ 30,000 Accounts payable. . . . . . . 7,252 90,614 20,289 - 118,155 Accrued expenses. . . . . . . 19,897 46,394 18,755 (2,814) 82,232 Income taxes. . . . . . . . . 1,125 16,426 (4,489) 541 13,603 Current maturities of long-term debt . . . . . . . 15,000 - - - 15,000 --------- --------- --------- --------- --------- Total Current Liabilities 73,274 153,434 34,555 (2,273) 258,990 Long-Term Debt and Capitalized Lease Obligations. . . . . . 182,028 - 39 (39) 182,028 Other Liabilities. . . . . . . . 19,923 125 409 (69) 20,388 Intercompany Payable (Receivable) (99,156) 81,959 23,481 (6,284) - Shareholders' Equity . . . . . . 202,133 216,639 62,447 (279,086) 202,133 --------- --------- --------- --------- --------- Total Liabilities and Shareholders' Equity . $ 378,202 $ 452,157 $ 120,931 $(287,751) $ 663,539 ========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTEEN WEEKS ENDED MAY 2, 1998
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ---------- ------------ ------------- ------------ ------------ Net Sales. . . . . . . . . . . . $ 71,847 $ 305,727 $ 97,370 $ (72,635) $ 402,309 Cost of goods sold . . . . . . . 52,056 187,471 80,093 (72,635) 246,985 --------- --------- --------- --------- --------- Gross profit. . . . . . . . . 19,791 118,256 17,277 - 155,324 Selling and administrative expenses. . . . . . . . . . . 20,273 108,061 14,921 (473) 142,782 Interest expense . . . . . . . . 5,571 5 56 - 5,632 Intercompany interest (income) expense. . . . . . . (3,830) 3,806 24 - - Other (income) expense . . . . . (1,549) 7 1,021 473 (48) Equity in (earnings) of subsidiaries . . . . . . . (3,969) (305) - 4,274 - --------- --------- --------- --------- --------- Earnings (Loss) Before Income Taxes . . . . . . . . 3,295 6,682 1,255 (4,274) 6,958 Income tax provision (benefit) . (576) 2,713 950 - 3,087 --------- --------- --------- --------- --------- Net Earnings (Loss) . . . . . $ 3,871 $ 3,969 $ 305 $ (4,274) $ 3,871 ========= ========= ========= ======== =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTEEN WEEKS ENDED MAY 2, 1998
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ---------- ------------ ------------- ------------ ------------ Net Cash Provided (Used) by Operating Activities . . . . $ 13,436 $ 15,704 $ (11,418) $ (1,950) $ 15,772 Investing Activities: Capital expenditures . . . . (143) (2,513) (846) - (3,502) Other . . . . . . . . . . . . - - - - - --------- --------- --------- --------- --------- Net Cash Used by Investing Activities. . . . . (143) (2,513) (846) - (3,502) Financing Activities: Decrease in short-term notes payable. . . . . . . (24,000) - - - (24,000) Dividends paid. . . . . . . . (1,804) - - - (1,804) Intercompany financing. . . . 12,138 (10,454) 1,326 (3,010) - --------- --------- --------- --------- --------- Net Cash Provided (Used) by Financing Activities. . . . . (13,666) (10,454) 1,326 (3,010) (25,804) Increase (Decrease) in Cash and Cash Equivalents. . . . . . . (373) 2,737 (10,938) (4,960) (13,534) Cash and Cash Equivalents at Beginning of Period . . . . . 1,448 6,843 41,885 (40) 50,136 --------- --------- --------- --------- --------- Cash and Cash Equivalents at End of Period . . . . . . . . $ 1,075 $ 9,580 $ 30,947 $ (5,000) $ 36,602 ========= ========= ========= ========= =========
Condensed Consolidating Balance Sheet As of May 3, 1997
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ---------- ------------ ------------- ------------ ------------ Assets - ------ Current Assets Cash and cash equivalents . . $ 54 $ 4,330 $ 23,784 $ - $ 28,168 Receivables, net. . . . . . . 30,612 13,542 43,158 - 87,312 Inventory, net. . . . . . . . 61,367 306,179 47,495 (13,918) 401,123 Other current assets. . . . . 9,160 16,820 7,997 5,280 39,257 --------- --------- --------- --------- --------- Total Current Assets . . . . 101,193 340,871 122,434 (8,638) 555,860 Property and Equipment, net. . . 17,617 58,789 7,820 - 84,226 Other Assets . . . . . . . . . . 42,557 16,307 13,167 (247) 71,784 Investment in Subsidiaries . . . 261,715 57,624 3,811 (323,150) - --------- --------- --------- --------- --------- Total Assets . . . . . . . . $ 423,082 $ 473,591 $ 147,232 $(332,035) $ 711,870 ========= ========= ========= ========= ========= Liabilities & Shareholders' Equity - ---------------------------------- Current Liabilities Notes payable . . . . . . . . $ 53,000 $ - $ - $ - $ 53,000 Accounts payable. . . . . . . 5,906 88,195 28,330 - 122,431 Accrued expenses. . . . . . . 22,171 38,210 14,249 (213) 74,417 Income taxes. . . . . . . . . 1,159 4,539 280 (87) 5,891 Current maturities of long-term debt . . . . . . . 2,000 - - - 2,000 --------- --------- --------- --------- --------- Total Current Liabilities 84,236 130,944 42,859 (300) 257,739 Long-Term Debt and Capitalized Lease Obligations. . . . . . 197,025 - 75 (75) 197,025 Other Liabilities. . . . . . . . 21,756 2,244 594 (104) 24,490 Intercompany Payable (Receivable) . . . . . . . . . (112,551) 100,982 14,836 (3,267) - Shareholders' Equity . . . . . . 232,616 239,421 88,868 (328,289) 232,616 --------- --------- --------- --------- --------- Total Liabilities and Shareholders' Equity . $ 423,082 $ 473,591 $ 147,232 $ (332,035) $ 711,870 ========= ========= ========= ========== =========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTEEN WEEKS ENDED MAY 3, 1997
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ---------- ------------ ------------- ------------ ------------ Net Sales. . . . . . . . . . . . $ 65,425 $ 289,541 $ 102,597 $ (65,748) $ 391,815 Cost of goods sold . . . . . . . 48,286 180,478 83,004 (65,786) 245,982 --------- --------- --------- --------- --------- Gross profit. . . . . . . . . 17,139 109,063 19,593 38 145,833 Selling and administrative expenses . . . 20,075 100,402 17,902 (372) 138,007 Interest expense . . . . . . . . 5,709 - 56 - 5,765 Intercompany interest (income) expense. . . . . . . (3,934) 3,933 1 - - Other (income) expense . . . . . (977) 16 115 410 (436) Equity in (earnings) of subsidiaries . . . . . . . (4,133) (1,522) - 5,655 - --------- --------- --------- --------- --------- Earnings (Loss) Before Income Taxes . . . . . . . . 399 6,234 1,519 (5,655) 2,497 Income tax provision (benefit) . (1,143) 2,101 (3) - 955 --------- --------- --------- --------- --------- Net Earnings (Loss) . . . . . $ 1,542 $ 4,133 $ 1,522 $ (5,655) $ 1,542 ========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTEEN WEEKS ENDED MAY 3, 1997
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals ---------- ------------ ------------- ------------ ------------ Net Cash Provided (Used) by Operating Activities. . . . . $ 9,423 $ 4,312 $ (13,541) $ 6,872 $ 7,066 Investing Activities: Capital expenditures . . . . . (514) (3,372) (509) - (4,395) Other. . . . . . . . . . . . . 318 - - - 318 --------- --------- --------- --------- --------- Net Cash Used by Investing Activities . . . . . (196) (3,372) (509) - (4,077) Financing Activities: Decrease in short-term notes payable . . (9,000) - - - (9,000) Dividends paid . . . . . . . . (4,507) - - - (4,507) Intercompany financing . . . . 4,464 (2,920) 7,527 (9,071) - --------- --------- --------- --------- --------- Net Cash Provided (Used) by Financing Activities . . . . . (9,043) (2,920) 7,527 (9,071) (13,507) Increase (Decrease) in Cash and Cash Equivalents . . . . . . . 184 (1,980) (6,523) (2,199) (10,518) 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 . . . . . . . . $ 54 $ 4,330 $ 23,784 $ - $ 28,168 ========= ========= ========= ========= =========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------- Results of Operations --------------------- Quarter ended May 2, 1998 compared to the Quarter ended May 3, 1997 ------------------------------------------------------------------- Consolidated net sales for the fiscal quarter ended May 2, 1998 were $402.3 million compared to $391.8 million in the quarter ended May 3, 1997. Net earnings of $3.9 million for the first quarter of 1998 compares to net earnings of $1.5 million in the first quarter of 1997 as a result of higher sales and gross profit margins. First quarter 1998 sales from the footwear retailing operations increased 6.9% from the first quarter of 1997. Famous Footwear's total sales of $212.3 million increased 6.2% from last year representing a same-store sales increase of 3.8% and 9 more stores, reflecting a total of 812 stores in operation. The Naturalizer Retail division's total sales increased 10.4% in the 1998 first quarter to $34.2 million, reflecting an increase of 7.6% on a same-store basis and 9 less stores in operation. The Canadian retailing operation's sales increased 9.5%, which resulted from a same-store sales increase of 8.4% and 5 more stores in operation than in the first quarter of 1997. Sales from footwear wholesaling businesses decreased 4.0% to $144.0 million compared to $150.1 million in the first quarter of 1997. The sales decline primarily relates to lower sales from the Pagoda International marketing division as the Company continues to reduce its investment in that business. However, Brown Shoe Company's wholesale divisions - Brown Branded Marketing and Pagoda USA - achieved combined sales of $127.3 million, reflecting a 5.8% increase from last year. The increase in sales was derived from the Women's division of Pagoda USA, as well as sales gains in the NaturalSport and Life Stride brands. Gross profit as a percent of sales increased to 38.6% from 37.2% for the same period last year. This increase was primarily due to higher margins at Famous Footwear and a higher mix of retail sales, which historically earn higher margins than wholesale sales. Selling and administrative expenses as a percent of sales increased to 35.5% from 35.2% for the same period last year. This increase was due to a higher mix of retail sales versus wholesale sales. The consolidated tax rate was 44.4% of consolidated pre-tax income for the first quarter of 1998 compared to 38.2% in last year's quarter resulting from no tax benefit being provided on higher operating losses at the Pagoda International marketing division. Financial Condition ------------------- A summary of key financial data and ratios at the dates indicated is as follows: May 2, May 3, January 31, 1998 1997 1998 ------- ------ ----------- Working Capital (millions) $249.6 $298.1 $260.4 Current Ratio 2.0:1 2.2:1 1.9:1 Total Debt as a Percentage of Total Capitalization 52.9% 52.0% 55.8% Net Debt (Total Debt less Cash and Cash Equivalents) as a Percentage of Total Capitalization 48.5% 49.0% 50.2% Cash flow from operating activities for the first quarter of fiscal 1998 was a net generation of $15.8 million versus $7.1 million last year. In 1998's first quarter, cash flow improved primarily as a result of lower accounts receivable and continued improvement in inventory management. The decline in the current ratio at May 2, 1998, compared to May 3, 1997, is due primarily to the impact of the Pagoda International restructuring charges and operating losses recorded in late fiscal 1997. The decrease in the ratio of total debt as a percentage of total capitalization at May 2, 1998, compared to the end of fiscal 1997, is due primarily to the Company's lower level of short-term notes payable. At May 2, 1998, $30.0 million was borrowed and $12.5 million of letters of credit were outstanding under the Company's $155 million revolving bank Credit Agreement. Forward-Looking Statements -------------------------- The preceding Management's Discussion and Analysis contains 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 1997 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 May 2, 1998, in the legal proceedings described in the Corporation's Form 10-K for the period ended January 31, 1998. Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ At the Annual Meeting of Shareholders held on May 28, 1998, two proposals described in the Notice of Annual Meeting of Shareholders dated April 24, 1998, were voted upon. 1. The shareholders elected three directors, Mrs. Julie C. Esrey, Mr. Richard A. Liddy, and Mr. John Peters MacCarthy for terms of three years each and Mr. B. A. Bridgewater, Jr. for a term of one year. The voting for each director was as follows: Directors For Withheld ----------------------- ---------- -------- B. A. Bridgewater, Jr. 15,040,768 482,342 Julie C. Esrey 15,093,605 429,505 Richard A. Liddy 15,096,246 426,864 John Peters MacCarthy 15,025,444 497,666 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 1998 and the allocation of 750,000 of the Corporation's shares thereto was approved by a vote of 13,640,169 in favor to 1,587,307 against, with 295,634 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 Company'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 Company's Report on Form 10-K for the fiscal year ended January 30, 1988. (ii) Bylaws of the Corporation as amended through March 5, 1998, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended January 31, 1998. (10) (d) Stock Option and Restricted Stock Plan of 1998, incorporated herein by reference to Exhibit 3 to the Company's definitive proxy statement dated April 24, 1998. (10) (e) Employment Agreement, dated May 14, 1998, between the Company and Ronald A. Fromm, filed herewith. (27) Financial Data Schedule (Page 15) (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 January 31, 1998. (b) Reports on Form 8-K: The Company filed a current report on Form 8-K dated February 5, 1998, which announced divisional retail sales results for the four-week period, fourth quarter, and fiscal year ended January 31, 1998. Brown Group, Inc. also announced additional losses at its Pagoda International division as well as disclosed the sale of Famous Footwear's fixture manufacturing facilities and the contract completion for sale of its Brazilian Subsidiary's inventory. The Company filed a current report on Form 8-K dated March 5, 1998, which announced operating results for the fiscal year ended January 31, 1998. Brown Group, Inc. also announced additional losses at its Pagoda International division which offset favorable results from core operations. 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, 1998 /s/ Harry E. Rich -------------------------- Executive Vice President and Chief Financial Officer and On Behalf of the Corporation as the Principal Financial Officer EXHIBIT 27 EX-10 2 Exhibit 10.(e) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of the 14th day of May, 1998, by and between BROWN GROUP, INC. ("Brown"), a New York corporation, and RONALD A. FROMM (" Fromm"). WITNESSETH THAT: WHEREAS, Fromm has been an employee of a subsidiary of Brown and served as Executive Vice President, Famous Footwear; WHEREAS, effective March 6, 1998, Fromm was appointed President of Brown Shoe Company, a division of Brown, and elected as a Vice President of Brown; WHEREAS, Fromm desires to continue to be employed by Brown and to serve as President of Brown Shoe Company and as a Vice President of Brown; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, Brown and Fromm covenant and agree as follows: 1. Employment. Fromm shall continue his current employment with Brown and agrees to serve as President of Brown Shoe Company, a division of Brown, and as a Vice President of Brown. 2. Compensation. Subject to the terms of this Agreement, in consideration of Fromm's agreements contained herein, for the period beginning May 1, 1998 and ending April 30, 2001, Fromm shall be paid base compensation at an annual rate of no less than Four Hundred Fifty Thousand Dollars ($450,000). Compensation shall be paid in approximately equal installments no less frequently than monthly. If Fromm's employment with Brown is terminated by Brown other than for Cause (as set forth in Section 7 below) prior to April 30, 2001, Fromm shall be paid by Brown, within 30 days of such termination, the greater of (1) Thirty-seven Thousand Five Hundred Dollars ($37,500) multiplied by the number of the full months remaining from the last day of the month preceding the date of termination until May 1, 2001, less the amount, if any, of any base compensation paid to Fromm for the month of termination prior to the date of such termination, or (2) severance benefits payable at such time under Brown's standard severance policy. 3. Incentive Payment. While serving as President of Brown Shoe Company, Fromm shall be eligible to receive annually an incentive payment in accordance with the annual incentive plan of Brown. A payment of no less than $180,000 for Brown's fiscal year ending January 30, 1999 shall be paid to Fromm in all events, within sixty days after the end of such year if Fromm is employed by Brown at the end of such year or, if not so employed, if Fromm's employment has been terminated by Brown other than for Cause prior to the end of such year. 4. Stock Options. Brown shall grant to Fromm on May 28, 1998 an option to acquire a substantial number of shares of the common stock of Brown under the Brown Group, Inc. Stock Option and Restricted Stock Plan of 1998, if such Plan is adopted by the shareholders of Brown on May 28, 1998. 5. Relocation Expenses. Fromm is relocating his residence from Windsor, Wisconsin to St. Louis County, Missouri ("MO"). In accordance with the corporate relocation policy as set forth in the Brown Policy and Control Manual (01200) or as otherwise agreed between Brown and Fromm, within 30 days of the date of submission by Fromm of the claim for reimbursement, Brown shall reimburse Fromm for all reasonable expenses incurred by him in moving himself, his wife and children to MO, including, but not limited to, (1) expenses incurred for movement of all household goods and automobiles, (2) the cost of transportation for Fromm, his wife and children to MO, (3) temporary living expenses until Fromm moves his family to MO, and (4) $18,750 (one-half month's base compensation). In addition, Brown shall purchase Fromm's home at 6665 Highland Drive, Windsor, Wisconsin and pay to Fromm for such home, no later than July 1, 1998, the sum of $465,000 (Fromm's cost). 6. Other Benefits. If Fromm's employment with Brown is terminated by Brown, other than for Cause, before April 30, 2001, Fromm shall continue, until such date, to be entitled to all rights and benefits currently enjoyed by Fromm as an employee of Brown, with such upward adjustments as are appropriate to take into account his position of increased responsibility. 7. Termination for Cause. "Cause" shall mean conviction of Fromm of a crime involving (1) moral turpitude, (2) fraud or (3) material dishonesty with respect to the business of Brown. 8. Nonwaiver of Rights. The failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by the other party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part hereof, or the right of either party thereafter to enforce each and every provision in accordance with the terms of this Agreement. 9. Invalidity of Provisions. In the event that any provision of this Agreement is adjudicated to be invalid or unenforceable under applicable law, the validity and enforceability of the remaining provisions shall be unaffected. To the extent that any provision of this Agreement is adjudicated to be invalid or unenforceable because it is overbroad, that provision shall not be void but rather shall be limited only to the extent required by applicable law and enforced to the maximum extent allowed under such law. 10. Right to Terminate Employment. Brown, in accordance with its customary practices, may terminate the employment of Fromm at any time provided, however, Brown shall remain liable for payments of such amounts as are otherwise provided for pursuant to this Agreement. 11. Assignment. This Agreement shall be freely assignable by Brown to any person, firm, corporation or other entity which shall succeed, in whole or in part, to the business presently operated by Brown and shall inure to the benefit of, and be binding upon, Brown, its successors and assigns; but, being a contract for personal services, neither this Agreement nor any rights hereunder shall be assigned by Fromm. 12. Governing Law and Choice of Forum. This Agreement shall be interpreted in accordance with and governed by the laws of the State of Missouri. Any actions or proceedings arising out of or relating, directly or indirectly, to this Agreement shall be filed and litigated exclusively in any state or federal court located in the City or County of St. Louis. 13. Amendments. No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless agreed to in writing by the parties hereto. 14. Notices. Any notice to be given by either party hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, postage prepaid, as follows: To Brown: Brown Group, Inc. 8300 Maryland Avenue St. Louis, Missouri 63105 Attention: Vice President and General Counsel To Fromm: Ronald A. Fromm 6665 Highland Drive Windsor, Wisconsin 53598 or to such other address as may have been furnished to the other party by written notice. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the 14th day of May, 1998 in the County of St. Louis, State of Missouri. BROWN GROUP, INC. By /s/ B. A. Bridgewater, Jr. --------------------------------------- Chairman and Chief Executive Officer RONALD A. FROMM /s/ Ronald A. Fromm ------------------------------------------ EX-99 3 [ARTICLE] 5 [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] JAN-30-1999 [PERIOD-END] MAY-02-1998 [CASH] 36,602 [SECURITIES] 0 [RECEIVABLES] 81,764 [ALLOWANCES] (10,505) [INVENTORY] 370,438 [CURRENT-ASSETS] 508,599 [PP&E] 213,452 [DEPRECIATION] 133,086 [TOTAL-ASSETS] 663,539 [CURRENT-LIABILITIES] 258,990 [BONDS] 182,028 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 67,685 [OTHER-SE] 134,448 [TOTAL-LIABILITY-AND-EQUITY] 663,539 [SALES] 402,309 [TOTAL-REVENUES] 402,309 [CGS] 246,985 [TOTAL-COSTS] 389,767 [OTHER-EXPENSES] (48) [LOSS-PROVISION] 674 [INTEREST-EXPENSE] 5,632 [INCOME-PRETAX] 6,958 [INCOME-TAX] 3,087 [INCOME-CONTINUING] 3,871 [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 3,871 [EPS-PRIMARY] .22 [EPS-DILUTED] .22
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