-----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, AZ8r+YaKxEQhfKYSvxJCytHBoqzhJW0yHf8pbkUGQUS77MKtS93uhJW2TQEI8Qws p6oxfDwZK1hZWkDzzqEsQg== 0000014707-99-000031.txt : 19991213 0000014707-99-000031.hdr.sgml : 19991213 ACCESSION NUMBER: 0000014707-99-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991030 FILED AS OF DATE: 19991210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROWN SHOE CO 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: 99772306 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 GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BROWN SHOE CO INC DATE OF NAME CHANGE: 19720327 10-Q 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 30, 1999 [ ] 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 SHOE COMPANY, 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) N/A (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 27, 1999, 18,258,490 shares of the registrant's common stock were outstanding. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands)
(Unaudited) October 30, October 31, January 30, 1999 1998 1999 ----------- ----------- ----------- ASSETS Current Assets Cash and Cash Equivalents $ 47,704 $ 37,419 $ 45,532 Receivables, net of allowances of $10,666 at October 30, 1999, $9,850 at October 31, 1998, and $9,820 at January 30, 1999 68,546 67,287 67,815 Inventories, net of adjustment to last-in, first-out cost of $12,759 at October 30, 1999, $14,968 at October 31, 1998, and $13,424 at January 30, 1999 384,400 369,423 362,274 Other Current Assets 21,341 25,896 21,762 --------- --------- --------- Total Current Assets 521,991 500,025 497,383 Other Assets 76,206 76,821 75,671 Property and Equipment 231,704 215,692 217,054 Less allowances for depreciation and amortization (147,891) (137,826) (134,876) --------- --------- --------- 83,813 77,866 82,178 --------- --------- --------- $ 682,010 $ 654,712 $ 655,232 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable $ 23,000 $ - $ - Accounts Payable 119,860 121,447 124,921 Accrued Expenses 92,090 85,182 90,081 Income Taxes 10,343 15,638 6,442 Current Maturities of Long-Term Debt 10,000 25,000 25,000 --------- --------- --------- Total Current Liabilities 255,293 247,267 246,444 Long-Term Debt and Capitalized Lease Obligations 162,033 172,030 172,031 Other Liabilities 18,593 20,352 19,583 Shareholders' Equity Common Stock 68,473 67,738 68,131 Additional Capital 49,109 46,961 48,243 Unamortized Value of Restricted Stock (3,793) (2,996) (4,058) Accumulated Other Comprehensive Loss (7,527) (9,548) (8,842) Retained Earnings 139,829 112,908 113,700 --------- --------- --------- 246,091 215,063 217,174 --------- --------- --------- $ 682,010 $ 654,712 $ 655,232 ========= ========= =========
See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Thousands, except per share)
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------ ------------------------ October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ---------- ----------- ----------- Net Sales $429,132 $411,976 $1,236,058 $1,197,903 Cost of Goods Sold 257,288 248,222 745,332 724,823 -------- -------- ---------- ---------- Gross Profit 171,844 163,754 490,726 473,080 -------- -------- ---------- ---------- Selling and Administrative Expenses 146,279 136,887 429,461 419,785 Interest Expense 4,236 4,464 13,311 14,954 Other (Income) Expense (722) 774 (2,055) 2,010 -------- -------- ---------- ---------- Earnings Before Income Taxes 22,051 21,629 50,009 36,331 Income Tax Provision 7,288 8,731 18,413 15,267 -------- -------- ---------- ---------- NET EARNINGS $ 14,763 $ 12,898 $ 31,596 $ 21,064 ======== ======== ========== ========== BASIC EARNINGS PER COMMON SHARE $ .82 $ .73 $ 1.77 $ 1.19 ======== ======== ========== ========== DILUTED EARNINGS PER COMMON SHARE $ .81 $ .72 $ 1.74 $ 1.18 ======== ======== ========== ========== DIVIDENDS PER COMMON SHARE $ .10 $ .10 $ .30 $ .30 ======== ======== ========== ==========
See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands)
Thirty-nine Weeks Ended ------------------------- October 30, October 31, 1999 1998 ----------- ----------- Net Cash Provided by Operating Activities $ 19,300 $ 59,131 Investing Activities: Proceeds from the sale of le coq sportif 9,410 - Capital expenditures (19,983) (12,542) --------- --------- Net Cash Used by Investing Activities (10,573) (12,542) Financing Activities: Increase (decrease) in short-term notes payable 23,000 (54,000) Principal payments of long-term debt (25,000) - Proceeds from issuance of common stock 913 109 Dividends paid (5,468) (5,415) --------- --------- Net Cash Used by Financing Activities (6,555) (59,306) --------- --------- Increase (Decrease) in Cash and Cash Equivalents 2,172 (12,717) Cash and Cash Equivalents at Beginning of Period 45,532 50,136 --------- --------- Cash and Cash Equivalents at End of Period $ 47,704 $ 37,419 ========= =========
See Notes to Condensed Consolidated Financial Statements. BROWN SHOE COMPANY, 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 30, 1999. Note B - Change of Company Name - ------------------------------- On May 27, 1999, the shareholders of the Company approved a change in the company's name to Brown Shoe Company, Inc. from Brown Group, Inc. The Company's shares began trading under the "BWS" symbol on the New York and Chicago Stock Exchanges on Friday, May 28, 1999. Note C - Earnings Per Share - --------------------------- The following table sets forth the computation of basic and diluted earnings per share for the periods ended October 30, 1999 and October 31, 1998 (000's, except per share data):
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------ ------------------------ October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Numerator: Net earnings - Basic and Diluted $14,763 $12,898 $31,596 $21,064 ======= ======= ======= ======= Denominator: Weighted average shares outstanding-Basic 17,899 17,717 17,842 17,677 Effect of potentially dilutive securities 307 191 302 247 ------- ------- ------- ------- Weighted average shares outstanding-Diluted 18,206 17,908 18,144 17,924 ======= ======= ======= ======= Basic earnings per share $ .82 $ .73 $ 1.77 $ 1.19 ======= ======= ======= ======= Diluted earnings per share $ .81 $ .72 $ 1.74 $ 1.18 ======= ======= ======= =======
Note D - Comprehensive Income - ----------------------------- Comprehensive Income represents the change in Shareholders' Equity during a period from transactions and other events and circumstances from nonowner sources and accordingly excludes investments by and distributions to owners. The following table sets forth the reconciliation from Net Income to Comprehensive Income for the periods ended October 30, 1999 and October 31, 1998 (000's):
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------ ------------------------ October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net Income $14,763 $12,898 $31,596 $21,064 Currency Translation Adjustment 1,245 531 1,315 (1,121) ------- ------- ------- ------- Comprehensive Income $16,008 $13,429 $32,911 $19,943 ======= ======= ======= =======
Note E - Pagoda International Restructuring Reserve - --------------------------------------------------- In the first nine months of 1999, the Company utilized approximately $2.0 million of the $10.7 million restructuring reserve remaining at the end of fiscal 1998. The reserve was primarily used for inventory markdowns and severance. It is currently expected that a majority of the remaining reserve of $8.7 million will be utilized by the end of fiscal 1999. Note F - Business Segment Information - ------------------------------------- Applicable business segment information is as follows for the periods ended October 30, 1999 and October 31, 1998 (000's):
Famous Wholesale Naturalizer Pagoda Footwear Operations Retail International Other Totals -------- ---------- ----------- ------------- ------- ---------- Thirteen Weeks Ended October 30, 1999 External sales $263,136 $116,715 $ 46,649 $ 141 $ 2,491 $ 429,132 Intersegment sales - 47,780 - - - 47,780 Operating profit (loss) 23,531 8,809 (1,956) 37 (3,067) 27,354 Thirteen Weeks Ended October 31, 1998 External sales $239,689 $119,242 $ 46,265 $ 4,637 $ 2,143 $ 411,976 Intersegment sales - 50,922 - - - 50,922 Operating profit (loss) 18,580 12,295 (84) (932) (2,663) 27,196 Thirty-nine Weeks Ended October 30, 1999 External sales $724,271 $363,369 $140,756 $ 468 $ 7,194 $1,236,058 Intersegment sales - 138,809 - - - 138,809 Operating profit (loss) 48,839 27,472 (2,279) (639) (9,659) 63,734 Thirty-nine Weeks Ended October 31, 1998 External sales $670,152 $353,785 $143,805 $23,871 $ 6,290 $1,197,903 Intersegment sales - 151,195 - - - 151,195 Operating profit (loss) 41,610 23,623 1,554 (5,860) (7,616) 53,311
Reconciliation of operating profit to consolidated earnings before income taxes (000's):
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------ ------------------------ October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Total operating profit $ 27,354 $ 27,196 $ 63,734 $ 53,311 Interest expense (4,236) (4,464) (13,311) (14,954) Non-operating other expense (1,067) (1,103) (414) (2,026) -------- --------- --------- -------- Earnings before income taxes $ 22,051 $ 21,629 $ 50,009 $ 36,331 ======== ========= ========= ========
The "Other" segment includes the Scholze Tannery business and Corporate general and administrative expenses, which are not allocated to the operating units. Operating profit represents gross profit less general and administrative expenses and other operating income or expense. In fiscal 1999, the Company revised its method of determining the level of profit to be earned on intersegment sales from the Wholesale Operations to Naturalizer Retail. The change resulted in an increase to operating profit of $.6 million and $2.0 million for the thirteen weeks ended and thirty-nine weeks ended October 30, 1999, respectively, for Naturalizer Retail and a corresponding decrease to operating profit for the Wholesale Operations. Note G - Sale of le coq sportif - ------------------------------- In July 1999, the Company sold its le coq sportif footwear and apparel business for approximately $12.4 million, a portion of the proceeds of which was received in the form of a note payable. The Company recognized a $2.3 million pre-tax gain in connection with the sale; however, the gain was substantially offset by a tax provision of $2.0 million. The tax provision included $1.2 million of taxes related to the repatriation of previously untaxed foreign cash generated from the sale. Note H - 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 October 30, 1999 and October 31, 1998, and the related condensed consolidating statements of earnings and cash flows for the thirty-nine weeks ended October 30, 1999 and October 31, 1998, 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 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 OCTOBER 30 1999 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ Assets - ------ Current Assets Cash and cash equivalents $ 6,790 $ 6,231 $ 34,683 $ - $ 47,704 Receivables, net 34,539 12,152 21,855 - 68,546 Inventory 39,366 337,733 19,118 (11,817) 384,400 Other current assets (3,800) 19,029 1,976 4,136 21,341 -------- --------- --------- --------- ---------- Total Current Assets 76,895 375,145 77,632 (7,681) 521,991 Other Assets 51,063 19,306 5,882 (45) 76,206 Property and Equipment, net 14,145 63,231 6,437 - 83,813 Investment in Subsidiaries 264,761 49,716 - (314,477) - -------- --------- --------- --------- ---------- Total Assets $406,864 $ 507,398 $ 89,951 $(322,203) $ 682,010 ======== ========= ========= ========= ========== Liabilities & Shareholders' Equity - ---------------------------------- Current Liabilities Notes payable $ 23,000 $ - $ - $ - $ 23,000 Accounts payable 6,505 99,190 14,165 - 119,860 Accrued expenses 24,261 53,949 11,063 2,817 92,090 Income taxes 1,522 8,756 112 (47) 10,343 Current maturities of long-term debt 10,000 - - - 10,000 -------- --------- --------- --------- ---------- Total Current Liabilities 65,288 161,895 25,340 2,770 255,293 Long-Term Debt and Capitalized Lease Obligations 162,033 41 - (41) 162,033 Other Liabilities 19,198 (811) 206 - 18,593 Intercompany Payable (Receivable) (85,746) 77,563 13,524 (5,341) - Shareholders' Equity 246,091 268,710 50,881 (319,591) 246,091 -------- --------- --------- --------- ---------- Total Liabilities and Shareholders' Equity $406,864 $ 507,398 $ 89,951 $(322,203) $ 682,010 ======== ========= ========= ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ Net Sales $192,924 $990,051 $253,937 $(200,854) $1,236,058 Cost of goods sold 138,569 602,428 205,189 (200,854) 745,332 -------- -------- -------- --------- ---------- Gross profit 54,355 387,623 48,748 - 490,726 Selling and administrative expenses 52,998 345,528 32,105 (1,170) 429,461 Interest expense 13,274 - 37 - 13,311 Intercompany interest (income) expense (10,179) 10,208 (29) - - Other (income) expense 531 (3,460) (296) 1,170 (2,055) Equity in earnings of subsidiaries (33,614) (13,407) - 47,021 - -------- -------- -------- --------- ---------- Earnings (Loss) Before Income Taxes 31,345 48,754 16,931 (47,021) 50,009 Income tax provision (benefit) (251) 15,140 3,524 - 18,413 -------- -------- -------- --------- ---------- Net Earnings (Loss) $ 31,596 $ 33,614 $ 13,407 $ (47,021) $ 31,596 ======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ Net Cash Provided (Used) by Operating Activities $ 10,596 $ (9,211) $ 11,997 $ 5,918 $ 19,300 Investing Activities: Capital expenditures (273) (18,240) (1,470) - (19,983) Proceeds from sale of le coq sportif - 9,410 - - 9,410 -------- ---------- -------- --------- ---------- Net Cash Used by Investing Activities (273) (8,830) (1,470) - (10,573) Financing Activities: Increase in short-term notes payable 23,000 - - - 23,000 Principal payments of long-term debt (25,000) - - - (25,000) Proceeds from issuance of common stock 913 - - - 913 Dividends paid (5,468) - - - (5,468) Intercompany financing (9,164) 19,534 (4,452) (5,918) - -------- ---------- -------- --------- ---------- Net Cash Provided (Used) by Financing Activities (15,719) 19,534 (4,452) (5,918) (6,555) Increase (Decrease) in Cash and Cash Equivalents (5,396) 1,493 6,075 - 2,172 Cash and Cash Equivalents at Beginning of Period 12,186 4,738 28,608 - 45,532 -------- ---------- -------- --------- ---------- Cash and Cash Equivalents at End of Period $ 6,790 $ 6,231 $ 34,683 $ - $ 47,704 ======== ========== ======== ======== ==========
CONDENSED CONSOLIDATING BALANCE SHEET AS OF OCTOBER 31, 1998 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ Assets ______ Current Assets Cash and cash equivalents $ 15,935 $ 5,490 $ 18,994 $ (3,000) $ 37,419 Receivables, net 29,750 13,649 23,888 - 67,287 Inventory 50,496 313,607 18,992 (13,672) 369,423 Other current assets (760) 14,957 6,915 4,784 25,896 -------- ---------- -------- --------- ---------- Total Current Assets 95,421 347,703 68,789 (11,888) 500,025 Other Assets 47,249 17,708 11,973 (109) 76,821 Property and Equipment, net 15,381 55,766 6,719 - 77,866 Investment in Subsidiaries 254,773 37,064 - (291,837) - -------- ---------- -------- --------- ---------- Total Assets $412,824 $ 458,241 $ 87,481 $(303,834) $ 654,712 ======== ========== ======== ========= ========== Liabilities & Shareholders' Equity - ---------------------------------- Current Liabilities Notes payable $ - $ - $ - $ - $ - Accounts payable 6,159 99,805 15,483 - 121,447 Accrued expenses 21,600 51,530 13,616 (1,564) 85,182 Income taxes 4,043 10,851 407 337 15,638 Current maturities of long-term debt 25,000 - - - 25,000 -------- ---------- -------- --------- ---------- Total Current Liabilities 56,802 162,186 29,506 (1,227) 247,267 Long-Term Debt and Capitalized Lease Obligations 172,030 - 39 (39) 172,030 Other Liabilities 19,923 125 373 (69) 20,352 Intercompany Payable (Receivable) (50,994) 60,419 (3,880) (5,545) - Shareholders' Equity 215,063 235,511 61,443 (296,954) 215,063 -------- ---------- -------- --------- ---------- Total Liabilities and Shareholders' Equity $412,824 $ 458,241 $ 87,481 $(303,834) $ 654,712 ======== ========== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ Net Sales $199,410 $ 948,586 $259,642 $(209,735) $1,197,903 Cost of goods sold 142,640 582,804 209,114 (209,735) 724,823 -------- ---------- -------- --------- ---------- Gross profit 56,770 365,782 50,528 - 473,080 Selling and administrative expenses 55,349 324,179 41,514 (1,257) 419,785 Interest expense 14,884 6 64 - 14,954 Intercompany interest (income) expense (10,711) 10,661 50 - - Other (income) expense (1,406) 153 2,006 1,257 2,010 Equity in earnings of subsidiaries (22,842) (4,658) - 27,500 - -------- ---------- -------- --------- ---------- Earnings (Loss) Before Income Taxes 21,496 35,441 6,894 (27,500) 36,331 Income tax provision 432 12,599 2,236 - 15,267 -------- ---------- -------- --------- ---------- Net Earnings $ 21,064 $ 22,842 $ 4,658 $ (27,500) $ 21,064 ======== ========== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 (Thousands)
Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ Net Cash Provided (Used) by Operating Activities $ 13,864 $ 41,090 $ 4,866 $ (689) $ 59,131 Net Cash Used by Investing Activities (371) (10,449) (1,722) - (12,542) Financing Activities: Decrease in short-term notes payable (54,000) - - - (54,000) Proceeds from issuance of common stock 109 - - - 109 Dividends paid (5,415) - - - (5,415) Intercompany financing 60,300 (31,994) (26,035) (2,271) - -------- ---------- -------- --------- ---------- Net Cash Provided (Used) by Financing Activities 994 (31,994) (26,035) (2,271) (59,306) Increase (Decrease) in Cash and Cash Equivalents 14,487 (1,353) (22,891) (2,960) (12,717) 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 $ 15,935 $ 5,490 $ 18,994 $ (3,000) $ 37,419 ======== ========== ======== ========= ==========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------- Results of Operations - --------------------- Quarter ended October 30, 1999 compared to the Quarter ended October 31, 1998 - ------------------------------------------------------------------------------ Consolidated net sales for the fiscal quarter ended October 30, 1999 were $429.1 million compared to $412.0 million in the quarter ended October 31, 1998. Net earnings of $14.8 million for the third quarter of 1999 compares to net earnings of $12.9 million in the third quarter of 1998. The increase in net earnings resulted from improved performance at Famous Footwear as well as a reduction in the International division's losses in the third quarter of 1999. These improvements were slightly offset by lower operating results within the Company's wholesale and Naturalizer Retail operations. Excluding the effect of lower International losses, net earnings for the third quarter of 1999 increased 7.0% over the third quarter of 1998. Famous Footwear achieved record third quarter sales and operating earnings which followed record results for fiscal 1998 and the first two quarters of 1999. Sales of $263.1 million increased 9.8% from last year representing a same-store sales increase of 3.7% and 36 more stores, reflecting a total of 849 stores in operation. Operating earnings for the third quarter of 1999 increased 26.6% to $23.5 million as a result of higher sales and improved margin and expense rates. The Company's wholesale operations - the Brown Branded, Brown Pagoda and Brown Canada divisions - had a net sales decrease of 2.1% during the third quarter of 1999 to $116.7 million from $119.2 million in the third quarter of 1998. Sales decreased primarily from the discontinuation of the le coq sportif division which was sold in July 1999. The increased marketing investment at Brown Branded supporting the new, updated Naturalizer product, along with the lower sales, were the primary factors in operating earnings decreasing $3.5 million from last year to $8.8 million this year. In the Company's Naturalizer Retail operations, which includes both the United States and Canadian stores, net sales increased 0.8% to $46.6 million in the third quarter of 1999 from $46.3 million in the third quarter of 1998. Same-store sales in the third quarter of 1999 decreased 1.5% in the United States and 8.7% in Canada. Domestically, the Company had 5 more stores in operation in 1999; Canada had 7 more stores in operation. At the end of the third quarter of 1999, 481 stores were in operation including 343 stores in the United States and 138 stores in Canada. Total Naturalizer Retail operations had an operating loss of $2.0 million in 1999 compared to $0.1 million loss in 1998. The lower operating earnings resulted directly from lower same-store sales and higher marketing costs associated with an expanded customer catalog and new store merchandizing presentations to reflect the udpated Naturalizer image. The Pagoda International division broke even in the third quarter of 1999 compared to a $0.9 million operating loss last year reflecting a significantly reduced level of operations. Consolidated gross profit as a percent of sales increased to 40.0% from 39.7% for the same period last year. This increase was primarily due to 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 34.1% from 33.2% for the same period last year. This increase was primarily due to the increased marketing investment in the wholesale operations and a higher mix of retail sales, which carry a higher expense rate. Other Income in the third quarter of 1999 varies from prior year's Other Expense primarily from additional environmental costs recorded last year. The consolidated tax rate was 33.1% of consolidated pre-tax income for the third quarter of 1999 compared to 40.4% for last year. The higher effective tax rate for last year reflects the impact of higher operating losses at the Pagoda International marketing division, on which tax benefits could not be realized. Nine Months ended October 30, 1999 compared to the Nine Months ended October 31, 1998 - --------------------------------------------------------------- Consolidated net sales for the first nine of 1999 were $1.236 billion, an increase of 3.2% from the first nine months of 1998 total of $1.198 billion. Net earnings of $31.6 million for the first nine months of 1999 compare to net earnings of $21.1 million for the first nine months of 1998, an increase of 50%. Excluding the impact of reduced losses at the International division, 1999 earnings increased 18.3% over 1998. Sales at Famous Footwear for the first nine months of 1999 increased 8.1% from $670.2 million for the first nine months of last year to $724.3 million, reflecting a 3.3% increase in same- store sales and 36 more units in operation. The higher levels of sales and slightly improved margin and expense rates resulted in operating earnings for 1999 increasing 17.4% to $48.8 million. The Company's wholesale sales for the first nine months of 1999 increased 2.7% to $363.4 million from $353.8 million for the same period last year. The increased sales is derived from Brown Pagoda's Star Wars, Barbie and Dr. Scholl's licensed products. Operating earnings of $27.5 million increased $3.9 million from last year due to the increased sales combined with effective expense leveraging. In the Company's Naturalizer Retail operations, net sales decreased 2.1% to $140.8 million in the first nine months of 1999. Same-store sales decreased 5.1% in the United States and 2.5% in Canada. Domestically, the Company had 5 more stores in operation in 1999; Canada had 7 more stores in operation. Total Naturalizer Retail operations had an operating loss of $2.3 million in 1999 compared to operating earnings of $1.6 million in 1998. The lower operating performance continues to result primarily from the lower sales. At the Pagoda International division, operating losses were $0.6 million in the first nine months of 1999 compared to $5.9 million last year reflecting a significantly reduced level of operations. Consolidated gross profit as a percent of sales increased to 39.7% from 39.5% for the same period last year. This increase was primarily due to a higher mix of retail sales, which historically earn a higher gross profit rate. Selling and administrative expenses as a percent of sales decreased to 34.7% from 35.0% for the same period last year. This decrease was primarily due to the lower expense rate at the Company's wholesale operations offset by the higher mix of retail sales, which carry a higher expense rate. Other Income has varied from prior year's Other Expense primarily due to the $2.3 million gain from the sale of the le coq sportif footwear and apparel business recognized in the second quarter of 1999. In addition, prior year's Other Expense includes $1.4 million of additional provision associated with the International operations. The consolidated tax rate was 36.8% of consolidated pre-tax income for the first nine months of 1999 compared to 42.0% for last year. The higher effective tax rate for last year reflects higher operating losses at the Pagoda International marketing division, on which tax benefits could not be realized. In addition, the 1999 year-to-date tax provision includes $1.2 million of taxes to allow repatriation of the previously untaxed foreign cash generated from the sale of the le coq sportif business. Financial Condition - ------------------- A summary of key financial data and ratios at the dates indicated is as follows: October 30, October 31, January 30, 1999 1998 1999 ----------- ----------- ----------- Working Capital (millions) $266.7 $252.8 $250.9 Current Ratio 2.0:1 2.0:1 2.0:1 Total Debt as a Percentage of Total Capitalization 44.2% 47.8% 47.6% Cash flow from operating activities for the first nine months of fiscal 1999 provided $19.3 million versus a net generation of $59.1 mi1lion last year. In the first nine months of 1999, cash flow decreased primarily as a result of higher inventory levels to support growth within the Famous Footwear division. The current ratio at October 30, 1999 remained consistent with the ratio for October 31, 1998, primarily due to the combination of higher inventory slightly offsetting decreases in other current assets and various increases in current liabilities. The decrease in the ratio of total debt as a percentage of total capitalization at October 30, 1999, compared to the end of fiscal 1998, is due to principal payments made on long-term debt combined with earnings for the first nine months of 1999. At October 30, 1999, $23.0 million was borrowed and $8.4 million of letters of credit were outstanding under the Company's $155.0 million revolving bank Credit Agreement. On November 9, 1999, Standard & Poor's revised its outlook on the Company to stable from negative. The "BB" corporate credit and senior unsecured debt ratings were reaffirmed by Standard & Poor's. Year 2000 Compliance - -------------------- The "Year 2000" issue arises because many computer hardware and software systems, including the Company's, use only two digits to represent the year. As a result, these systems and programs may not accurately calculate dates beyond 1999, which could cause system failures or miscalculations. The Company has established a company-wide Steering Committee to oversee and manage the Company's Year 2000 project. The Company has completed a thorough assessment of all of its information systems and has completed the modification or replacement of its operating and financial systems that were not Year 2000 compliant used in its wholesaling, retailing and sourcing operations, and the testing of all systems. These systems included operating systems and equipment used in the Company's distribution centers, offices and other facilities that may have contained embedded chips. The Company relies on independent business partners, including foreign footwear factories, to provide various products and services. The Company has communicated with key suppliers and service providers and has conducted on-site visits to key factories in an ongoing effort to determine to the extent possible the status of such third parties' assessment, remediation and test plans, and whether the Company can rely upon such third parties going forward. As a result of these efforts, the Company believes that its key suppliers and service providers are substantially Year 2000 compliant. With regard to its key foreign footwear manufacturers, the Company has determined that their use of date-sensitive technology is relatively low. Nevertheless, there can be no assurance that such third parties remediation efforts, or those of suppliers or service providers to such third parties, will be totally successful. The Company believes that its greatest Year 2000 risk is that its suppliers of footwear, for both its wholesale and retail businesses, will not be able to provide an uninterrupted flow of products due to their own or their suppliers' systems failures or as a result of disruptions in transportation, utilities or other government services. If there is a disruption in the flow of footwear, the Company believes that there is adequate footwear production capacity available from alternate sources and that if there is a disruption, it will be short-term in nature. Nevertheless, there can be no assurance that the Company can accurately and fully anticipate the level of disruption that may occur or secure alternative sources of footwear at acceptable prices. The Company's wholesale division's customers are department stores, mass-merchants and numerous other footwear retailers. The Company is communicating with its significant retail customers through which it processes transactions electronically using Electronic Data Interchange (EDI) technology to attempt to determine their ability to continue to conduct business in this manner and to test directly with them. The Company has adopted the Year 2000 compliant version of EDI. The Company intends to continue to monitor and assess the EDI and the general state of Year 2000 readiness of its major retail customers; however, a Year 2000 failure by a major retail customer could have a materially adverse effect on the Company. The Company has developed assessment and contingency plans as considered necessary based on the risks of noncompliance of internal systems and business disruptions at its significant suppliers and customers. The Company is establishing Command Centers which will be staffed to respond to such presently unanticipated Year 2000 difficulties as may occur on or after January 1, 2000. Management estimates that the non-incremental internal IS staff and outside consultant costs of the Company's Year 2000 efforts will total approximately $1.6 million. Through October 30, 1999 virtually this entire total has been incurred and expensed. In addition, the cost for new purchased or leased hardware and software that both upgraded the functionality and operating efficiency of store and financial systems, and resulted in Year 2000 compliance, is approximately $15 million, which will be expensed over the next several years. All expenditures related to the Company's Year 2000 project are being funded through operating cash flows. The conclusions, estimates and risks in this Year 2000 information are based on management's best current estimates of numerous future events. There can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Factors that may cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer code and systems, the cooperation and remediation success of the Company's suppliers (and their suppliers) and customers, and the ability to correctly anticipate risks and implement suitable contingency plans in the event of systems failures at the Company or its suppliers and customers (and their suppliers and customers). Forward-Looking Statements - -------------------------- This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. In Item 1 of the Company's fiscal 1998 Annual Report on Form 10-K, detailed risk factors that could cause variations in results to occur are listed and further discussed. Such filing is incorporated herein by reference. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS - ------------------------------------------------------------------- No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. PART II - OTHER INFORMATION --------------------------- Item 1 - Legal Proceedings - -------------------------- There have been no material developments during the quarter ended October 31, 1999, in the legal proceedings described in the Company's Annual Report on Form 10-K for the period ended January 30, 1999. Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Listing of Exhibits (3) (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. (a)(i) 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. (a)(ii) Amendment of Certificate of Incorporation of the Company filed May 27, 1999, incorporated herein by reference to Exhibit 3 to the Company's report on Form 10-Q for the quarter ended May 1, 1999. (b) Bylaws of the Company as amended through April 20, 1999, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended January 30, 1999. (27) Financial Data Schedule (Page 19) (b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the quarter ended October 30, 1999. 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 SHOE COMPANY, INC. Date: December 10, 1999 /s/ Andrew M. Rosen - ----------------------- ------------------------------ Andrew M. Rosen Chief Financial Officer and Treasurer On Behalf of the Corporation as the Principal Financial Officer EX-27 2
5 9-MOS JAN-29-2000 OCT-30-1999 47,704 0 79,212 (10,666) 384,400 521,991 231,704 147,891 682,010 255,293 162,033 0 0 68,473 177,618 682,010 1,236,058 1,236,058 745,332 1,174,793 (2,055) 2,156 13,311 50,009 18,413 31,596 0 0 0 31,596 1.77 1.74
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