<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Commission File Number 1-4009
Ended October 29, 1994
THE UNITED STATES SHOE CORPORATION
Ohio 31-0474200
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or organization)
One Eastwood Drive 45227
Cincinnati, Ohio (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (513) 527-7000
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
--- ---
Number of shares outstanding of the registrant's common stock as of October
29, 1994: 46,341,660.
1
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
<TABLE>
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 655,698 $ 677,038 $1,914,189 $1,957,105
COST OF SALES 349,579 353,288 991,083 1,031,603
--------- --------- ---------- ----------
Gross profit 306,119 323,750 923,106 925,502
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 295,156 306,010 870,620 947,315
--------- --------- ---------- ----------
Earnings (loss) from operations 10,963 17,740 52,486 (21,813)
INTEREST EXPENSE, net 2,710 3,455 9,671 12,623
--------- --------- ---------- ----------
Earnings (loss) before provision for
income taxes 8,253 14,285 42,815 (34,436)
PROVISION (CREDIT) FOR INCOME TAXES 3,548 6,039 18,410 (10,331)
--------- --------- ---------- ----------
Net earnings (loss) $ 4,705 $ 8,246 $ 24,405 $ (24,105)
========= ========= ========== ==========
EARNINGS (LOSS) PER SHARE $ .10 $ .18 $ .53 $(.53)
========= ========= ========== ==========
AVERAGE NUMBER OF SHARES OUTSTANDING 46,967 45,777 46,484 45,702
========= ========= ========== ==========
DIVIDENDS PER SHARE $ .08 $ .08 $ .24 $ .29
========= ========= ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
<TABLE>
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Thousands)
(Unaudited)
<CAPTION>
October 29, 1994 January 29, 1994
---------------- ----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 147,395 $ 183,203
Receivables, net of allowance for doubtful
accounts of $5,660 at October 29, 1994
and $ 7,620 at January 29, 1994 88,302 85,600
Inventories 418,819 324,096
Future income tax benefits 65,566 60,473
Prepaid expenses 15,734 15,861
---------- ----------
735,816 669,233
PROPERTY, PLANT AND EQUIPMENT, at cost 835,703 825,936
Less: Accumulated depreciation and amortization (502,181) (465,379)
---------- ----------
333,522 360,557
OTHER ASSETS:
Excess of cost over fair value of net assets acquired, net 27,435 22,247
Other assets and deferred charges 27,649 27,015
---------- ----------
55,084 49,262
---------- ----------
$ 1,124,422 $ 1,079,052
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $ 50,912 $ 865
Accounts payable 227,317 175,709
Accrued expenses 187,280 170,065
---------- ----------
465,509 346,639
---------- ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 88,896 189,761
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES 88,171 80,956
---------- ----------
SHAREHOLDERS' INVESTMENT:
Cumulative preferred shares, without par
value, none issued or outstanding - -
Common shares, without par value 83,074 75,629
Foreign currency translation adjustments (3,558) (2,931)
Retained earnings 402,330 388,998
---------- ----------
481,846 461,696
---------- ----------
$ 1,124,422 $ 1,079,052
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
<TABLE>
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
-----------------
October 29, 1994 October 30, 1993
---------------- ----------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net earnings (loss) $ 24,405 $ (24,105)
Adjustments to reconcile net earnings (loss)
to cash provided by operations--
Provision for depreciation and amortization 62,857 64,097
Net loss from disposal of property, plant
and equipment 2,226 10,096
Deferred compensation provision 4,078 5,625
Other, net (1,823) (1,171)
Changes in components of working capital--
Receivables (2,702) (8,221)
Inventories (94,723) (35,649)
Prepaid expenses 127 3,893
Accounts payable 51,608 59,598
Accrued expenses 12,818 9,702
Income taxes payable 4,397 (17,286)
--------- ---------
Cash provided by operations 63,268 66,579
--------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (44,602) (46,471)
Net proceeds from sale of operating assets 8,554 8,992
Excess of cost over fair value of net assets acquired (6,656) (1,160)
Other, net 385 5,990
--------- ---------
Cash used for investing activities (42,319) (32,649)
--------- ---------
FINANCING ACTIVITIES:
Payments of long-term debt and capital lease obligations (50,999) (29,287)
Dividend payments (11,072) (13,243)
Sale of common shares under stock option plans 4,769 -
Other, net 545 2,320
--------- ---------
Cash used for financing activities (56,757) (40,210)
--------- ---------
Decrease in cash and cash equivalents (35,808) (6,280)
Cash and cash equivalents, beginning of period 183,203 159,225
-------- --------
Cash and cash equivalents, end of period $ 147,395 $ 152,945
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest $ 14,721 $ 16,932
Income taxes 19,751 7,601
The accompanying notes are an integral part of these statements.
</TABLE>
4
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Consolidated Financial Statements --
The consolidated financial statements for the interim periods included
herein have been prepared by the company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, management believes that the disclosures are
adequate to make the information presented not misleading. Operating
results for interim periods are not necessarily indicative of results for
the full fiscal year. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the company's latest annual
report on Form 10-K.
Certain reclassifications have been made to the 1993 financial statements
to conform with the 1994 presentation.
2. Accounting Policies --
The consolidated financial statements presented in this report have been
prepared in accordance with the accounting policies described in Note 1 to
the consolidated financial statements included in the company's latest
annual report on Form 10-K. While management believes that the procedures
followed in the preparation of the consolidated financial statements for
the interim periods are reasonable, the accuracy of some estimated amounts
is dependent upon facts that will exist later in the fiscal year.
Examples of such estimates include the annual effective tax rate used for
calculating the interim provision for income taxes, annual inflationary
cost increases and year-end inventory levels used in valuing interim LIFO
inventories, and accruals for profit sharing, executive bonuses and unpaid
expenses not invoiced.
3. Lines of Credit and Long-Term Debt --
The company maintains a revolving credit facility with a group of banks
that provides for borrowings of up to $125 million. At October 29, 1994,
there were no borrowings outstanding under this facility. The revolving
credit agreement and the company's other agreements with respect to
long-term debt include, among other things, provisions which limit total
consolidated indebtedness, require the maintenance of minimum amounts of
working capital and of certain financial ratios, limit the amount of
capital expenditures and limit capital stock repurchases, asset sales and
the payment of cash dividends by the company.
4. Per Share Data --
Earnings (loss) per share for the three- and nine-month periods ended
October 29, 1994 and October 30, 1993 are based on the weighted average
number of shares of common stock outstanding during the periods. The
effect of the common stock equivalents for these periods was not
significant. Fully diluted earnings (loss) per share for these periods
is not significantly different from earnings (loss) per share set forth
in the Consolidated Statements of Operations.
5. Contingencies --
In conjunction with the sale of certain of the company's operations,
certain store leases were assigned to the buyers; however, the company
remains contingently liable as guarantor of the lease obligations.
Aggregate minimum rentals for these and all other lease guarantees totaled
approximately $66 million as of October 29, 1994. Approximately 57% of
this total relates to two primary obligors.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The United States Shoe Corporation (the company) is a specialty retailer
of women's apparel, optical products and services, and footwear. As of
October 29, 1994, the company operated 2,333 retail stores and leased
departments in the United States and Canada. The company also
manufactures, imports and wholesales prominent footwear brands, primarily
for women.
<TABLE>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
-----------------------------------------
(Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
<CAPTION>
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales:
Women's Apparel Retailing $270,797 $305,880 $ 773,569 $ 852,956
Optical Retailing 202,498 178,353 586,513 539,378
Footwear 182,403 192,805 554,107 564,771
---------- ---------- ---------- ----------
Net Sales $655,698 $677,038 $1,914,189 $1,957,105
========== ========== ========== ==========
Earnings (Loss) from Operations:
Women's Apparel Retailing $(12,144) $ 1,529 $ (25,740) $ (53,385)
Optical Retailing 16,091 6,610 57,406 32,428
Footwear 10,621 13,076 31,767 12,860
General Corporate Expense (3,605) (3,475) (10,947) (13,716)
---------- ---------- ---------- ----------
Earnings (Loss) from Operations $ 10,963 $ 17,740 $ 52,486 $ (21,813)
========== ========== ========== ==========
</TABLE>
RESULTS OF OPERATIONS
---------------------
OVERVIEW -
The company's net sales for the three months ended October 29, 1994
decreased 3.2% to $655.7 million from $677.0 million for the three-month
period ended October 30, 1993. Earnings from operations for the 1994
third quarter were $11.0 million compared with $17.7 million in 1993. Net
earnings for the 1994 third quarter were $4.7 million, or $.10 per share,
compared with $8.2 million, or $.18 per share, in the third quarter of
1993.
The gross profit percentage in the third quarter of 1994 decreased to
46.7% from 47.8% in the third quarter of 1993. This decrease was
principally due to lower margins in the women's apparel group, resulting
from increased markdowns to clear slow-moving inventories, and in the
optical group, resulting primarily from a higher level of discounts
granted in connection with promotional activities during the quarter.
Selling, general and administrative (SG&A) expenses decreased by 3.5% in
the third quarter of 1994, reflecting lower operating expenses in the
women's apparel and footwear groups that resulted from cost control
measures and a net reduction in the number of women's apparel stores. The
decreases resulting from these factors were partially offset by higher
expenses in the optical retailing group, which included $2.5 million of
charges for store remodeling and leased department closing costs, and
operating expenses associated with 55 additional optical stores and leased
departments. SG&A comparisons were also affected by the inclusion in 1993
of a $5.5 million charge associated with the divestiture of optical
retailing operations in the United Kingdom and by a change in 1994 in the
classification of optical coupon discounts from operating expenses to
sales deductions.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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Net interest expense was $2.7 million for the 1994 third quarter compared
to $3.5 million in 1993, reflecting a decrease in average debt outstanding
of 28.2% to $127.4 million, as $50 million of 8% notes that were due to
mature in 1996 were prepaid, at par, in June 1994, and an increase in
interest income as average short-term investments increased 21.9% to
$123.3 million. These factors were partially offset by the effects of a
higher effective interest rate of 9.9% compared with 7.7% in the third
quarter of 1993.
The effective tax rate was 43% in the third quarter of 1994 which was
comparable to the 42% rate in the same period a year ago.
For the nine months ended October 29, 1994, the company reported net sales
of $1,914.2 million compared with $1,957.1 million in the first nine
months of 1993. Earnings from operations were $52.5 million for the first
nine months of 1994 compared with an operating loss of $21.8 million in
1993. Net earnings were $24.4 million, or $.53 per share, compared with a
net loss of $24.1 million, or $.53 per share, in 1993.
The gross profit percentage in the first nine months of 1994 increased to
48.2% from 47.3% in 1993. Overall, gross profit comparisons were affected
positively by the higher margin sales in the optical retailing group
representing a larger percentage of consolidated net sales in 1994 and
higher margins in the footwear group. These factors were partially offset
by the effects of a lower gross profit percentage in the women's apparel
group, resulting primarily from a higher level of markdown activity.
SG&A expenses for the first nine months of 1994 decreased by 8.1%. This
reduction reflects lower operating expenses in the women's apparel and
footwear groups as a result of cost control measures, a net reduction in
the number of women's apparel stores and reduced general corporate
expenses, partially offset by $3.3 million of charges for store remodeling
and leased department closing costs in the optical retailing group and by
operating expenses associated with 55 new optical stores and leased
departments. SG&A comparisons were also affected by the inclusion in 1993
of a $10.6 million charge relating to the divestiture of the Caren Charles
and Ups 'N Downs divisions, a $5.5 million charge related to the
divestiture of optical retailing operations in the United Kingdom, $6.0
million of costs associated with executive management changes, $2.6
million of costs associated with business process redesign initiatives,
and by the change in 1994 in the classification of optical coupon
discounts.
Net interest expense was $9.7 million for the first nine months of 1994
compared to $12.6 million in 1993. The decrease was due primarily to a
decrease in average outstanding debt, resulting from the prepayment in
June 1994 of $50 million of 8% notes, at par, that were due to mature in
1996, and an increase in interest income as average short-term investments
increased 39.4% to $159.0 million. These factors were partially offset by
the effects of a higher effective interest rate.
The effective tax rate was 43% in the first nine months of 1994 compared
to a 30% effective tax benefit rate in the same period a year ago. The
increase in 1994 was due primarily to a higher effective state tax rate
compared to a low effective state benefit rate in the prior year.
WOMEN'S APPAREL RETAILING GROUP -
Net sales in the Women's Apparel Retailing Group for the third quarter of
1994 decreased 11.5% from the 1993 third quarter to $270.8 million,
reflecting a net reduction of six stores and a comparable store sales
decline of 9.5%. The comparable store sales decline was experienced
across all divisions, with the exception of the group's factory outlet
division, as a result of the poor performance of fall merchandise.
The group reported an operating loss of $12.1 million for the period
compared with operating earnings of $1.5 million in the third quarter of
1993. With the exception of the Capezio and factory outlet divisions, all
major divisions within the group reported declines in operating results,
principally due to lower sales volume and a higher level of markdowns to
clear poorly performing merchandise. Third quarter 1994 results also
reflect the reversal of $4.7 million in bonus and profit sharing reserves
accrued earlier in the year due to earnings being lower than originally
projected.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------
For the first nine months of 1994, the group reported sales of $773.6
million, a decrease of 9.3% from the same period in 1993, reflecting a net
reduction of six stores and a comparable store sales decline of 4.5%. The
comparable store sales decline was experienced across all divisions, with
the exception of the group's factory outlet division.
Operating losses for the nine-month period decreased to $25.7 million in
1994 from $53.4 million in 1993. The 1993 operating loss included $13.3
million of losses from discontinued operations, a $10.6 million charge
related to the divestiture of the Ups 'N Downs and Caren Charles
divisions, $3.8 million of costs associated with executive management
changes and $1.7 million of costs associated with business process
redesign initiatives. Casual Corner, Petite Sophisticate and August Max
Woman reported declines in operating results, principally due to lower
sales volume and higher levels of markdowns to clear poorly performing
merchandise, while the Capezio and factory outlet divisions reported
improved operating results.
The Women's Apparel Retailing Group operated 1,345 stores at the end of
the third quarter of 1994 compared with 1,351 at the same time last year.
OPTICAL RETAILING GROUP -
In the Optical Retailing Group, net sales were $202.5 million for the
third quarter of 1994, an increase of 13.5% compared with the third
quarter of 1993. The sales increase resulted primarily from a 16.1%
increase in comparable store sales and volume at 55 new stores and leased
departments. Total sales comparisons for the group were affected by a
change in 1994 in the classification of coupon discounts from operating
expenses to sales deductions. The increase in comparable store sales
reflected continued strengthening market fundamentals and favorable
customer response to promotional activities during the quarter. Operating
earnings increased to $16.1 million in the third quarter of 1994 from $6.6
million in the third quarter of 1993, reflecting higher sales volume and
effective cost containment, partially offset by operating losses in the
Sight & Save value optical division and $2.5 million of charges for store
remodeling and leased department closing costs. 1993 operating earnings
included a $5.5 million charge associated with the divestiture of
operations in the United Kingdom.
For the first nine months of 1994, the group reported sales of $586.5
million, an increase of 8.7% from the same period a year ago. This
increase resulted from new store volume and a comparable store sales
increase of 11.6%, due primarily to continued strengthening market
fundamentals and the success of promotional activities during the period.
Total sales comparisons for the group were affected by the change in 1994
in the classification of coupon discounts. Earnings from operations
increased to $57.4 million for the first nine months of 1994 compared with
$32.4 million in the same period a year ago on the higher sales volume and
effective cost containment, partially offset by operating losses in the
Sight & Save value optical division and $3.3 million of charges for store
remodeling and leased department closing costs. 1993 operating earnings
included a $5.5 million charge related to the divestiture of the United
Kingdom operations.
The Optical Retailing Group operated 582 stores and leased departments at
the end of the third quarter of 1994 compared with 527 at the same time
last year.
FOOTWEAR GROUP -
Net sales in the Footwear Group were $182.4 million in the 1994 third
quarter compared with net sales of $192.8 million in the same period of
1993. In the manufacturing/wholesaling divisions, 1994 net sales were
$111.8 million, a decrease of 10.5% compared with the 1993 third quarter.
Sales increases in the Easy Spirit and Marx & Newman import divisions were
offset by decreases in other divisions, primarily the Selby & Co. and
Texas Boot divisions. Sales in the company's footwear retail divisions
increased 4.0%, primarily as a result of new store volume.
The group reported operating earnings of $10.6 million in the third
quarter of 1994 compared with $13.1 million in the prior year. The
decline reflects lower earnings reported by the Selby & Co. and Texas Boot
divisions, due primarily to lower sales volume, partially offset by
earnings improvement by the Marx & Newman division on increased sales and
higher margins. The group's 1994 operating results were impacted
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------
positively by a $1.1 million gain in connection with the sale of the
Beloit, Wisconsin facility and by a $.9 million reduction in the group's
bad debt reserve, reflecting improved collection experience, a reduction
in the amounts due from highly-leveraged department stores and a reduction
in the number of independent store operators.
For the first nine months of 1994, the group reported net sales of $554.1
million, a decrease of 1.9% from the $564.8 million in the same period a
year ago. In the manufacturing/wholesaling divisions, net sales in 1994
were $353.4 million, a 6.2% decrease. Sales increases in the Easy Spirit
division were offset by sales decreases reported by other
manufacturing/wholesaling divisions; most notably Selby & Co., reflecting
fewer independent store operators and the conversion of certain company-
owned concept stores to the Easy Spirit format, and Texas Boot, which
continues to be adversely affected by a soft western boot market. Sales
in the company's footwear retail divisions increased 6.7% to $200.7
million, principally due to a 2.0% net increase in the number of stores in
operation and a 4.0% increase in comparable store sales, primarily
increases in Easy Spirit retail stores.
The group reported operating earnings of $31.8 million for the first nine
months of 1994 compared with $12.9 million in the prior year. With the
exception of Texas Boot, which continued to experience sluggish
performance, earnings improvements were reported in all of the group's
major manufacturing/wholesaling divisions. The group's retail operations
reported decreased operating earnings, reflecting declines in the
operating results of the Banister and Cincinnati Shoe divisions due
primarily to a higher level of markdowns to clear excess inventories.
Operating results of the group were also affected positively by the gain
on the sale of the Beloit facility and the reduction of the bad debt
reserve. Earnings in 1993 included $2.2 million of costs associated with
executive management changes.
Footwear retailing operated 406 stores and leased departments at the end
of the third quarter of 1994 compared with 398 at the same time last year.
FINANCIAL CONDITION
-------------------
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents decreased $35.8 million in the first nine months
of 1994. Cash provided by operations of $63.3 million was offset by cash
paid for capital additions of $44.6 million, payments of long-term debt
and capital lease obligations of $51.0 million and dividend payments of
$11.1 million.
CASH PROVIDED BY OPERATIONS -
Cash provided by operations in the first nine months of 1994 was $63.3
million compared with $66.6 million in 1993. The effect of improved
operating results in the first nine months of 1994 was offset by a $40.5
million increase in cash used for changes in working capital. The changes
in cash used for working capital reflect an increase in inventory levels
during the first nine months of fiscal 1994, due primarily to a net
increase of 57 stores, and the effect of a greater portion of apparel
inventory consisting of imported merchandise that is financed with
letters of credit that bear shorter payment terms compared with domestic
purchases. Partially offsetting these factors was a $21.7 million
increase in cash resulting from being in a net income tax payable
position at the end of the first nine months of 1994 as compared to a net
income tax receivable position at the end of the same period in 1993.
CAPITAL EXPENDITURES -
Capital expenditures for the nine months ended October 29, 1994 amounted
to $44.6 million, a decrease of $1.9 million from the same period in 1993.
The company's capital expenditure plan for 1994 of $65 million emphasizes
the upgrading of management information systems at all divisions, the
remodeling of certain stores, including Casual Corner and LensCrafters,
and the expansion of Easy Spirit footwear retailing stores
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------
and women's apparel factory outlet stores. The company's capital
expenditure plan is under continuing review and is subject to additional
adjustment based on the availability of suitable real estate, human
resources growth and future profitability. The capital expenditure
program is being funded from existing cash reserves and cash generated
from operations.
WORKING CAPITAL -
At October 29, 1994, the company's working capital was $270.3 million
compared with $322.6 million at January 29, 1994 and $304.9 million at
October 30, 1993. The company ended the third quarter with a 1.6-to-1
current ratio, compared with 1.9-to-1 at the end of fiscal 1993 and 1.7-
to-1 at the end of the third quarter last year. The decrease in working
capital since the end of fiscal 1993 reflects the $35.8 million decrease
in cash and a $50.0 million increase in the current portion of long-term
debt which resulted from scheduled maturities. Partially offsetting these
factors is the effect of a greater portion of apparel inventory consisting
of imported merchandise that is financed with letters of credit that bear
shorter payment terms compared with domestic purchases. The decrease
since the end of the third quarter last year reflects a $16.6 million
decrease in accounts receivable due to improved collection efforts, a
$49.7 million increase in the current portion of long-term debt as a
result of scheduled maturities, and increases in accrued income taxes and
accrued bonuses which resulted from net earnings in the first nine months
of 1994 as compared to a net loss for the same period in 1993. The
effects of these factors were partially offset by a $49.2 million decrease
in accounts payable resulting primarily from the women's apparel group
financing a greater portion of its inventory with letters of credit.
The company maintains a $125 million revolving credit facility with a
group of banks, which is available to finance working capital needs. At
October 29, 1994, there were no borrowings outstanding under this
facility.
LONG-TERM CAPITAL RESOURCES -
Long-term debt (including current maturities) at October 29, 1994 totaled
$127.3 million, a decrease of $50.3 million from January 29, 1994, and a
decrease of $51.0 million from October 30, 1993. These decreases resulted
from scheduled repayments and the prepayment on June 30, 1994 of $50
million of 8% notes, at par, due in 1996.
To balance the company's fixed and variable interest rate risk, as of
October 29, 1994 the company had entered into five $25 million interest
rate swap agreements that mature on various dates through November 1995.
Under the terms of the agreements, the company receives interest at a
fixed rate (4.98% weighted-average rate as of October 29, 1994) and pays
interest at a variable rate tied to the six-month LIBOR (5.58% weighted-
average rate as of October 29, 1994).
The company's debt-to-capital ratio (long-term debt including capital
lease obligations, as a percentage of the sum of long-term debt and
shareholders' investment) was 22.5% at October 29, 1994 compared with
29.1% at January 29, 1994 and 29.4% at October 30, 1993. The decline at
October 29, 1994 was due primarily to the $50 million debt prepayment on
June 30, 1994.
The company's revolving credit agreement and agreements with respect to
long-term debt include, among other things, provisions which limit total
consolidated indebtedness, require the maintenance of minimum amounts of
working capital and of certain financial ratios, and limit capital
expenditures, capital stock repurchases, asset sales and the payment of
cash dividends by the company. Under the most restrictive dividend
provision, approximately $30 million of consolidated retained earnings at
October 29, 1994 is available for payment of cash dividends. The
company's ability to pay future dividends is, among other things,
contingent upon future operating results or changes to existing borrowing
agreements.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------------------------------------------
FOREIGN EXCHANGE RISK -
The company uses foreign exchange forward contracts to hedge the risk of
changes in foreign currency exchange rates associated with transactions
denominated in foreign currencies, primarily shoe purchases from European
countries. At October 29, 1994, the company held contracts aggregating
approximately $29 million.
CONTINGENCIES -
In conjunction with the sale of certain of the company's operations,
certain store leases were assigned to the buyers; however, the company
remains contingently liable as guarantor of the lease obligations.
Aggregate minimum rentals for these and all other lease guarantees totaled
approximately $66 million as of October 29, 1994. Approximately 57% of
this total relates to two primary obligors.
11
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-------------------------
The company has been named as a third party defendant, along with
approximately 175 other third party defendants, in connection with a
federal Superfund legal action involving a site in Adams County,
Pennsylvania. No determination of the company's share, if any, of future
remediation costs can be made at this time.
Aside from the aforementioned matter, on which no determination can be
made at the present time, in the opinion of management of the company,
there are no material pending legal proceedings, other than ordinary
routine litigation incidental to its business, to which the company or any
of its subsidiaries is a party or of which any of their property is the
subject.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
4. Instruments defining the rights of security holders, including
indentures. The company hereby agrees to furnish to the
Commission, upon request, copies of instruments defining the
rights of holders of the company's long-term debt.
(b) Reports on Form 8-K
The company did not file a current report on Form 8-K covering an
event that occurred during the quarter for which this report is filed.
Note: The information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary to a fair presentation
of the results for the interim periods reported.
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.
THE UNITED STATES SHOE CORPORATION
(Registrant)
Date: December 8, 1994 By: /s/ Edwin C. Gerth
---------------------
Edwin C. Gerth
Vice President - Corporate Controller
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the nine month period ended October 29, 1994
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> OCT-29-1994
<CASH> 147395
<SECURITIES> 0
<RECEIVABLES> 93962
<ALLOWANCES> 5660
<INVENTORY> 418819
<CURRENT-ASSETS> 735816
<PP&E> 835703
<DEPRECIATION> 502181
<TOTAL-ASSETS> 1124422
<CURRENT-LIABILITIES> 465509
<BONDS> 88896
<COMMON> 83074
0
0
<OTHER-SE> 398772
<TOTAL-LIABILITY-AND-EQUITY> 1124422
<SALES> 1914189
<TOTAL-REVENUES> 1914189
<CGS> 991083
<TOTAL-COSTS> 991083
<OTHER-EXPENSES> 870620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9671
<INCOME-PRETAX> 42815
<INCOME-TAX> 18410
<INCOME-CONTINUING> 24405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24405
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
