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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 Ended April 30, 1994 Commission File Number 1-4009
THE UNITED STATES SHOE CORPORATION
Ohio 31-0474200
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Eastwood Drive
Cincinnati, Ohio 45227
(Address of principal executive offices) (Zip Code)
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
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Number of shares outstanding of the registrant's common stock as of April
30, 1994: 45,989,153.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Thousands except per share amounts)
(Unaudited)
Three Months Ended
------------------
April 30, May 1,
1994 1993
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<S> <C> <C>
NET SALES $ 625,319 $ 640,340
COST OF SALES 307,663 328,691
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Gross profit 317,656 311,649
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 291,342 323,166
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Earnings (loss) from operations 26,314 (11,517)
INTEREST EXPENSE, net 3,917 4,317
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Earnings (loss) before provision for income taxes 22,397 (15,834)
PROVISION (CREDIT) FOR INCOME TAXES 9,631 (6,175)
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Net earnings (loss) $ 12,766 $ (9,659)
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EARNINGS (LOSS) PER SHARE $ .28 $ (.21)
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AVERAGE NUMBER OF SHARES 46,156 45,624
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DIVIDENDS PER SHARE $ .08 $ .13
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</TABLE>
The accompanying notes are an integral part of these condensed statements.
2
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Thousands)
(Unaudited)
April 30, 1994 January 29, 1994
-------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 210,453 $ 183,203
Receivables, net of allowance for doubtful
accounts of $8,174 at April 30, 1994
and $7,620 at January 29, 1994 87,630 85,600
Inventories 352,962 324,096
Future income tax benefits 60,473 60,473
Prepaid expenses 27,564 15,861
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739,082 669,233
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PROPERTY, PLANT AND EQUIPMENT, at cost 827,769 825,936
Less: Accumulated depreciation and
amortization 480,224 465,379
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347,545 360,557
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OTHER ASSETS:
Excess of cost over fair value of net assets
acquired, net 21,387 22,247
Other assets and deferred charges 26,997 27,015
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48,384 49,262
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$ 1,135,011 $ 1,079,052
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $ 1,022 $ 865
Accounts payable 202,496 175,709
Accrued expenses 188,476 170,065
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391,994 346,639
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 189,155 189,761
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DEFERRED CREDITS AND OTHER LIABILITIES 82,520 80,956
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SHAREHOLDERS' INVESTMENT:
Cumulative preferred shares, without par
value, none issued or outstanding - -
Common shares, without par value 77,427 75,629
Foreign currency translation adjustments (4,176) (2,931)
Retained earnings 398,091 388,998
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471,342 461,696
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$ 1,135,011 $ 1,079,052
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</TABLE>
The accompanying notes are an integral part of these condensed statements.
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ITEM 1. FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
THE UNITED STATES SHOE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands)
(Unaudited)
Three Months Ended
------------------
April 30, 1994 May 1, 1993
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<S> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net earnings (loss) $ 12,766 $ (9,659)
Adjustments to reconcile net earnings (loss)
to cash provided by operations--
Provision for depreciation and amortization 22,077 21,005
Net loss from disposal of property, plant
and equipment 912 1,521
Deferred compensation provision 971 2,441
Other, net 1,173 (3,932)
Changes in components of working capital,
net of effect of restructuring--
Receivables (2,030) (8,252)
Inventories (28,866) (8,940)
Income taxes payable 3,792 (12,776)
Prepaid expenses (11,703) (12,881)
Accounts payable 26,787 30,113
Accrued expenses 14,624 4,293
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Cash provided by operations 40,503 2,933
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INVESTING ACTIVITIES:
Additions to property, plant and equipment (10,312) (12,856)
Other, net 469 412
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Cash used for investing activities (9,843) (12,444)
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FINANCING ACTIVITIES:
Payments of long-term debt and capital
lease obligations (496) (385)
Dividend payments (3,673) (5,927)
Other, net 759 1,460
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Cash used for financing activities (3,410) (4,852)
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Increase (decrease) in cash and cash equivalents 27,250 (14,363)
Cash and cash equivalents, beginning of period 183,203 159,225
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Cash and cash equivalents, end of period $ 210,453 $ 144,862
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest $ 6,118 $ 6,223
Income taxes 5,917 5,852
</TABLE>
The accompanying notes are an integral part of these condensed statements.
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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 April 30, 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,
capital stock repurchases and asset sales and limit the payment of cash
dividends by the company.
4.Per Share Data --
Earnings (loss) per share for the three-month periods ended April 30, 1994
and May 1, 1993 is based on the weighted average number of shares of common
stock outstanding. 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 Condensed 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 $79
million as of April 30, 1994. Approximately 57% of this total relates to two
primary obligors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The United States Shoe Corporation (the company) is a specialty retailer of
women's apparel, optical products and services, and footwear. As of April
30, 1994 the company operated 2,272 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>
<CAPTION>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
(Thousands)
(Unaudited)
Three Months Ended
---------------------
April 30, May 1,
1994 1993
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<S> <C> <C>
Net Sales:
Women's Apparel Retailing $ 250,732 $ 275,739
Optical Retailing 199,439 181,654
Footwear 175,148 182,947
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Net Sales $ 625,319 $ 640,340
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Earnings (Loss) from Operations:
Women's Apparel Retailing $ (2,622) $ (20,331)
Optical Retailing 24,507 13,099
Footwear 7,888 1,318
General Corporate Expense (3,459) (5,603)
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Earnings (Loss) from Operations $ 26,314 $ (11,517)
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</TABLE>
RESULTS OF OPERATIONS
Overview -
The company's net sales for the three months ended April 30, 1994
decreased 2.3% to $625.3 million from $640.3 million for the three-month
period ended May 1, 1993. Earnings from operations for the 1994 first
quarter were $26.3 million, compared with an operating loss of $11.5
million in the first quarter of 1993. Net earnings for the 1994 first
quarter were $12.8 million, or $.28 per share, compared with a net loss
of $9.7 million, or $.21 per share, in the first quarter of 1993.
The gross profit percentage in the first quarter of 1994 increased to
50.8% from 48.7% in the first quarter of 1993. Increases were recorded
in the women's apparel segment, resulting primarily from the divestiture
in 1993 of the poorly performing Ups 'N Downs and Caren Charles
divisions, and in the footwear segment, resulting primarily from
stronger performance of the Easy Spirit brand.
Selling, general and administrative (SG&A) expenses decreased by 9.8%,
as the effects of lower operating expenses in the women's apparel and
footwear groups that resulted from cost control measures, a net
reduction of 199 women's apparel stores and a reduction in general
corporate expense were partially offset by operating expenses associated
with 51 additional optical stores and leased departments. SG&A
comparisons were affected by a change in 1994 in the classification of
optical coupon discounts from operating expenses to sales deductions.
Optical coupon discounts totaled $5.7 million in the first quarter of
1994.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net interest expense was $3.9 million for the 1994 first quarter
compared with $4.3 million in 1993. Net interest expense for 1994
reflects a higher effective interest rate of 8.7% on borrowed funds
compared with 8.4% in 1993, a decrease in average debt outstanding of
13.2% to $177.6 million and an increase in interest income as average
short-term investments increased 48% to $175.7 million.
The effective tax rate was 43% in the first quarter of 1994 compared to
39% 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 first quarter
of 1994 were $250.7 million, a decrease of 9.1% compared with the 1993
first quarter. The sales decrease resulted from the impact of a net
reduction of 199 retail stores and a 2.6% decrease in comparable store
sales.
Operating losses decreased to $2.6 million for the period compared with
operating losses of $20.3 million in the first quarter of 1993.
Operating earnings at the Petite Sophisticate division increased on
higher sales. Operating losses at the Casual Corner division narrowed,
despite a decline in sales, as a result of lower operating costs.
Operating results of the group continue to be negatively impacted by
operating losses in the Capezio division. Operating losses in the first
quarter of 1993 included $5.5 million from the recently divested Ups 'N
Downs and Caren Charles divisions and $1.7 million of costs associated
with business process redesign initiatives.
The Women's Apparel Retailing Group operated 1,317 stores at the end of
the first quarter compared with 1,516 stores at the same time last year.
OPTICAL RETAILING GROUP -
In the Optical Retailing Group, net sales were $199.4 million for the
first quarter of 1994, an increase of 9.8% compared with the first
quarter of 1993. The sales increase resulted from new store volume and
a 13.9% increase in comparable store sales. 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
significant increase in 1994 comparable store sales was due primarily to
strong customer response to a major promotional campaign run during the
quarter; a similar promotion was run primarily in the second quarter of
1993. Operating earnings increased to $24.5 million in the first
quarter of 1994 from $13.1 million in the first quarter of 1993
primarily due to the higher sales volume. Operating results of the
group were negatively impacted by operating losses in the Sight & Save
value optical division.
The Optical Retailing Group operated 564 stores and leased departments
at the end of the first quarter compared with 513 at the same time last
year.
FOOTWEAR GROUP -
Net sales in the Footwear Group were $175.1 million in the 1994 first
quarter compared with net sales of $182.9 million in the same period of
1993. In the manufacturing/wholesaling divisions, 1994 net sales were
$114.2 million, a decrease of 9.2% compared with the 1993 first quarter.
This decline resulted primarily from decreases in the Joyce and Cobbie
divisions as a result of fewer independent store operators and the
conversion of certain company-owned retail stores to the Easy Spirit
concept. In addition, sales decreased in the Texas Boot division as the
market for western boots softened. Sales in other
manufacturing/wholesaling divisions were generally comparable with the
prior year. Sales in the company's footwear retail divisions increased
6.7% primarily as a result of a 8.0% increase in comparable store sales,
based primarily on strong increases in Easy Spirit retail stores and
increases in Banister factory outlet stores as this division increased
promotional activity in order to clear older inventory.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Operating earnings increased in the first quarter of 1994 to $7.9
million compared with operating earnings of $1.3 million in the prior
year. The increase was due to improved earnings in the Easy Spirit
division on improved margins and to tighter control of expenses across
all divisions.
Footwear retailing operated 391 stores and leased departments at the end
of the first quarter of 1994 compared with 421 at the same time last
year.
FINANCIAL CONDITION
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents increased $27.3 million to $210.5 million in
the first three months of 1994. Cash provided by operations of $40.5
million was offset by cash paid for capital additions of $10.3 million
and dividend payments of $3.7 million.
CASH PROVIDED BY OPERATIONS -
Cash provided by operations in the first three months of 1994 was $40.5
million compared with $2.9 million in 1993. This $37.6 million increase
was primarily the result of a $21.4 million increase in cash generated
by net earnings, adjusted for non-cash items, and an increase of $11.0
million in cash provided by changes in working capital.
CAPITAL EXPENDITURES -
Capital expenditures for the three months ended April 30, 1994 totaled
$10.3 million, a decrease of $2.5 million from the same period in 1993.
The company's capital expenditure plan for 1994 of $65 million reflects
an emphasis on the expansion of Easy Spirit footwear retailing stores
and Casual Corner & Company women's apparel factory outlet stores.
Capital expenditures in 1994 will also emphasize the upgrading of
management information systems at all divisions and the refurbishment of
certain stores, including Casual Corner and LensCrafters. The company's
capital expenditure plan is under continuing review and is subject to
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 April 30, 1994, the company's working capital was $347.1 million
compared with $322.6 million at January 29, 1994 and $289.5 million at
May 1, 1993. The company ended the first quarter of 1994 with a 1.9-to-
1 current ratio, the same as at the end of fiscal 1993, compared with
1.7-to-1 at the end of the first quarter last year.
The company maintains a $125 million revolving credit facility with a
group of banks, which is available to finance working capital needs. At
April 30, 1994, there were no borrowings outstanding under this
facility.
LONG-TERM CAPITAL RESOURCES -
Long-term debt (including current maturities) at April 30, 1994 totaled
$177.5 million, which is comparable to $177.6 million at January 29,
1994, and a decrease of $28.7 million from May 1, 1993. This decrease
was due to scheduled repayments. Subsequent to the end of the first
quarter the company gave notice that it will prepay $50 million of 8%
notes, due in 1996, at par effective June 30, 1994. The prepayment will
be funded from existing cash reserves.
To balance the company's fixed and variable interest rate risk, as of
April 30, 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 April 30, 1994) and pays
interest at a variable rate tied to the six-month LIBOR (4.24% weighted-
average rate as of April 30, 1994).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 28.6% at April 30, 1994 compared with
29.1% at January 29, 1994 and 28.7% at May 1, 1993.
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, limit capital
expenditures, capital stock repurchases and asset sales, and limit the
payment of cash dividends by the company. Under the most restrictive
dividend provision, approximately $31 million of consolidated retained
earnings at April 30, 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.
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 April 30, 1994, the company held contracts
aggregating approximately $27.1 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 $79 million as of April 30, 1994. Approximately
57% of this total relates to two primary obligors.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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: June 10, 1994 By /s/ Edwin C. Gerth
----------------------------------------
Edwin C. Gerth
Vice President -
Corporate Controller
(Chief Accounting Officer)
10
