<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended January 29, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 1-2191
BROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 43-0197190
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8300 Maryland Avenue, St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- -------------------------------------- ------------------------
Common Stock - par value $3.75 a share New York Stock Exchange
with Common Stock Purchase Rights Chicago Stock Exchange
7-3/8% Sinking Fund Debentures due New York Stock Exchange
January 15, 1998
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ x ]
As of April 2, 1994, 17,694,841 common shares were outstanding, and the
aggregate market value of the common shares held by non-affiliates of the
registrant was approximately $648 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual stockholders report for the year ended January 29,
1994, are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of stockholders to be
held May 26, 1994, are incorporated by reference into Part III.
Page 1 of 78 pages
Exhibit Index page 22
<PAGE>
<PAGE> 2
PART I
------
ITEM 1 - BUSINESS
- -----------------
The Corporation was founded in 1878 and incorporated in 1913 and
currently operates in the Footwear and Specialty Retailing industry segments.
The Footwear segment is engaged in the operation of retail shoe stores and in
the manufacture, importing, foreign sourcing, and marketing of women's, men's
and children's footwear. The Specialty Retailing segment comprises a chain of
retail fabric stores. See Note 13 of Notes to Consolidated Financial
Statements on page 29 of the Annual Report to Stockholders for the year ended
January 29, 1994, which is incorporated herein by reference, for additional
information regarding the Corporation's industry segments.
Footwear
- --------
The Footwear segment is engaged in the manufacture, importing, foreign
sourcing, and marketing of a wide variety of types and styles of women's,
men's and children's dress and casual footwear. During 1993, footwear sales
were approximately 66% women's, 21% men's, and 13% children's. This
composition has remained relatively constant over the past few years.
Approximately 52% of 1993 footwear sales were made at retail compared with 47%
in 1992 and 43% in 1991.
The major brand names of the Corporation's footwear include the
following:
Women's: Air Step
Brittania (under license from Brittania Sportswear, Ltd.)
Connie
DeLiso
Donnay (under license from Donnay International, S.A.)
Dr. Scholl's (under license from Schering-Plough HealthCare
Products, Inc.)
Fanfares
Jordache (under license from Jordache Enterprises, Inc.)
Life Stride
Naturalizer
NaturalSport
Penaljo
Revelations (under license from Lowell Shoe, Inc.)
Waikiki (under license from DDKA, S.A.)
Men's: Brittania (under license from Brittania Sportswear, Ltd.)
Donnay (under license from Donnay International S.A.)
Dr. Scholl's (under license from Schering-Plough HealthCare
Products, Inc.)
Jean Pier Clemente
Levi's Shoes and Boots (under license from Levi Strauss & Co.)
Reed St. James (under license from Haggar Apparel Co.)
Regal
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<PAGE> 3
ITEM 1 - BUSINESS (Continued)
- -----------------
Children's: Aladdin (under license from The Walt Disney Company, Inc.)
Bambi (under license from The Walt Disney Company, Inc.)
Barbie for Girls (under license from Mattel, Inc.)
Beauty and the Beast (under license from The Walt Disney
Company, Inc.)
Bobby's World (under license from Twentieth Century Fox
Licensing and Merchandising)
Buster Brown
Candie's (under license from Candie's, Inc.)
Conan the Adventurer (under license from Hasbro, Inc.)
Dinosaurs (under license from The Walt Disney Company, Inc.)
Disney (under license from The Walt Disney Company, Inc.)
Disney Babies (under license from The Walt Disney Company, Inc.)
Donnay (under license from Donnay International, S.A.)
The Flintstones (under license from MCA/Universal Merchandising,
Inc. and Turner Home Entertainment)
G. I. Joe (under license from Hasbro, Inc.)
Jordache (under license from Jordache Enterprises, Inc.)
The Lion King (under license from The Walt Disney Company, Inc.)
The Little Mermaid (under license from The Walt Disney
Company, Inc.)
101 Dalmatians (under license from The Walt Disney
Company, Inc.)
Playskool (under license from Hasbro, Inc.)
Rookie League (under license from Major League Baseball
Properties, Inc.)
Waikiki (under license from DDKA, S.A.)
Wildcats
The Corporation's retail footwear operations comprise a large number of
retail footwear stores in the United States and Canada including those
operated under various names including: Famous Footwear, Naturalizer, F. X.
LaSalle, Regal and Connie. A substantial portion of retail sales carry
Corporate brand names with the footwear manufactured either by the Corporation
in company-owned factories or under contract to its specifications by domestic
and foreign suppliers.
In retail sales of footwear, the Corporation competes in a highly frag-
mented market with many organizations of various sizes operating retail shoe
stores. Competitors include general shoe store operators, local and regional
shoe store chains, department stores, discount stores and numerous independent
retail operators of various sizes. Customer service, store location, product
display, merchandise selection and pricing are important components of retail
competition.
A summary of retail footwear stores operated by the Corporation at the prior
five fiscal year-ends is as follows:
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<PAGE> 4
ITEM 1 - BUSINESS (Continued)
- -----------------
<TABLE>
<CAPTION>
Company-Owned Retail Footwear Stores
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Naturalizer
Stores selling the Naturalizer
and NaturalSport brands of
women's footwear; located in
major malls and shopping centers
throughout the U.S. and Canada. 413 451 457 431 450
Connie
Stores selling Connie and other
branded women's footwear;
located in major malls and
shopping centers. 187 134 119 106 81
Famous Footwear
Family footwear stores which
feature "brand names for less";
located in strip centers and
outlet malls. 257 304 353 477 567
Regal/Castleby
Men's footwear stores located
in malls and shopping centers. 94 89 75 65 35
F. X. LaSalle
Stores selling men's and women's
branded footwear in major malls
in Canada. 11 13 14 14 15
Other Family Footwear Stores
Selling men's, women's, and
children's footwear. 138 63 71 4 4
----- ----- ----- ----- -----
Total 1,100 1,054 1,089 1,097 1,152
===== ===== ===== ===== =====
</TABLE>
Footwear is distributed by the Corporation's marketing, manufacturing,
importing, and foreign sourcing operations in the United States, Canada,
Europe, Latin America, and the Far East to approximately 5,000 retailers,
including independent and chain operators of shoe and department stores and to
affiliates. Certain of these customers also sell shoes bought from competing
footwear suppliers. Wholesale footwear sales carry Corporate brand names,
brand names licensed by the Corporation, and private label footwear produced
for specific customers. This footwear is either manufactured by the
Corporation in company-owned factories or under contract to its specifications
by domestic and foreign suppliers. The Corporation competes with both domestic
manufacturers and importers of foreign-produced footwear.
The Corporation's womens domestic shoe manufacturing operations, overall,
account for approximately 7% of the total pairs of non-rubber footwear
manufactured annually in the United States, and approximately 21% of the
women's domestic production. Competition in the shoe manufacturing industry
involves style, quality, price, fit and service offered to the customer. The
Corporation attempts to meet competition through manufacturing efficiencies,
by maintaining emphasis on quality and fit, by its ability to anticipate and
create acceptable fashion styles and by manufacturing well-established branded
merchandise available for immediate shipment. The principal raw materials
used by the Corporation in the manufacture of shoes are leather, man-made
materials and fabrics for uppers, and leather, rubber and plastics for soles
and heels. The Corporation has experienced no serious difficulty in
purchasing its needs of raw materials and manufactured component parts at
competitive prices.
<PAGE>
<PAGE> 5
ITEM 1 - BUSINESS (Continued)
- -----------------
Foreign sourced footwear accounts for approximately 87% of all footwear
sold in the United States. Through the sourcing activities of its Pagoda
organization, the Corporation is a leading supplier of imported footwear. This
organization sources a wide variety of footwear primarily from the Far East and
Brazil for other Brown Group divisions and for outside customers. During 1993
this operation was responsible for sourcing approximately 81 million pairs of
shoes. Pairs sourced for the U.S. market by Pagoda represent approximately 6%
of total pairs imported annually in the United States. These sourcing
activities include coordination of the styling, production, and shipment of
footwear produced for the Corporation by independent footwear manufacturers
in foreign countries. Because Pagoda's sourcing capabilities are diverse and
include numerous countries of origin and manufacturing facilities therein and
since production can be shifted from country to country, the Corporation does
not believe its sourcing arrangements entail significant risks.
The nature of the Corporation's wholesale shoe business is such that it
does not have a significant backlog of non-cancelable orders. Orders for
shoes are solicited by the Corporation's sales force primarily during four
selling seasons in each year, with most sales being for the spring and fall
retail seasons. Orders placed as a result of these sales efforts are taken
before the shoes are manufactured with delivery generally within 10 to 12
weeks thereafter. In addition, the Corporation maintains a stock of the
higher volume styles which are available for prompt shipment on reorder. The
Corporation maintains adequate reserves for returns and allowances which may
occur after sales are recorded.
The Corporation's marketing and promotional efforts are carried out
through a number of avenues. The footwear wholesaling group maintains a sales
force that visits customers periodically, presents its footwear at trade shows
throughout the country, and advertises in trade magazines and publications.
In addition, direct advertising to consumers is carried out through periodic
use of the electronic media, sponsoring of certain sporting events, and in-
store presentations and demonstrations. The footwear retailing organization
advertises its products in the print and electronic media, as well as with in-
store displays and promotions.
Due to the seasonal nature of retail sales of shoes, the Corporation
experiences fluctuations in the components of working capital. Retail
footwear sales are seasonal with significant increases in sales experienced in
the Christmas, Easter and back-to-school periods.
Specialty Retailing
- -------------------
The Specialty Retailing segment comprises the Cloth World chain of
retail fabric stores, one of the nation's largest volume fabric chains. All
of Cloth World's 340 stores are leased with more than half having lease
renewal options. Each store sells competitively priced craft, home
decorating, and sewing fabrics and notions, along with patterns and sewing
machines. Cloth World stores are located predominantly in the southern half
of the United States extending from coast to coast. Stores are typically
located in suburban areas near major metropolitan centers. Most contain
between 10,000 and 12,000 square feet of space, enabling them to carry a large
selection of merchandise for the home sewer and crafter.
A summary of retail fabric stores operated by the Corporation at the prior
five fiscal year ends is as follows:
<PAGE>
<PAGE> 6
ITEM 1 - BUSINESS (Continued)
- -----------------
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cloth World Store Count 316 316 322 354 340
</TABLE>
Cloth World purchases its goods from a substantial number of suppliers,
and has experienced no difficulty in acquiring merchandise at competitive
prices.
The Corporation's fabric operation competes with other fabric chains,
discount stores operating their own fabric departments and numerous
independent retailers. A large selection of "fashion" merchandise, in-store
customer service, direct mail, newspaper advertising and competitive pricing
are the primary methods of competition in fabric operations. Fabric retailing
is subject to some seasonal influences, with Easter, back-to-school and the
pre-Christmas season being somewhat stronger than other periods.
Discontinued Operations
- -----------------------
During the fourth quarter of fiscal 1993, the Corporation adopted a
formal plan to withdraw from the Wohl Leased Shoe Department business. This
business involves the management of over 500 shoe departments in department
stores primarily on the West Coast and in the Midwest. Most of the leases are
cancelable after a period of notice by either party and the Corporation
expects to complete most of the withdrawals by the end of fiscal 1994.
Restructuring
- -------------
In January 1994 the Corporation announced restructuring initiatives
related to the Footwear Segment which consist of the following:
* Closing of five manufacturing facilities;
* The closing of more than 100 company-owned Regal and Connie
shoe stores; and
* Reduction of Corporate and Divisional staffing at the St.
Louis, Missouri, headquarters.
It is expected that these restructuring initiatives will be completed
during fiscal 1994 and may extend into the first quarter of fiscal 1995.
Corporate-wide Business Influences
- ----------------------------------
In addition to normal and recurring product development, design and
styling activities, the Corporation engages in research and development
related to new and improved materials for use in its footwear and other
products and to the development and adaptation of production techniques.
The Corporation is involved in environmental remediation and ongoing
compliance at its closed tannery site and two associated landfill locations,
and has been identified by various governmental authorities as a potentially
responsible party at certain other landfills. See page 15 of the Annual
Report to Stockholders for the year ended January 29, 1994, which is
incorporated herein by reference, for a discussion of the financial impact of
environmental issues on the Corporation. Federal, State, and local provisions
for environmental protection have not had, nor are they anticipated to have, a
material effect on the Corporation's capital expenditures or competitive
position.
<PAGE>
<PAGE> 7
ITEM 1 - BUSINESS (Continued)
- -----------------
The Corporation manufactures and sells certain patented items but does
not consider its business to be dependent on patents. In addition, some
products are sold under license agreements, such as with Schering-Plough
HealthCare Products, Inc., and The Walt Disney Company, Inc. During 1993,
sales under these agreements were approximately 13% of the total sales of the
footwear segment.
From time to time the Corporation investigates and negotiates for the
possible acquisition of other businesses and operations; but at this time,
there are no agreements or understandings for acquisition of any significant
subsidiaries.
The Corporation has approximately 22,000 full and part-time employees
including approximately 5,600 in the leased department business, Connie and
Regal shoe stores, factories, and Corporate offices which will be terminated
as a result of the restructuring and closings previously discussed.
Approximately 2,000 employees engaged in the manufacture of footwear are
employed under union contracts. Such contracts vary in duration and expire in
years between 1994 and 1996.
ITEM 2 - PROPERTIES
- -------------------
The principal executive, sales and administrative offices of the
Corporation are located in Clayton (St. Louis), Missouri, and consist of a
complex of four adjoining office buildings. As a result of reduction in
staffing, the Corporation, subsequent to year end, sold two of the four
buildings.
The Corporation's footwear manufacturing and warehousing operations are
primarily carried out at 10 footwear and component manufacturing plants, two
leather cutting facilities, and three warehouses located mainly in smaller
towns in the Southern and Midwestern sections of the United States and two
manufacturing and one warehouse facility located in Canada. Substantially all
of the facilities are owned or are subject to long-term capital leases. In
January 1994 the Corporation announced the closing of five domestic production
facilities. These closings will be completed in the first and second quarter
of 1994. After these closings the Corporation will have annual domestic
manufacturing capacity of approximately 7,000,000 pairs.
The Corporation's retail footwear operations are conducted throughout the
United States and Canada and involve the operation of 1,152 shoe stores,
including 102 in Canada. In addition, Famous Footwear has leased office space
and a 750,000 square foot distribution center in Madison, Wisconsin. Cloth
World has one warehouse/distribution facility in Amarillo, Texas, and 340
leased retail store locations. All store locations are leased with
approximately one-third having renewal options.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Corporation is a party to several uninsured lawsuits arising in the
ordinary course of business. While the Corporation is unable to predict the
ultimate outcome of these actions, it believes that their final resolution
will not result in any materially adverse effect on the Corporation's
financial position.
<PAGE>
<PAGE> 8
ITEM 3 - LEGAL PROCEEDINGS (Continued)
- --------------------------
The Corporation is working with Federal and various State Environmental
Protection Agencies to resolve clean-up issues at several sites, including the
Corporation's closed tannery in New York. The potential financial impact on
the Corporation is discussed on page 15 of the Annual Report to Stockholders
for the year ended January 29, 1994, which is incorporated herein by
reference.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matter was submitted to a vote of stockholders during the fourth
quarter of fiscal 1993.
<PAGE>
<PAGE> 9
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following is a list of the names and ages of the executive officers
of the registrant and of the offices held by each such person. There is no
family relationship between any of the named persons. The terms of the
following executive officers will expire May, 1994.
Name Age Current Position
- ---- --- ----------------
B. A. Bridgewater, Jr. 60 Chairman of the Board, President and Chief
Executive Officer and Member of Executive
Committee
John B. Biggs, Jr. 50 Senior Vice President
Brian C. Cook 54 Vice President, Footwear Retailing and
President, Famous Footwear
Arthur G. Croci 42 President, Pagoda Trading
Ronald N. Durchfort 40 President, Pagoda International
Ronald A. Fromm 43 Executive Vice President, Famous Footwear
Curtis R. Johnson 62 Executive Vice President, Brown Shoe Company
Raymond F. Moseley 54 President, Wohl Shoe Company
Joseph P. Pearce 48 Executive Vice President, Brown Shoe Company
Robert D. Pickle 56 Vice President, General Counsel and
Corporate Secretary
Gary M. Rich 43 President, Pagoda U.S.A.
Harry E. Rich 54 Director, Executive Vice President and
Chief Financial Officer and Member of
Executive Committee
Donald L. Richey 50 President, Cloth World
Andrew M. Rosen 43 Vice President and Treasurer
Mary Sylvia Siverts 34 Vice President, Public Affairs
Richard L. Stonner 50 Senior Vice President, Retail Sales,
Famous Footwear
Thomas A. Williams 45 Vice President, Footwear Wholesaling;
President, Brown Shoe Company; and Chairman,
Pagoda
E. Lee Wyatt, Jr. 41 Vice President, Planning and Controller
George J. Zelinsky 45 Senior Vice President and General Merchandise
Manager, Famous Footwear
The period of service of each officer in the positions listed and other
business experience are set forth below.
<PAGE>
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- ------------------------------------
B. A. Bridgewater, Jr., Chairman of the Board and Chief Executive Officer of
the registrant since 1985. President of the registrant prior to 1987 and
since 1990.
John B. Biggs, Jr., Senior Vice President of the registrant since January
1994. President of Brown Shoe Company from December 1990 to January 1994.
Senior Vice President of Brown Shoe Company from 1987 to December 1990.
Brian C. Cook, Vice President, Footwear Retailing of the registrant since
March, 1992; President of Famous Footwear since 1981.
Arthur G. Croci, President of Pagoda Trading since November 1993. President of
Brown Group International from December 1990 to November 1993. Vice President
of the registrant from December 1990 to March 1993. Executive Vice President
of Brown Group International from January 1990 to December 1990 and various
positions with the registrant from 1980 through 1989.
Ronald N. Durchfort, President of Pagoda International since March 1993.
Managing Director, BGI, SARL-European Operations from 1989 through 1993.
International Sales Manager, Sidney Rich Associates, Inc. from 1986 through
1989.
Ronald A. Fromm, Executive Vice President, Famous Footwear since September
1992. Vice President and Chief Financial Officer from 1988 to 1992.
Curtis R. Johnson, Executive Vice President, Brown Shoe Company since 1992.
Executive Vice President - Production and Purchasing, Brown Shoe Company since
1982.
Raymond F. Moseley, President of Wohl Shoe Company since March 1992; Executive
Vice President, Operations of Wohl since 1989; previously Senior Vice
President, Operations of Wohl since 1985.
Joseph P. Pearce, Executive Vice President of Brown Shoe Company since June
1991, with principal responsibility for marketing. Previously, a Group
President of the Fisher-Camuto Group, Inc. (a footwear company).
Robert D. Pickle, Vice President, General Counsel and Corporate Secretary of
the registrant since 1985.
Gary M. Rich, President of Pagoda U.S.A. since March 1993. President, Pagoda
Trading Company, Inc. from June 1989 through March 1993. Executive Vice
President, Sidney Rich Associates, Inc. from December 1980 through June 1989.
Account Executive, Sidney Rich Associates, Inc. from August 1975 to December
1980.
Harry E. Rich, Executive Vice President and Chief Financial Officer of the
registrant since 1988. Senior Vice President and Chief Financial Officer of
the registrant from 1984 to 1988.
Donald L. Richey, President of Cloth World since October 1990. Previously,
Executive Vice President and a Director of Hancock Fabrics, Inc.
Andrew M. Rosen, Vice President and Treasurer of the registrant since January
1992. Treasurer of the registrant from 1983 to 1992.
Mary Sylvia Siverts, Vice President of Public Affairs since September 1993.
Director of Public Relations from 1988 to 1993.
<PAGE>
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- ------------------------------------
Richard L. Stonner, Senior Vice President, Retail Sales of Famous Footwear
since May 1987. Vice President and General Merchandise Manager, Shoe Stores,
Wohl Shoe Company from 1985 to 1987.
Thomas A. Williams, Vice President, Footwear Wholesaling; President, Brown
Shoe Company; and Chairman, Pagoda since January 1994. Vice President,
International Operations of the registrant from March 1993 to January 1994.
Chairman of the Board of Pagoda Trading Company from 1990 to January 1994.
Vice Chairman and other management positions at Pagoda Trading Company from
1982 to 1990.
E. Lee Wyatt, Jr., Vice President, Planning and Controller since March 1994.
Vice President, Planning and Taxes of the registrant since December 1992.
Director, Corporate Planning and Taxes and Assistant Secretary since 1990.
Director, Corporate Planning and Analysis since 1989. Manager, Corporate
Planning and Analysis since 1986.
George J. Zelinsky, Senior Vice President and General Merchandise Manager,
Famous Footwear since June 1989. Vice President, Women's Better Grade
Division, Wohl Shoe Company from 1986 to 1989.
<PAGE>
<PAGE> 12
PART II
-------
ITEM 5 -MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
- -------------------------------------------------
Common Stock market prices and dividends on page 32 of the annual
stockholders report and the number of stockholders on page 34 of the annual
stockholders report for the year ended January 29, 1994 are incorporated
herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
Selected Financial Data on page 16 of the annual stockholders report for
the year ended January 29, 1994 is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------
Management's Discussion and Analysis of Operations and Financial
Condition on pages 12 through 15 of the annual stockholders report for the
year ended January 29, 1994 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements of the Corporation and its
subsidiaries on pages 17 through 31, and the supplementary financial
information on page 32 of the annual stockholders report for the year ended
January 29, 1994 are incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------------------------
None.
<PAGE>
<PAGE> 13
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding Directors of the Corporation on pages 3 through 9
of the proxy statement for the annual meeting to be held May 26, 1994, is
incorporated herein by reference. Information regarding Executive Officers of
the Corporation is included in Part I of this Form 10-K following Item 4.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
Information regarding Executive Compensation on pages 10 through 16 and
20 through 24 of the proxy statement for the annual meeting to be held May 26,
1994, is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
- ---------------------------------------------------------
Security Holdings of Directors and Management on page 3 and 4 of the proxy
statement for the annual meeting to be held May 26, 1994, is incorporated
herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
None.
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
- ------------------------------------------------------
(a) (1) and (2) The response to this portion of Item
14 is submitted as a separate
section of this report.
(a) (3) Exhibits
Exhibit No.:
3.(a) (i) Certificate of Incorporation of the
Corporation as amended through
February 16, 1984, incorporated
herein by reference to Exhibit 3 to
the Corporation's Report on Form
10-K for the fiscal year ended
November 1, 1986.
<PAGE>
<PAGE> 14
(a) (ii) Amendment of Certificate of
Incorporation of the Corporation
filed February 20, 1987,
incorporated herein by reference to
Exhibit 3 to the Corporation's
Report on Form 10-K for the fiscal
year ended January 30, 1988.
(b) Bylaws of the Corporation as amended
through December 22, 1993, filed,
herewith.
4. (a) Form of Rights Agreement dated as of
March 6, 1986 between the
Corporation and Morgan Guaranty
Trust Company of New York, which
includes as Exhibit A the form of
Rights Certificate evidencing the
Corporation's Common Stock Purchase
Rights, incorporated herein by
reference to Exhibits 1 and 2 to the
Corporation's Registration
Statement on Form 8-A dated
March 7, 1986.
(b) (i) Indenture dated as of April 2, 1986
between the Corporation and
Citibank, N.A. as Trustee,
incorporated herein by reference to
Exhibit 4 to the Corporation's
Registration Statement on Form S-3
(No. 33-4500).
(c) Certain instruments with respect to
the long-term debt of the
Corporation are omitted pursuant to
Item 601(b)(4)(iii) of Regulation
S-K since the amount of debt
authorized under each such omitted
instrument does not exceed 10
percent of the total assets of the
Corporation and its subsidiaries on
a consolidated basis. The
Corporation hereby agrees to furnish
a copy of any such instrument to the
Securities and Exchange Commission
upon request.
10. (a)* Stock Appreciation, non-qualified
Stock Option and Performance Bonus
Plan of 1976, incorporated herein by
reference to Exhibit 1 to the
Corporation's definitive proxy
statement dated January 18, 1977.
(b)* Stock Appreciation, Stock Option and
Performance Bonus Plan of 1983,
incorporated herein by reference to
Exhibit 3 to the Corporation's
definitive proxy statement dated
January 20, 1984.
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<PAGE> 15
(c)* Stock Option and Restricted Stock
Plan of 1987, as amended,
incorporated herein by reference to
Exhibit 3 to the Corporation's
definitive proxy statement dated
April 26, 1988.
11. Computation of earnings per share.
13. Annual Report to Stockholders of
Brown Group, Inc. for the fiscal
year ended January 29, 1994. Such
report, except for portions
incorporated by reference herein, is
furnished for the information of the
SEC and is not "filed" as part of
this report.
21. Subsidiaries of the registrant.
23. Consent of Independent Auditors.
24. Power of attorney (contained on
signature page).
(b) Reports on Form 8-K:
The Corporation filed a current
report on Form 8-K dated January 13,
1994, in response to Item 5, which
announced restructuring initiatives,
provision for additional environmental
monitoring costs and plans to discontinue
and withdraw from the Wohl Leased Shoe
Department business.
(c) Exhibits:
Exhibits begin on page 22 of this
Form 10-K.
On request copies of any exhibit
will be furnished to stockholders
upon payment of the Corporation's
reasonable expenses incurred in
furnishing such exhibit.
(d) Financial Statement Schedules.
*Denotes management contract or compensatory plan arrangements.
<PAGE>
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: April 20, 1994 BROWN GROUP, INC.
(Registrant)
Harry E. Rich /s/
Executive Vice President and
Principal Financial Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Harry E. Rich his true and lawful attorney in
fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments to this Annual Report on Form 10-K, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney in fact and agent or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 21, 1994, by the following persons on
behalf of the Registrant and in the capacities indicated.
Signatures Title
---------- -----
B. A. Bridgewater, Jr. /s/ Chairman of the Board of Directors
President and Chief Executive Officer
Harry E. Rich /s/ Director, Executive Vice President
and Chief Financial Officer
E. Lee Wyatt, Jr. /s/ Vice President, Planning and
Controller
<PAGE>
<PAGE> 17
Signature Title
--------- -----
Joseph L. Bower /s/ Director and Chairman of
Compensation Committee
Joan F. Lane /s/ Director and Chairperson of
Governance and Nominating Committee
William E. Maritz /s/ Director
Daniel R. Toll /s/ Director and Chairman of
Audit Committee
<PAGE>
<PAGE> 18
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JANUARY 29, 1994
BROWN GROUP, INC.
ST. LOUIS, MISSOURI
<PAGE>
<PAGE> 19
FORM 10-K - ITEM 14 (a) (1) and (2)
BROWN GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Brown Group, Inc. and
subsidiaries included in the annual report of the registrant to stockholders for
the year ended January 29, 1994 are incorporated by reference in Item 8:
Consolidated Balance Sheets - January 29, 1994 and January 30, 1993.
Consolidated Earnings - Years ended January 29, 1994, January 30, 1993,
and February 1, 1992.
Consolidated Cash Flows - Years ended January 29, 1994, January 30, 1993,
and February 1, 1992.
Consolidated Stockholders' Equity - Years ended January 29, 1994, January
30, 1993, and February 1, 1992.
Notes to consolidated financial statements.
Report of Independent Auditors.
The following consolidated financial statement schedules of Brown Group,
Inc. and subsidiaries are included in Item 14(d):
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
<PAGE>
<PAGE> 20
<TABLE>
<CAPTION>
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
BROWN GROUP, INC.
- -------------------------------------------------------------------------------
COL. A. COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------
ADDITIONS
----------------------
(1) (2)
Balance Charged to
at Charged to Other Balance
Beginning Costs and Accounts- Deductions- at End
of Period Expenses Describe Describe of Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Thousands)
YEAR ENDED JANUARY 29, 1994
Deducted from assets:
For doubtful accounts
and discounts $10,482 $5,272 $4,329-A $11,425
YEAR ENDED JANUARY 30, 1993
Deducted from assets:
For doubtful accounts
and discounts 6,673 7,771 3,962-A 10,482
YEAR ENDED FEBRUARY 1, 1992
Deducted from assets:
For doubtful accounts
and discounts 8,002 3,902 5,231-A 6,673
A. Accounts written off, net of recoveries
and discounts taken.
</TABLE>
<PAGE>
<PAGE> 21
<TABLE>
<CAPTION>
SCHEDULE IX
SHORT-TERM BORROWINGS
BROWN GROUP, INC.
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------
Maximum Average Weighted
Balance Weighted Amount Amount Average
at End Average Outstanding Outstanding Interest
Category of Aggregate of Interest During the During the Rate During
Short-Term Borrowings Period Rate Period Period the Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Thousands) (A) (B) (C)
YEAR ENDED JANUARY 29, 1994
Notes Payable to
Banks (1) $ 7,000 3.5% $ 42,452 $ 28,701 5.0%
Payable to Holders of
Commercial Paper (2) 164,090(4) 3.3% 164,090 110,404 3.2%
YEAR ENDED JANUARY 30, 1993
Notes Payable to
Banks (1) $ 30 5.3% $ 33,549 $ 23,551 4.6%
Payable to Holders of
Commercial Paper (2) 36,615(4) 3.5% 35,205 27,024 4.0%
YEAR ENDED FEBRUARY 1, 1992
Notes Payable to
Banks (1) $ 20,296(3) 6.4% $ 25,672 $ 19,983 7.9%
Payable to Holders of
Commercial Paper (2) 24,100(3) 4.4% 38,000 30,471 6.2%
A) The maximum amount outstanding during the period was computed based on the
highest month-end balance of the combined total of notes payable to banks
and amounts payable to holders of commercial paper.
B) Average amount outstanding during the period was computed by dividing the
total of month-end outstanding principal balances by 12 months.
C) The weighted average interest rate was computed based on the interest rates
on short-term borrowings outstanding at the month-ends throughout the year.
1) Notes payable to banks represent borrowings under lines of credit borrowing
arrangements generally renewed on an annual basis.
2) Commercial paper with various maturity dates from date of issue has no
specific provisions for the extension of maturity.
3) As a result of the long-term refinancing of $30,000,000 of these short-term
notes and reclassification to long-term debt, as explained in Note 7 to the
1991 consolidated financial statements, these will not agree with the amount
shown on the Consolidated Balance Sheet as of February 1, 1992.
4) Commercial paper borrowings of $25,000,000 are intended to be maintained on
a long-term basis; therefore, reclassification to long-term debt has been
made as explained in Note 9 to the consolidated financial statements. These
amounts will, therefore, not agree with the amount shown on the Consolidated
Balance Sheet as of January 29, 1994, and January 30, 1993.
</TABLE>
<PAGE>
<PAGE> 22
BROWN GROUP, INC.
ANNUAL REPORT TO STOCKHOLDERS ON FORM 10-K
INDEX TO EXHIBITS
Exhibit
-------
3.(b) Bylaws as amended through December 22, 1993
11. Computation of earnings per share
13. 1993 Annual Report to Stockholders of
Brown Group, Inc.
21. Subsidiaries of the registrant
23. Consent of Independent Auditors
24. Power of Attorney (see signature page)
<PAGE> 1
EXHIBIT 3(b)
BROWN GROUP, INC.
A NEW YORK CORPORATION
BYLAWS
ADOPTED BY THE STOCKHOLDERS
JANUARY 11, 1946
AMENDED THROUGH MARCH 3, 1994
<PAGE>
<PAGE> 2
BYLAWS
OF
BROWN GROUP, INC.
------------------
ARTICLE I.
Meetings of Stockholders .
SECTION 1. Annual Meeting. The annual meeting of the Stockholders shall be
held at such place within or without the State of New York as may from time to
time be fixed by resolution of the Board of Directors on the fourth Thursday
in May in each and every year (or if said day be a legal holiday, then on the
next succeeding day not a legal holiday), at eleven o'clock in the forenoon,
for the purpose of electing directors and of transacting only such other
business as may be properly brought before the meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, the Chairman of the Board, or the President, (b)otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, the Chairman of the Board, or the President, or (c), subject to
ARTICLE II, Section 8 hereof, otherwise properly brought before the meeting by
a stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company, not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Company's books, of
the stockholder proposing such business, (c) the class and number of shares of
the Company which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in the Bylaws to the contrary, but subject to ARTICLE II, Section 8
hereof, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1. The Chairman of
an annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. The meeting may
be adjourned from time to time until its business is completed.
<PAGE>
<PAGE> 3
2
SECTION 2. Special Meetings. Special meetings of the stockholders may be
held upon call by the majority of the Board of Directors, the Chairman of the
Board, or the President, at such time as may be fixed by the Board of
Directors, the Chairman of the Board, or the President, and at such place
within or without the State of New York as may be stated in the call and
notice. The meeting may be adjourned from time to time until its business is
completed.
SECTION 3. Notice of Meetings. Written notice of the time, place and
purpose or purposes of every meeting of stockholders, signed by the Chairman
of the Board or the President or a Vice-President or the Secretary or an
Assistant Secretary, shall be served either personally or by mail, not less
than ten days nor more than fifty days before the meeting, upon each
stockholder of record entitled to vote at such meeting and upon each other
stockholder of record who, by reason of any action proposed at such meeting,
would be entitled to have his stock appraised if such action were taken.
If mailed, such notice shall be directed to each such stockholder at his
address as it appears on the stock book unless he shall have filed with the
Secretary of the Company a written request that notices intended for him be
mailed to some other address, in which case it shall be mailed to the address
designated in such request. Such further notice shall be given by mail,
publication or otherwise, as may be required by the Certificate of
Incorporation of the Company or by law.
SECTION 4. Quorum. At every meeting of the stockholders, the holders of
record of shares entitled in the aggregate to a majority of the
<PAGE>
<PAGE> 4
3
number of votes which could at the time be cast by the holders of all shares
of the capital stock of the Company then outstanding and entitled to vote if
all such holders were present or represented at the meeting, shall constitute
a quorum. If at any meeting there shall be no quorum, the holders of a
majority of the shares of stock entitled to vote so present or represented may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until such quorum shall have been obtained, when any business
may be transacted which might have been transacted at the meeting as first
convened had there been a quorum.
SECTION 5. Voting. At all meetings of the stockholders, each holder of
record of outstanding shares of stock of the Company, entitled to vote
thereat, may so vote either in person or by proxy appointed by instrument in
writing executed by such holder or by his duly authorized attorney. No proxy
shall be valid after the expiration of eleven months from the date of its
execution unless the stockholder executing it shall have specified therein a
longer time during which it is to continue in force.
SECTION 6. Record of Stockholders. The Board of Directors may prescribe a
period, not exceeding fifty days nor less than ten days prior to any meeting
of the stockholders, during which no transfer of stock on the books of the
company may be made. In lieu of prohibiting the transfer of stock as
aforesaid, the Board of Directors may fix a day or hour, not more than fifty
days prior to the day of holding any meeting of stockholders, as the time as
of which stockholders entitled to notice of and to vote at such meeting shall
be determined, and all persons who were holders of record of voting stock at
such time, and no others, shall be entitled to notice of and to vote at such
meeting.
SECTION 7. Inspectors of Election. At all elections of directors by the
stockholders, the chairman of the meeting shall appoint two Inspectors of
Election. Before entering upon the discharge of his duties, each such
inspector shall take and subscribe an oath or affirmation faithfully to
execute the duties of inspector at such meeting as provided by law with strict
impartiality and according to the best of his ability and thereupon the
inspectors shall take charge of the polls and after the balloting shall make a
certificate of the result of the vote taken. No director or candidate for the
office of director shall be appointed such inspector.
<PAGE>
<PAGE> 5
4
ARTICLE II.
SECTION 1. Number. The number of directors within the maximum and minimum
limits provided for in the Certificate of Incorporation may be changed from
time to time by the shareholders or by the Board of Directors by an amendment
to these Bylaws. Subject to amendment of these Bylaws, as aforesaid, the
number of directors of the Corporation shall be eleven. Such directors shall
be classified in respect of the time for which they shall severally hold
office, by dividing them into two classes consisting of four directors each
and one class consisting of three directors. At each annual election, the
successors of the directors of the class whose term shall expire in that year,
shall be elected to hold office for the term of three years so that the term
of office of one class of directors shall expire in each year. The Board of
Directors shall not choose as a director to fill a temporary vacancy any
person over the age of seventy years, and shall not recommend to the
stockholders any person for election as a director for a term extending beyond
the Annual Meeting of Stockholders following the end of the calendar year
during which he attains his seventieth birthday, provided, however, that this
shall not apply to directors elected or holding office, at the time of the
Annual Meeting of Stockholders in 1967; and provided further, that this shall
not prevent the designation by the Board of such person as an Honorary
Director, to serve without vote.
SECTION 2. Meetings of the Board. Meetings of the Board of Directors shall
be held at such place within or without the State of New York as may from time
to time be fixed by resolution of the Board, or as may be specified in the
call of any meeting. Regular meetings of the Board of Directors shall be held
at such times as may from time to time be fixed by resolution of the Board.
Notice need not be given of the regular meetings of the Board held at times
fixed by resolution of the Board. Special meetings of the Board may be held
at any time upon the call of the Chairman of the Board or the President or any
two directors by telegraphic or written notice, duly served on or sent or
mailed to each director not less than three days before such meeting. Special
meetings of the Board of Directors may be held without notice, if all of the
directors are present or if those not present waive notice of the meeting in
writing or by telegraph. Any one or more of the directors may participate in
a meeting of the Board of Directors by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
<PAGE>
<PAGE> 6
5
SECTION 3. Quorum. The attendance of a majority of the Board of Directors
shall be necessary to constitute a quorum for the transaction of business.
SECTION 4. Vacancies. Vacancies in the Board of Directors may be filled by
a vote of a majority of the directors in office even though less than a
quorum; provided that, in case of an increase in the number of directors
pursuant to an amendment of these Bylaws made by the stockholders, the
stockholders may fill the vacancy or vacancies so created at the meeting at
which the bylaw amendment is effected. The directors so chosen shall hold
office, unless they are removed therefrom by the stockholders, for the
unexpired portion of the term of the directors whose place shall be vacant and
until the election of their successors.
SECTION 5. Resignations. Any director of the Company may resign at any
time by giving written notice to the President or to the Secretary of the
Company. Such resignation shall take effect at the time specified therein;
and unless otherwise specified therein the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 6. Organization. The Board of Directors shall have general power
to direct the management of the business and affairs of the Company, and may
adopt such rules and regulations as they shall deem proper, not inconsistent
with law or with these Bylaws, for the conduct of their meetings and for the
management of the business and affairs of the Company. Directors need not be
stockholders.
SECTION 7. Compensation. Directors, as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular
or special meeting of the Board, and directors shall be entitled to
compensation other than a stated salary in such form and in such amounts as
the Board may determine. However, this Bylaw shall not be construed to
preclude any director from serving in any other capacity and receiving
compensation therefor. Members of the Executive Committee and all other
committees may be allowed a fixed sum and expenses of attendance, if any, for
attendance at committee meetings.
<PAGE>
<PAGE> 7
6
SECTION 8. Notice and Qualification of Stockholder Nominees to Board of
Directors. Only persons who are nominated in accordance with procedures set
forth in this Section 8 shall be qualified for election as Directors.
Nominations of persons for election to the Board of Directors of the Company
may be made at a meeting of stockholders by or at the direction of the Board
of Directors or by any stockholder of the Company entitled to vote for the
election of Directors at the meeting who complies with the procedures set
forth in this Section 8. In order for persons nominated to the Board of
Directors, other than those persons nominated by or at the direction of the
Board of Directors, to be qualified to serve on the Board of Directors, such
nomination shall be made pursuant to timely notice in writing to the Secretary
of the Company. To be timely, stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Company not less
than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the Company
which are beneficially owned by such person and (iv) any other information
relating to such person that is required to be disclosed in solicitation of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended from time to time (including without limitation such person's written
consent to be named in the proxy statement as a nominee and to serving as a
Director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Company's books, of such stockholder
and (ii) the class and number of shares of the Company which are beneficially
owned by such stockholder. At the request of the Board of Directors, any
person nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Company that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
No person shall be qualified for election as a Director of the Company unless
nominated in accordance with the procedure set forth in this Section 8. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in
<PAGE>
<PAGE> 8
7
accordance with procedures prescribed by the Bylaws, and if he should so
determine, he shall so declare to the meeting, and the defective nomination
shall be disregarded.
ARTICLE III.
Committees.
SECTION 1. Executive Committee. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate an Executive Committee to
consist of three or more of the directors, including the President ex officio,
one of whom shall be designated Chairman of the Executive Committee. The
Executive Committee shall have and may exercise, so far as may be permitted by
law, all of the powers of the Board in the direction of the management of the
business and affairs of the Company during the intervals between meetings of
the Board of Directors, and shall have power to authorize the seal of the
Company to be affixed to all papers which may require it; but the Executive
Committee shall not have the power to fill vacancies in the Board, or to
change the membership of, or to fill vacancies in, the Executive Committee, or
to make or amend bylaws of the Company. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve, the
Executive Committee. The Executive Committee may hold meetings and make rules
for the conduct of its business and appoint such committees and assistants as
it shall from time to time deem necessary. A majority of the members of the
Executive Committee shall constitute a quorum. All action of the Executive
Committee shall be reported to the Board at its meeting next succeeding such
action. Any one or more members of the Executive Committee may participate in
a meeting of the Executive Committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
SECTION 2. Other Committees. The Board of Directors may, in its
discretion, by resolution, appoint other committees, composed of two or more
members, which shall have and may exercise such powers as shall be conferred
or authorized by the resolution appointing them. A majority of any such
committee may determine its action and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The Board shall have
power at any time to change the membership of any such committee, to fill
vacancies, and to discharge any such committee.
<PAGE>
<PAGE> 9
8
ARTICLE IV.
Officers.
SECTION 1. Officers. The Board of Directors, as soon as may be after the
election of directors held in each year, shall elect a Chairman of the Board
of Directors, a President of the Company, one or more Vice-Presidents, a
Secretary, and a Treasurer, and from time to time may appoint such Assistant
Secretaries, Assistant Treasurers and such other officers, agents and
employees as it may deem proper. Any two of such offices, except that of
President and Secretary, may be held by the same person. The Chairman of the
Board and the President shall be chosen from among the directors, but no other
officer need be a director.
SECTION 2. Term of Office. The term of office of all officers shall be one
year or until their respective successors are chosen and qualified; but at any
meeting the Board may, by a three-fourths vote of its entire number, suspend
or remove any one or more of the officers for a cause satisfactory to the
Board, and the action thus taken shall be conclusive. Previous notice of five
days of such intended action shall be given to the person affected thereby.
In the event of the suspension of an officer, the Board shall fix the term of
such suspension.
SECTION 3. Powers and Duties. The officers, agents and employees of the
Company shall each have such powers and duties in the management of the
property and affairs of the Company, subject to the control of the Board of
Directors, as generally pertain to their respective offices, as well as such
powers and duties as from time to time may be prescribed by the Board of
Directors. The Board of Directors may require any such officer, agent or
employee to give security for the faithful performance of his duties.
ARTICLE V.
Powers to Contract; Indemnification
SECTION 1. Contracts. All contracts and agreements purporting to be the
act of this Company shall be signed by the President, or by a Vice-President,
or by such other officer or other person as may be designated by the Board of
Directors or Executive Committee in order that the same shall be binding upon
the Company.
<PAGE>
<PAGE> 10
9
SECTION 2. Indemnification.
a. Actions Involving Directors and Officers. The Company shall indemnify
each person who at any time is serving or has served as a director or officer
of the Company or at the request of the Company is serving or has served as a
director or officer (or in a similar capacity) of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any claim, liability or expense incurred as a result of such service,
to the maximum extent permitted by law.
b. Actions Involving Employees or Agents
1. The Company may, if it deems appropriate, indemnify any person who
at any time is or has been an employee or agent of the Company or who at the
request of the Company is or has been an employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any claim, liability or expense incurred as a result of
such service, to the maximum extent permitted by law or to such lesser extent
as the Company, in its discretion, may deem appropriate.
2. To the extent that any person referred to in subsection 2(b) of
this Section 2 has been successful, on the merits or otherwise, in the defense
of a civil or criminal proceeding arising out of the services referred to
therein, he shall be entitled to indemnification as authorized in such
subsection.
c. Advance Payment of Expenses. Expenses incurred by a person who is or
was a director or officer of the Company or who is or was at the request of
the Company serving as a director or officer (or in a similar capacity) of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, in defending a civil or criminal action or proceeding shall
be paid by the Company in advance of the final disposition of such action or
proceeding, and expenses incurred by a person who is or was an employee or
agent of the Company or who is or was at the request of the Company serving as
an employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, in defending a civil or
criminal action or proceeding may be paid by the Company in advance of the
final disposition of such action or proceeding as authorized by the Board of
Directors, in either case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amounts as, and to the
extent, required by law.
d. Not Exclusive. The indemnification and advancement of expenses
provided or permitted by this Section 2 shall not be deemed exclusive of any
other rights to which any person who is or was a director, officer, employee
or agent of the Company or who is or was at the request of the Company serving
as a director or officer (or in a similar capacity), employee or agent of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise may be entitled, whether pursuant to the Company's
Certificate of Incorporation, Bylaws, the terms of any resolution of the
shareholders or Board of Directors of the Company, any agreement or contract
or otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office.
<PAGE>
<PAGE> 11
10
e. Indemnification Agreements Authorized. Without limiting the other
provisions of this Section 2, the Company is authorized from time to time to
enter into agreements with any director, officer, employee or agent of the
Company or with any person who at the request of the Company is serving as a
director or officer (or in a similar capacity), employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, providing such rights of indemnification as the Board of Directors
may deem appropriate, up to the maximum extent permitted by law; provided that
any such agreement with a director or officer of the Company shall not provide
for indemnification of such director or officer if a judgment or other final
adjudication adverse to the director or officer establishes that his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he personally
gained in fact a financial profit or other advantage to which he was not
legally entitled. Any such agreement entered into by the Company with a
director may be authorized by the other directors, and such authorization
shall not be invalid on the basis that similar agreements may have been or may
thereafter be entered into with such other directors.
f. Insurance. The Company may purchase and maintain insurance to
indemnify itself or any person who is or was a director, officer, employee or
agent of the Company or who is or was at the request of the Company serving as
a director or officer (or in a similar capacity), employee or agent of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, to the maximum extent allowed by law, whether or not the
Company would have the power to indemnify such person under the provisions of
this Section 2.
g. Certain Definitions. For the purposes of this Section 2:
1. Any director or officer of the Company who shall serve as a
director or officer (or in a similar capacity), employee or agent of any other
corporation, partnership, joint venture, trust or other enterprise of which
the Company, directly or indirectly, is or was the owner of a majority of
either the outstanding equity interests or the outstanding voting stock (or
comparable interests) shall be deemed to be serving as such director or
officer (or in a similar capacity), employee or agent at the request of the
Company, unless the Board of Directors of the Company shall determine
otherwise. In all other instances where any person shall serve as a director
or officer (or in a similar capacity), employee or agent of another
corporation, partnership, joint venture, trust or other enterprise of which
the Company is or was a stockholder or creditor, or in which it is or was
otherwise interested, if it is not otherwise established that such person is
or was serving as such director or officer (or in a similar capacity),
employee or agent at the request of the Company, the Board of Directors of the
Company may determine whether such service is or was at the request of the
Company, and it shall not be necessary to show any actual or prior request for
such service.
<PAGE>
<PAGE> 12
11
2. A corporation shall be deemed to have requested a person to serve
an employee benefit plan where the performance by such person of his duties to
the corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant
to applicable law shall be considered fines; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to be in the
interest of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests of the
corporation.
3. References to a corporation include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director or officer (or in a similar
capacity), employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise shall stand in the
same position under the provisions of this Section 2 with respect to the
resulting or surviving corporation as he would if he had served the resulting
or surviving corporation in the same capacity.
h. Survival. Any indemnification rights provided under or granted
pursuant to this Section 2 shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. Indemnification rights
provided under or granted pursuant to this Section 2 shall survive amendment
or repeal of this Section 2 with respect to any acts or omissions occurring
prior to such amendment or repeal and persons to whom such indemnification
rights are given shall be entitled to rely upon such indemnification rights as
a binding contract with the Company.
ARTICLE VI.
Capital Stock.
SECTION 1. Stock Certificates. The interest of each stockholder shall be
evidenced by a certificate or certificates for shares of stock of the Company
in such form as the Board of Directors may from time to time prescribe. The
certificates of stock shall be signed by the Chairman of the Board or the
President or a Vice-President and the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary and sealed with the seal of the
Company, and shall be countersigned and registered in such manner, if any, as
the Board may by resolution prescribe; provided that, in case such
certificates are required by such resolution to be signed by a Transfer Agent
or Transfer Clerk and by a Registrar, the signatures of the Chairman of the
Board or the President or a Vice-President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary and the seal of the
Company upon such certificates may be facsimiles, engraved or printed.
<PAGE>
<PAGE> 13
12
SECTION 2. Transfers. Shares in the capital stock of the Company shall be
transferred only on the books of the Company, by the holder thereof in person
or by his attorney, upon surrender for cancellation of certificates for the
same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Company or its agents may reasonably
require.
SECTION 3. Lost or Destroyed Stock Certificates. No certificates for
shares of stock of the Company shall be issued in place of any certificate
alleged to have been lost, stolen or destroyed, except upon production of such
evidence of the loss, theft or destruction and upon indemnification of the
Company and its agents to such extent and in such manner as the Board of
Directors may from time to time prescribe.
ARTICLE VII.
Checks, Notes, etc.
All checks and drafts on the Company's bank accounts and all bills of
exchange and promissory notes and all acceptances, obligations and other
instruments for the payment of money, shall be signed by the President, or a
Vice-President, or the Treasurer, or by such other officer or officers or
agent or agents as shall be thereunto authorized from time to time by the
Board of Directors.
ARTICLE VIII.
Fiscal Year.
The fiscal year of the Company shall be determined as ending on the Saturday
nearest to each January thirty-first, and each ensuing fiscal year shall
commence on the day following the ending date of the immediately preceding
fiscal year as so determined.
ARTICLE IX.
Corporate Seal.
The corporate seal shall have inscribed thereon the name of the Company and
the words "New York", arranged in a circular form around the words and figures
"Corporate Seal 1913". In lieu of the corporate seal, when so authorized by
the Board of Directors or a duly empowered committee thereof, a facsimile
thereof may be impressed or affixed or reproduced.
<PAGE>
<PAGE> 14
13
ARTICLE X.
Amendments.
The Bylaws of the Company may be amended, added to, rescinded or repealed at
any meeting of the stockholders by the vote of the holders of record of shares
entitled in the aggregate to more than a majority of the number of votes which
could at the time be cast by the holders of all shares of the capital stock of
the Company then outstanding and entitled to vote if all such holders were
present or represented at the meeting, provided notice of the proposed change
is given in the notice of the meeting. The Board of Directors may from time
to time, by vote of a majority of the Board, amend these Bylaws or make
additional bylaws for the Company at any regular or special meeting at which
notice of the proposed change is given, subject, however, to the power of the
stockholders to alter, amend, or repeal any bylaws made by the Board of
Directors.
<PAGE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
BROWN GROUP, INC.
AND SUBSIDIARIES
(Thousands, except per share)
1993 1992 1991
--------- --------- ---------
PRIMARY
Weighted average shares outstanding 17,270 17,132 17,070
Net effect of dilutive stock options
based on treasury stock method
using average market price 64 10 4
-------- -------- --------
TOTAL 17,334 17,142 17,074
======== ======== ========
Earnings (loss) from continuing
operations before accounting changes $ (6,712) $ 8,065 $ 15,439
Cumulative effect of accounting changes (2,214) -- (11,931)
Discontinued operations (22,686) (3,401) 256
-------- -------- --------
Net Earnings (Loss) $(31,612) $ 4,664 $ 3,764
======== ======== ========
Earnings (loss) per share from continuing
operations before accounting changes $ (0.39) $ 0.47 $ 0.90
Cumulative effect of accounting changes (0.13) -- (0.70)
Discontinued operations (1.31) (0.20) 0.02
-------- --------- --------
Net earnings (loss) per share (1) $ (1.83) $ 0.27 $ 0.22
======== ========= ========
FULLY DILUTED
Weighted average shares outstanding 17,270 17,132 17,070
Net effect of dilutive stock options
based on treasury stock method
using year-end market price, if
higher than average market price 76 15 4
-------- -------- --------
TOTAL 17,346 17,147 17,074
======== ======== ========
Earnings (loss) from continuing
operations before accounting changes $ (6,712) $ 8,065 $ 15,439
Cumulative effect of accounting changes (2,214) -- (11,931)
Discontinued operations (22,686) (3,401) 256
-------- --------- --------
Net Earnings (Loss) $(31,612) $ 4,664 $ 3,764
======== ========= ========
Earnings (loss) per share from
continuingoperations before
accounting changes $ (0.39) $ 0.47 $ 0.90
Cumulative effect of accounting changes (0.13) -- (0.70)
Discontinued operations (1.31) (0.20) 0.02
-------- --------- --------
Net earnings (loss) per share (1) $ (1.83) $ 0.27 $ 0.22
======== ========= =========
(1) The dilutive effect of stock options was not included
in weighted average shares outstanding for purposes of
calculating earnings per share because dilution was less
than 3% and not material.
<PAGE> 1
BROWN GROUP, INC.
1993
ANNUAL
REPORT
<PAGE>
<PAGE> 2
CORPORATE OVERVIEW
BROWN GROUP, INC.
-------------------
Brown Group, Inc. is a leading footwear company with worldwide
operations in the sourcing, marketing and retailing of footwear for
women, men and children. In 1993 the company announced the
discontinuation of the Wohl Leased Shoe Department business, plans to
close its Connie and Regal specialty stores, consolidation of the Brown
Shoe Company and Pagoda organizations, and several other major steps to
reduce overhead and excess manufacturing capacity. These changes
represent the essential completion of a decade-long restructuring
process which has:
* Developed powerful growth businesses in value-oriented footwear
retailing -- Famous Footwear -- and in the global sourcing and marketing
of footwear -- Pagoda;
* Reorganized and strengthened the branded footwear marketing and
sourcing organization -- Brown Shoe Company -- and the Naturalizer
specialty shoe store operation; and
* Discontinued or eliminated mature and declining Recreational Products,
Specialty Retailing and Footwear operations.
The cost of these changes is reflected in the Financial Highlights
below. When they are completed, in 1994, Brown Group's operating assets
and activities will be concentrated in businesses with proven growth and
earning power.
FINANCIAL HIGHLIGHTS
- --------------------
For the Fiscal Years Ended January 29, 1994 and January 30, 1993
<TABLE>
<CAPTION>
Thousands, except per share 1993 1992
---------- --------
- --
<S> <C> <C>
Net sales $1,597,811 $1,481,644
Earnings (loss) from continuing operations
before cumulative effect of accounting change (6,712) 8,065
Earnings (loss) per common share from
continuing operations
before cumulative effect of accounting change (.39) .47
Dividends paid per common share 1.60 1.60
Stockholders' equity 233,863 288,988
Return on beginning stockholders' equity (2.3) 2.6%
Return on average invested capital (1.2)% 1.6%
Working capital 240,554 262,611
Current ratio 1.6:1 1.9:1
</TABLE>
CONTENTS
- --------
Letter to Shareholders 2
Review of Operations 5
Financial Statements 11
Management Report 31
Report of Independent Auditors 31
Directors, Officers and Operating Committee 33
Investor Information 34
1
<PAGE>
<PAGE> 3
TO OUR SHAREHOLDERS
- -------------------
In 1993 Brown Group announced decisive steps to conclude a decade-long
program through which the assets and operations of the corporation have
been concentrated in footwear businesses with strong performance and
high potential. During the decade, persistent unproductive investment,
excessive overhead, and losses in declining businesses have been reduced
or eliminated.
The 1993 steps included: the discontinuation of the Wohl Leased Shoe
Department business; the closing of five shoe factories; the closing of
more than 100 company-owned Connie and Regal specialty stores;
consolidation of the company's Brown Shoe and Pagoda Divisions; and
related reductions in corporate administrative staffing.
SUCCESSFUL REPOSITIONING: A DECADE'S PERSPECTIVE
- ------------------------------------------------
During the past decade, Famous Footwear has been expanded from a newly
acquired 36-store regional chain of discount shoe stores to the powerful
560-plus store operation it is today; Pagoda was acquired and developed
into a unique highly profitable worldwide footwear sourcing and
marketing organization, and Brown Group International was established to
import quality branded footwear, and in 1993 merged into Pagoda.
At the same time as these businesses of the future were being assembled
and developed, investment in mature and declining businesses was being
reduced or eliminated. The company discontinued the Recreational
Products and Leased Department businesses and withdrew from other
declining or losing operations in Specialty Retailing and Footwear.
Since 1983, Brown Group has closed more than 2,400 retail stores and
leased shoe departments and 24 shoe factories, sold or disposed of 110
businesses and brands, and disposed of more than $325 million in assets.
RECENT RESULTS REFLECT THE COST OF CHANGE
- -----------------------------------------
The price of these changes has been high -- more than $50 million in
1993; more than $20 million in 1992; and approximately $150 million
during the decade. Results during each of the past two years have been
severely depressed by charges related to these structural changes.
In 1993 Brown Group reported a loss from continuing operations of 39
cents per share after charges of $1.71 per share; in 1992 earnings of 47
cents per share after charges of 87 cents per share, also related to
plant and store closings and inventory liquidation, were reported. The
company's net loss in 1993 was $1.83 per share compared to net earnings
of 27 cents per share in 1992. These results principally reflect the
impact of charges related to the structural changes described
previously.
<PAGE>
Although these charges have severely reduced earnings, the withdrawal
from asset-intensive declining businesses has created positive cash flow
throughout the decade which has supported investment in Pagoda and
Famous Footwear, and allowed a return of capital to shareholders through
continuation of the company's dividend.
The extended restructuring is now essentially completed. The value to
our operations and our shareholders is clear, and will be confirmed by
our performance in the future.
OPERATING PERFORMANCE IN 1993: PROMISE FOR THE FUTURE
- -----------------------------------------------------
The businesses of Brown Group's future performed very well overall in
1993.
Famous Footwear's sales increased 32 percent, to $491 million and
operating earnings increased 33
2
<PAGE>
<PAGE> 4
percent to $43 million. Same-store sales increased by 9 percent and
return on invested capital was 20 percent. Famous Footwear added 90
stores to the chain and operated 567 at year-end; this company plans to
operate more than 700 stores by year-end 1994 and also plans continuing
substantial gains in sales and earnings. The value premise -- "Brand
Name Shoes for Less," very efficient operations, and the proven success
of Famous Footwear offer outstanding promise for the '90s.
Brown Group's International Operations -- Pagoda U.S.A., Pagoda
International, and Pagoda Trading -- also made impressive progress in
1993. Sales, including sales to affiliates, increased 23 percent to $613
million, making Pagoda one of the world's leading suppliers of imported
footwear. Operating earnings increased 37 percent to $20 million. The
successful merger of Brown Group International into Pagoda was completed
early in 1993; Pagoda U.S.A. introduced the Revelations and Penaljo
brands to their customers, and the marketing of the Dr. Scholl's and
Disney character licensed brands also was highly successful. Pagoda's
unique worldwide sourcing capabilities have enabled it to become very
well positioned for the increasingly value-conscious footwear consumer.
The performance of the Brown Shoe Company declined in 1993; overhead
cost reductions and organization changes were made and plant closings
were planned and paid for to improve its prospects for 1994 and beyond.
Sales, including sales to affiliates, decreased by 14 percent to $377
million and the business operated at a loss for the year. Sales of the
Naturalizer brand in the specialty stores and department stores were
good, however, as the NC 2000 line of comfort shoes was well-received.
The Life Stride brand also performed very well, but losses in the Connie
operations were substantial, and the decline of the Wohl Leased
Department business, a substantial internal customer, also adversely
affected Brown Shoe's results.
CONSOLIDATION OF BROWN, PAGODA, AND NATURALIZER RETAIL
- ------------------------------------------------------
In January 1993 Brown Group's Board of Directors elected Thomas A.
Williams as a Corporate Vice President, responsible for all of the
company's footwear wholesale operations, including Pagoda, of which he
had been Chairman, and Brown Shoe Company, of which he was named
President. The Naturalizer retail operation also now reports to Mr.
Williams. His leadership has helped to build Pagoda its strong position
in worldwide footwear sourcing and marketing. Under the restructuring
program being carried out in 1994, Mr. Williams will lead the
consolidation of Brown Shoe's administrative activities -- systems,
accounting, distribution, and personnel -- with those of Pagoda and
Brown Group's corporate staff.
<PAGE>
The Naturalizer retail organization also is now directly aligned with
the Naturalizer wholesale business, providing opportunities for much
better performance. These restructuring changes, being made in 1994,
should enable the company to achieve substantial expense reductions,
which will contribute importantly to the rebuilding of Brown Shoe's
earnings power, the growth of Pagoda, and the success of the Naturalizer
business.
With these changes, the corporation also announced the planned
relocation of the Pagoda headquarters operations to Brown Group's St.
Louis headquarters facility in 1994.
CLOTH WORLD: COPING WITH DIFFICULT INDUSTRY CONDITIONS
- ------------------------------------------------------
Cloth World, the corporation's fabric retail business, reported flat
sales of $224 million in 1993 and a 54 percent decrease in operating
earnings to about $4 million. In an extremely difficult year in the
retail fabric business, this performance reflects progress in
controlling costs and strengthening the organization. As a part of our
fourth quarter restructuring announcement, it was disclosed that Brown
3
<PAGE>
<PAGE> 5
Group is undertaking a strategic review of Cloth World to develop a plan
to achieve the greatest value for the corporation from this business.
SHAREHOLDER PERSPECTIVE: SOLID TOTAL RETURNS
- --------------------------------------------
Investors have recognized the value of the changes Brown Group has made.
The emerging earning power of Famous Footwear and Pagoda, the
"turn-around" potential at Brown Shoe, and the dividend made possible by
strong cash flow from investment reduction and discontinuation of mature
and losing businesses, have supported the investment value of the
company well.
- -----------------------------------------------------------------------
Compound Annual Rates of Total Return to Shareholders
<TABLE>
<CAPTION>
5 Year
------
5 Yr. 4 Yr. 3 Yr. 2 Yr. 1 Yr.
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Brown Group 6.41 17.90 19.35 22.48 26.00
"Peer" Group 3.36 1.65 -0.32 -15.85 -18.23
Broad Index 13.69 13.50 15.25 11.71 12.88
15 Year
-------
15 Yr. 12 Yr. 8 Yr. 4 Yr. 1 Yr.
------ ------ ----- ----- ------
Brown Group 15.89 13.35 5.66 17.90 26.00
"Peer" Group 11.96 11.92 6.81 1.65 -18.23
Broad Index 15.63 16.52 14.49 13.50 12.88
</TABLE>
- -----------------------------------------------------------------------
As the table above confirms, the compound annual rate of total return to
Brown Group shareholders was higher than that of "Peer" companies (as
characterized in the Proxy Statement) in each of the past five years,
and higher than the Standard and Poor's broad index in four of the five
years.
Taking a longer view, the compound annual rate of total return to
shareholders for the past 15 years has been 15.89 percent, modestly
higher than that of the Standard and Poor's broad index for the same
period. During this 15-year period every investor who purchased the
stock (at a quarter-end) and held it through year-end 1993, has seen the
value of his or her investment increase.
<PAGE>
An assessment of the shareholders' perspective at this time is
appropriate, because the changes in 1993 mark the end of the
evolutionary restructuring of Brown Group. The company is now solidly
positioned in the businesses of the future. We will continue to seek the
greatest value to our shareholders from Cloth World, but with this
exception the extended period of divestiture and consolidation is
completed.
1994 will be a year of transition as we carry out the changes we have
planned. The process of downsizing and restructuring entails job loss,
and the human costs of the changes we have made are considerable. It
will continue to be our policy and our practice to deal with those
adversely affected by the changes with understanding and compassion.
But the company will not compromise in completing these changes in 1994,
and as they are carried out, Brown Group's performance should
strengthen.
In 1995 Brown Group should be a $2 billion corporation with the market
position, organization, investment and cost base, sourcing capability
and earning power to support profitable expansion and continuing
increased total returns to our shareholders.
/s/ B.A. Bridgewater, Jr.
-------------------------
B. A. Bridgewater, Jr.
Chairman of the Board, President
and Chief Executive Officer
April 20, 1994
4
<PAGE>
<PAGE> 6
FAMOUS FOOTWEAR
- ---------------
Famous Footwear, the largest chain of branded family shoe stores in the
United States, is well-positioned to answer today's consumer demand for
branded family footwear at value-oriented prices. This company continues
to turn in impressive financial results. In fiscal 1993, sales were $491
million, up 32 percent over 1992, and operating earnings increased
significantly.
Famous Footwear is headquartered in Madison, Wisconsin and has a 30-year
history of selling "brand names for less." Acquired by Brown Group in
1981 when it was a 36-store regional chain, this business now operates
507 Famous Footwear stores, 15 family shoe stores and 45 women's
footwear outlet stores throughout the United States. Typical Famous
Footwear stores are located in strip shopping centers or outlet malls
and average 5,000 square feet. The stores offer men's, women's and
children's shoes at prices that are generally 10 to 40 percent below
list price. Athletic footwear makes up more than 40 percent of total
sales.
SOLID INFRASTRUCTURE
- --------------------
Famous Footwear's history of success can be attributed to its solid
infrastructure of management, systems and distribution capabilities that
will continue to support its rapid and profitable growth into the next
century. The company boasts a state-of-the-art distribution center,
located near Madison. Including its mezzanine level, the distribution
center contains 750,000 square feet, including a 220,000 square foot
addition built during fiscal 1993. It has the capacity to ship 1.2
million pairs of shoes weekly. During 1993, the company began the
roll-out of an in-store interactive information system, reorganized its
merchandising departments, and added new leadership. Ms. Jo Ann K. Day
was named Vice President of Human Resources, Peter T. Murray was named
Chief Financial Officer, Richard P. Kuether was named Vice President of
Logistics and David L. Schemery was named Vice President of
Manufacturing and General Manager of Famous Fixtures, a rapidly
expanding subsidiary.
- --------------------------------
Number of Famous Footwear Stores
1993 -- 567
1992 -- 477
1991 -- 353
1990 -- 304
1989 -- 257
- --------------------------------
<PAGE>
FUTURE SUCCESS
- --------------
With its solid infrastructure in place, Famous Footwear has the
capability to continue to grow in sales and earning power in the branded
footwear retail industry. The company plans to add a net of 150 stores
in 1994, with sales expected to increase to more than $600 million.
5
<PAGE>
<PAGE> 7
PAGODA
- ------
Pagoda is Brown Group's global marketing and sourcing organization,
operating three primary divisions: Pagoda U.S.A. and Pagoda
International, which are marketing organizations; and Pagoda Trading,
which is the worldwide sourcing operation created by the merger of Brown
Group International and Pagoda's importing organization early in 1993.
Pagoda's sales, including sales to affiliates, in 1993 reached $613
million, and operating earnings also increased. Today, Pagoda continues
to grow, taking advantage of its considerable ability to meet the needs
of retailers and wholesalers of both popular-priced and better-grade
footwear. The company has strong factory relationships, sourcing
flexibility that is the industry standard, and a long-standing
reputation for providing superior value, quality and service.
- -----------------------------------------------------------------------
Pagoda Brands
Air Step
Barbie for Girls 1
Brittania 2
Buster Brown
Donnay 3
Dr. Scholl's 4
DeLiso
Disney 5
Fanfares
The Flintstones 6
G. I. Joe 7
Jordache 8
Penaljo
Playskool 9
Reed St. James 10
Revelations
Rookie League 11
Wildcats
Other licensed brands
- -----------------------------------------------------------------------
1 Under license from Mattel, Inc.
2 Under license from Levi Strauss & Co.
3 Under license from Donnay International, S. A.
4 Under license from Schering-Plough HealthCare Products, Inc.
5 Under license from Walt Disney Productions, Inc.
6 Under license from MCA/Universal Merchandising, Inc. and Turner Home
Entertainment, Inc.
7 Under license from Hasbro, Inc.
8 Under license from Jordache Enterprises, Inc.
9 Under license from Playskool, Inc.
10 Under license from Haggar Apparel Company
11 Under license from Major League Baseball Properties, Inc.
- -----------------------------------------------------------------------
<PAGE>
PAGODA U.S.A.
- -------------
The Pagoda U.S.A. division markets branded and unbranded footwear to an
extensive network of both mass-merchandise and mid-tier shoe stores
throughout the country. The company operates five divisions: Women's;
Children's; Men's; Athletics; and the Westport division, providing
DeLiso, Fanfares, Penaljo and private label footwear to mid-tier
retailers and department stores. Branded shoes account for about 60
percent of Pagoda U.S.A.'s sales, up from 24 percent in 1990. This
reflects the company's emphasis on expanding its selection of branded
footwear and strengthening its distribution to better-grade shoe stores
and other retailers.
The Dr. Scholl's licensed brand was very successful for Pagoda U.S.A. in
1993. National attention was paid to the return of the Dr. Scholl's
exercise sandal, and the other Dr. Scholl's styles for men and women
also performed very well. The company expects this success to continue
in 1994. In 1993, Pagoda signed a licensing agreement to design and
market shoes featuring characters from The Flintstones, just in time for
the 1994 release of the Steven Spielberg film featuring the same zany
stone-age characters. Another exciting movie Pagoda U.S.A. is set to
capitalize on is the 1994 release of Disney's newest animated film, The
Lion King.
Pagoda U.S.A. continues to develop opportunities to expand its selection
of popular brands and to maintain its position as one of the leading
distributors of footwear in the country.
PAGODA INTERNATIONAL
- --------------------
Through its Pagoda International division, the company is
well-positioned to take advantage of the growing global footwear market,
selling branded footwear in Europe, Latin America and the Far East.
Pagoda International operates marketing offices in Hong Kong; Paris,
France; Sao Paulo, Brazil; and also markets footwear in Mexico and Latin
America through its St. Louis headquarters offices. The ability to
market internationally recognized licensed brands and proprietary brands
of footwear globally is bringing momentum to Pagoda International. The
company markets chil-
6
<PAGE>
<PAGE> 8
dren's shoes featuring Disney characters throughout the world. It
markets the popular Donnay athletic brand in Europe, and is expanding
the distribution of the Buster Brown and Naturalizer brands worldwide.
The company continues to build this business by providing other popular
brands to its customers. Mexico will become an important market to
Pagoda International as it supplies its brands to the American retailers
expanding into Mexico as well as continuing to supply Mexican retailers.
PAGODA TRADING
- --------------
Pagoda Trading sourced 81 million pairs of shoes in 1993, making it one
of the world's leading suppliers of imported footwear for men, women and
children. The company operates sourcing offices in Brazil, Italy,
Taiwan, Korea, Poland, Indonesia, China and Hong Kong, sourcing footwear
from many of these countries and from Uruguay. In 1993, Pagoda Trading
continued to expand its sourcing network, establishing additional
factory relationships to supply footwear from the Czech Republic,
Vietnam, the Philippines and Bangladesh. Pagoda Trading will begin
supplying footwear from these countries in 1994.
Through its diverse sourcing capabilities, Pagoda Trading is able to
ensure continuity of supply while meeting its customers' quality, price,
style and delivery needs. The company ships footwear all over the world,
including to U. S. customers as well as those served by the Pagoda
International division. The company employs foreign national management
in its sourcing offices to work with the factories and sales
organizations to understand the needs of the various customers it serves
throughout the world and to ensure those needs are met.
BROWN SHOE COMPANY
- ------------------
Brown Shoe Company is a leading marketer of branded women's footwear.
For fiscal 1993, the company reported sales, including sales to
affiliates, of $377 million, but operated at a loss for the year. The
changes announced in 1993, including the closing of several shoe
factories and the reduction of overhead, will strengthen Brown Shoe
Company's operations and prepare it for more profitable growth in the
future.
FOCUS ON BRANDS
- ---------------
During 1993, the company continued to focus on its four major brands --
Naturalizer, Life Stride, Connie and NaturalSport -- which are sold in
leading department stores, footwear specialty stores and family footwear
stores throughout the country. In 1993, Brown Shoe Company introduced
improvements in the product and styling of each brand to appeal to the
needs of today's consumer. The updated styling included an enhanced
selection of casual shoes, wovens and new materials.
7
<PAGE>
<PAGE> 9
- --------------------------------------------------------
Number of Independently Operated U.S. Naturalizer Stores
1993 -- 231
1992 -- 316
1991 -- 333
1990 -- 339
1989 -- 350
- --------------------------------------------------------
Naturalizer is the most recognized women's footwear brand in the U.S.
Women choose Naturalizer for its comfort and fit characteristics, large
selection of sizes and widths, quality and style. This moderately priced
brand performed very well in 1993, continuing to lead the comfort
market. The NC 2000 line with enhanced comfort technology in both dress
and casual styles was introduced in 1992 and performed very well in
1993. Brown Shoe Company has introduced new styling and comfort
technologies to this line, and the consumer response has been very
strong. The independently operated Naturalizer shoe stores performed
particularly well during the year and continue to be an important
distribution channel for the brand.
Life Stride also is among women's top brand choices. It ranks seventh in
awareness among all women's brands. Life Stride features contemporary,
fashion-right styling at price points starting around $30. The target
consumer for Life Stride is the younger career woman, although the shoes
appeal to a broad range of consumers looking for the right combination
of fashion and value. Life Stride's increasing selection of casual shoes
has sold well. The brand's Night Life evening shoe styles and its Soft
System line with extra comfort features also are popular.
Connie features more updated styling with moderate pricing in the $40 to
$55 range. This brand offers good value in freshly styled leather
footwear. The Connie consumer appreciates the brand's reputation for
style, quality and value. The company also has focused on increasing the
selection of casual styles for the Connie brand to meet the needs of the
consumer looking for footwear to complement the more casual influence in
ready-to-wear.
NaturalSport meets the needs of women looking for both fitness and
high-performance walking shoes as well as comfort casuals. The brand
continues to grow, with strong trade and consumer acceptance.
NaturalSport recently launched its new line of shoes featuring the
exclusive Cradle technology and supporting marketing program. The new
Cradle technology is a product innovation that already has proven
successful. The supporting marketing program helps to educate the
consumer to make the right choice for her walking needs depending on the
intensity level at which she walks.
<PAGE>
- -------------------------
Brown Shoe Company Brands
Connie
Life Stride
Naturalizer
NaturalSport
- -------------------------
QUALITY AND VALUE
- -----------------
Brown Shoe Company brands are recognized for their moderate pricing and
high quality, comfort and fit characteristics. Brown Shoe continues to
operate five U.S. plants, primarily producing the Naturalizer brand. In
addition, the company works
8
<PAGE>
<PAGE> 10
closely with Pagoda Trading to import shoes that meet its customers'
value, quality and delivery needs. The ability to source footwear from
around the world allows Brown Shoe Company the flexibility to provide a
wide range of styles at various price-points.
The company has organized its marketing and customer service efforts
around its three primary channels of distribution -- department stores,
specialty stores and family shoe stores. This allows Brown Shoe Company
to provide service directed to the distinct needs of each group of
customers.
In an ongoing effort to serve better the needs of its customers in each
channel of distribution, the company continually develops its Electronic
Data Interchange and Quick Response capabilities. These technologies
enable customers to communicate directly with Brown Shoe Company for
efficient and timely order placement and replenishment.
NATURALIZER RETAIL
- ------------------
Brown Group operates 367 company-owned Naturalizer specialty stores in
major malls and shopping centers throughout the United States. These
stores present the company's flagship brand -- Naturalizer. The
restructuring announced in 1993 aligned the Naturalizer retail division
with the Naturalizer wholesale division, providing the opportunity for
more closely coordinated brand positioning.
The company's Naturalizer retail stores are important distribution
channels for both the Naturalizer and NaturalSport brands. Women know
that they can find the widest selection of styles and sizes of these
brands at Naturalizer stores. Targeted marketing and customer service
programs enhance the consumer's experience when shopping at Naturalizer
stores. These stores help maintain Naturalizer's position as the most
recognized women's shoe brand in the country.
- ---------------------------------------------------
Number of Company Operated U.S. Naturalizer Stores
1993 -- 367
1992 -- 355
1991 -- 384
1990 -- 382
1989 -- 360
- ---------------------------------------------------
CANADIAN OPERATIONS
- -------------------
The company's Canadian operations comprise the retailing, manufacturing
and wholesaling of footwear for men, women and children. Sales in 1993
for the Canadian operations were $66 million collectively and operating
earnings increased. Brown Shoe Company of Canada, Ltd. operates two
footwear production facilities in Canada and wholesales footwear to
department stores, specialty stores and family shoe stores throughout
Canada. Naturalizer is a leading brand in Canada and is sold through 83
company-owned Naturalizer stores, 57 independently operated Naturalizer
stores, as well as through department stores and other fine retailers.
The company also operates the F. X. LaSalle
9
<PAGE>
<PAGE> 11
chain of 15 better-grade shoe stores and four Famous Footwear stores in
Canada.
Operations during 1993 improved dramatically as retail sales grew with
solid store-for-store gains and the net addition of seven Naturalizer
stores and one F. X. LaSalle store. This sales growth, coupled with
continued efficiency improvement programs and asset control efforts,
resulted in major profit improvements for the Canadian wholesale, retail
and manufacturing operations.
- --------------------------
Number of Canadian Stores
Naturalizer
1993 -- 83
1992 -- 76
1991 -- 73
1990 -- 69
1989 -- 53
F. X. LaSalle
1993 -- 15
1992 -- 14
1991 -- 14
1990 -- 13
1989 -- 11
- --------------------------
In 1994, the company will mark the 100th anniversary of the F. X.
LaSalle chain in Canada. Jean-Guy Vaudry recently was named President of
the company's Canadian retail operations, replacing Guy Vincent who
announced his retirement after a 32-year career in the footwear retail
industry.
CLOTH WORLD
- -----------
Cloth World is a 340-store chain of retail stores featuring quality
apparel fabrics, home decorating, soft crafts and sewing supplies at
competitive prices. Cloth World is the fourth largest retail fabric
chain in the United States; its sales increased to $224 million in
fiscal 1993, while operating earnings declined. The retail fabric
industry in 1993 experienced its third consecutive difficult year, with
many competitors reporting losses for the year. The difficulties have
been the result of a shrinking demand for apparel and the related
competitiveness of the ready-to-wear industry as well as excess fabric
store capacity. In light of the overall industry conditions, the
performance of Cloth World reflects very good navigation through some
difficult times, and good positioning for future success.
GROWTH AREAS
- ------------
Cloth World was acquired by Brown Group in 1970 when it had only 14
stores. Cloth World stores average 12,000 square feet and are located in
strip centers. The company also operates a 300,000 square foot
distribution center in Amarillo, Texas. Fabrics for home sewing account
for more than half of total sales at Cloth World. The company's home
decorating and soft craft merchandise departments have been successful
and represent future areas of growth and profit potential for Cloth
World.
- -----------------------------
Number of Cloth World Stores
1993 -- 340
1992 -- 354
1991 -- 322
1990 -- 316
1989 -- 316
- -----------------------------
<PAGE>
In 1994, Cloth World will focus on offering the best value to its
customers. This means continued emphasis on expense control, while
offering the greatest selection of sewing, home decorating and craft
merchandise. In the value-conscious '90s, Cloth World has positioned
itself as a leading fabric retailer that the consumer can rely on for
value and selection. Despite the overall industry conditions, Cloth
World will continue to offer the consumer the value and shopping
convenience she wants.
10
<PAGE>
<PAGE> 12
FINANCIAL STATEMENTS
CONTENTS
- --------
Management's Discussion and Analysis of
Operations and Financial Condition 12
Five-Year Summary 16
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 21
Reports on Financial Statements 31
Management Report on Responsibility
for Financial Reporting
Report of Independent Auditors
Supplementary Financial Information 32
11
<PAGE>
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
1993 Compared to 1992
The financial results for both 1993 and 1992 reflect the impact of unusual
business changes. In January 1994, the corporation announced a series of
restructuring initiatives, which included plant, office and store closures;
consolidation of Brown Shoe Company and Pagoda; and corporate and
divisional staffing reductions, and provided for additional environmental
monitoring costs at its closed tannery, which resulted in an aftertax
charge to earnings from continuing operations of $29.5 million. Also in
January 1994, the corporation announced plans to discontinue and withdraw
from the Wohl Leased Shoe Department business, which resulted in an
aftertax charge of $24.4 million to net earnings. The corporation
implemented the Statement of Financial Accounting Standards (SFAS) #112,
"Employers' Accounting for Postemployment Benefits," in 1993. This change
in accounting principle resulted in a charge to earnings in 1993 of $2.2
million. Earnings for 1992 included aftertax charges of $14.8 million
related to plant closures, inventory liquidation, and the closing of the
corporation's tannery in Gowanda, New York.
Brown Group's sales of $1.60 billion in fiscal 1993 were 8% higher than the
$1.48 billion in fiscal 1992. A loss of $6.7 million in 1993 from
continuing operations, before the cumulative effect of an accounting
change, compares to earnings from continuing operations in 1992 of $8.1
million. A net loss of $31.6 million in 1993 compares to net earnings of
$4.7 million in 1992.
Sales of the Footwear Segment increased 9% in 1993 compared to 1992.
Operating earnings for the segment were $11.9 million in 1993 compared to
$28.5 million in 1992. Operating earnings for 1993 and 1992 included pretax
charges of $45.4 million and $22.4 million, respectively, which were
discussed above, and relate to the Brown Shoe and Wohl Shoe Companies.
Famous Footwear had another record year in which total sales increased 32%
and 9.3% on a store-for-store basis. Operating earnings increased 33% to
$43.1 million in 1993 compared to 1992. For the second consecutive year,
this business has had an aftertax return on invested capital of
approximately 20%. There was a net addition of 90 stores during the year,
bringing the total number of stores to 567. To accommodate growth, the
company's distribution center was expanded in 1993. Plans for 1994 provide
for continued growth of this business through a net addition of 150 stores.
Pagoda, Brown Group's international marketing and sourcing operation, also
continued its trend of sales and earnings growth. Sales increased 16% and
operating earnings increased 37% due to increased volume and expense
leverage. The continued growth of this business is primarily driven by the
success of licensed footwear, in particular, footwear marketed under the
Dr. Scholl's and Disney character brands sold primarily to large
mass-merchandisers. During 1993 Pagoda introduced the Penaljo and
Revelations brands. Also in 1993, this division successfully completed the
merger of Brown Group International into Pagoda. This consolidation will
strengthen sourcing capabilities and improve operating efficiencies.
Brown Shoe Company's sales declined 16% in 1993, reflecting lower shipments
of the company's branded product. This business was unprofitable for the
second consecutive year. Included in results for 1993 are charges to
further reduce capacity and overhead costs, and to provide for additional
ongoing environmental compliance costs at the company's closed tannery. The
1993 charge provided for the closing of five manufacturing facilities in
1994. In 1992, charges were recorded for the closing of three factories, a
warehouse, and the company's tannery. These closures reflect the ongoing
shift from domestically manufactured to imported product. The remaining
domestic manufacturing capacity will be primarily supporting the "quick
response" business of the Naturalizer brand. In January 1994, it was
announced that Brown Shoe will be consolidated with Pagoda, which should
improve efficiencies and contribute to Brown Shoe operating profitably in
1994.
Wohl Shoe Company (excluding Leased Departments, which are included in
Discontinued Operations) consists of the Naturalizer, Connie, and Regal
concept stores. Sales for the concept stores decreased 3% in 1993 and the
company recorded a substantial loss. Included in results for 1993 are
charges for the closure of more than 100 company-owned Regal and Connie
shoe stores. These two chains have experienced declining performance for
the past several years. The Naturalizer stores, which had been operated by
Wohl Shoe Company, will be aligned with the Naturalizer wholesale division
of Brown Shoe Company in 1994. Total sales for Naturalizer stores increased
10% in 1993 and 1.6% on a store-for-store basis. There was a net addition
of 12 stores during the year, bringing the total number of stores to 367.
In January 1994 the corporation adopted a formal plan to withdraw from the
Wohl Leased Shoe Department business, which involves the management of shoe
departments in department stores. Most of the leases are cancelable after a
period of notice by either party and the corporation expects to complete
most of the withdrawals by the end of 1994. The $34.8 million pretax
12
<PAGE>
<PAGE> 14
charge for the estimated costs of exiting the business, which is reflected
as discontinued operations in net earnings, consists of the following:
* Charges of $14.6 million for asset writeoffs associated with leasehold
improvements and headquarters facility closure;
* Inventory writedowns and results of operations during the phaseout period
of $7.2 million;
* Charges of $8.5 million for severance and benefit costs; and
* Other fees and costs of $4.5 million.
Non-cash writeoffs included in these charges totaled approximately $14.6
million. The remaining $20.2 million of discontinued operations charges
will impact cash flow in the third and fourth quarters of fiscal 1994 and
may extend into the first quarter of fiscal 1995. The liquidation of this
business will generate positive cash flow, which will be reinvested in the
corporation's more profitable businesses and used to pay down debt.
The restructuring initiatives and additional environmental provisions,
which were announced in January 1994, resulted in a $45.4 million pretax
charge to Footwear Segment earnings and consisted of the following:
* Charges of $13.3 million for asset writeoffs associated with the disposal
of five manufacturing facilities of Brown Shoe Company and over 150 shoe
stores currently operated by Wohl Shoe Company;
* Charges of $10.4 million related to lease buyouts and termination costs
for retail store closures and leased machinery from closed manufacturing
facilities;
* Inventory writedowns of $7.9 million to liquidate store inventories;
* Charges of $8.8 million for severance and benefit costs for those
employees terminated due to plant and store closures, consolidation of
Pagoda and Brown Shoe Company and reduction of headquarters staffing; and
* Provision of $5.0 million for additional environmental monitoring costs
at the corporation's closed tannery.
Non-cash writeoffs included in the above charges totaled approximately
$13.3 million. The remaining $27.1 million of restructuring charges will
impact cash flow in the second through fourth quarters of fiscal 1994 and
may extend into the first quarter of fiscal 1995. Once completed in late
fiscal 1994 or early fiscal 1995, the restructuring will result in lower
overhead expenses at Brown Shoe Company and Pagoda. More importantly, it
will generate positive cash flow, which will be reinvested in the
corporation's profitable and expanding Famous Footwear and Pagoda
businesses and used to partially pay down debt. The impact on cash flow of
environmental costs is discussed later.
Canadian retailing sales increased 9% in 1993 and 6.8% on a store-for-store
basis. Earnings also improved in 1993 through increased sales, improved
margins, and leveraging of expenses. With the net addition of eight stores
in 1993, this chain now operates 102 stores. The Canadian
manufacturing/wholesaling operation also had improved results in 1993
despite a sales decline of 10%. This operation returned to profitability
after recording a slight loss in 1992. The improved results were due to
improved margins and lower bad debt expense.
Sales for the Cloth World chain of fabric stores were flat in 1993 with
store-for-store sales decreasing 1.6%. The company operated 340 stores at
year-end, which is 14 stores fewer than at fiscal year-end 1992. Operating
earnings decreased to $3.9 million in 1993 from $8.4 million in 1992.
Earnings were once again negatively impacted by the continued promotional
retail fabric environment. However, Cloth World continues to be profitable
in this very difficult environment.
The 4.6% increase in Brown Group's interest expense in 1993 reflects
increased borrowing levels to fund growth at Famous Footwear and Pagoda
partially offset by lower interest rates.
The corporation's effective tax rate in 1993 was 43.2% compared to 16.1% in
1992. For a reconciliation of these rates compared to the statutory rate,
see Note 5 to the consolidated financial statements.
The corporation has an overall net deferred tax asset of $41 million at
January 29, 1994, which relates primarily to differences in book and
taxable income arising from discontinued operations reserves, restructuring
charges, and normal recurring operations (e.g., inventory valuation
reserves and adjustments, and employee benefit accruals). No valuation
allowance is considered necessary as management believes it is more likely
than not that the deferred tax asset will be realized through a combination
of (1) the carryback to prior years of the net operating loss generated as
executed transactions cause the deductions to be recognized and (2) the
offset of the deductions against taxable income produced in the normal
course of business in subsequent periods. Management also has available
certain tax planning strategies, which, if implemented, could fully consume
the net deferred tax asset after the above described utilization.
Management will continue to evaluate the realizability of the deferred tax
asset.
13
<PAGE>
<PAGE> 15
1992 Compared to 1991
- ---------------------
Brown Group's sales of $1.48 billion for fiscal 1992 were 4% higher than
the $1.42 billion for fiscal 1991. Earnings from continuing operations of
$8.1 million in 1992 compare to earnings from continuing operations before
the cumulative effect of accounting changes in 1991 of $15.4 million. The
1992 earnings from continuing operations were negatively impacted by
approximately $14.8 million of aftertax charges related to factory closings
and overhead reduction at Brown Shoe Company and inventory liquidation at
Wohl Shoe Company. Net earnings, after reflecting discontinued operations
and cumulative accounting changes from the adoption of new accounting
pronouncements for postretirement health and life insurance benefits and
income taxes, were $4.7 million in 1992 and $3.8 million in 1991.
Sales of the Footwear Segment increased 4% in 1992 compared to 1991.
Operating earnings for the segment were $28.5 million in 1992 compared to
$38.1 million in 1991. Included in Footwear Segment operating earnings for
1992 are pretax charges discussed above totaling $22.4 million.
Famous Footwear had a record year for both sales and earnings. Total sales
increased 39% and 13.4% on a store-for-store basis. There was a net
addition of 124 stores during 1992. Operating earnings nearly doubled to
$32.3 million in 1992 compared to 1991.
Pagoda's sales increased 20% and operating earnings increased 22% in 1992.
These increases were primarily driven by the success of women's, men's and
children's licensed footwear.
Brown Shoe Company's sales and earnings declined in 1992, reflecting the
continued financial distress of many of its independent customers and the
continued shift from domestically manufactured to imported product. Sales
of both branded and private label footwear were negatively affected.
Earnings were negatively impacted by additional charges for capacity and
overhead reductions. Decisions were made to close three factories, a
warehouse, and the company's tannery, further reduce office staff and make
organizational changes. As a result of these charges, a loss was recorded
for 1992.
Wohl Shoe Company's concept store sales decreased $30 million or 15% in
1992, reflecting store-for-store sales declines and a net reduction of 98
stores. Earnings were significantly impacted by charges to reduce
inventories, which resulted in a loss for 1992. Earnings for Naturalizer
and Connie stores, despite savings from ongoing cost reduction efforts,
continued to be negatively impacted by promotions and lower sales.
The $22.4 million of nonrecurring pretax charges recorded by the Footwear
Segment in the first quarter of 1992, which were previously discussed,
consisted of the following major components: $3.0 million for employee
severance costs related to factory closings and overhead reduction at Brown
Shoe Company; $5.8 million to cover inventory liquidation at Wohl Shoe
Company; $9.6 million for the closing and disposal of three Brown Shoe
Company factories, a warehouse, and the corporation's tannery; and $4.0
million for the writeoff of machinery no longer used in production.
Non-cash writeoffs included in these charges totaled approximately $7.8
million. Expenditures negatively impacting cash flow in 1993 and 1992
totaled approximately $5.5 million and $8.3 million, respectively,
primarily for closure of the tannery and inventory liquidation costs. The
balance of these charges that will be expended in fiscal 1994, excluding
environmental costs discussed separately, totals $.8 million.
The Canadian retailing operation achieved a 3% store-for-store sales gain.
Earnings increased from the loss incurred in 1991 to a slight profit in
1992 ending the year with 94 retail shoe stores. The Canadian
manufacturing/wholesaling operation had a difficult year as a result of the
recessionary economic climate in Canada and continued pressure from
imported footwear. The poor economy led to the bankruptcies of several
large customers, increasing bad debt expense in 1992. Both sales and
earnings decreased in 1992 resulting in a loss for the year.
The Cloth World chain of fabric stores recorded an overall sales increase
of $4 million with a net increase of 32 stores during 1992. However,
same-store sales declined by 2%. Operating earnings decreased to $8.4
million from $12.1 million in 1991. Earnings were negatively impacted by
lower margins, which resulted from a difficult and promotional fabric
retail environment.
The 5.2% increase in Brown Group's interest expense in 1992 reflected
increased borrowing levels required to fund the growth of Famous Footwear.
The corporation's effective tax rate in 1992 was 16.1% compared to 29.6% in
1991. For a reconciliation of these rates compared to the statutory rate,
see Note 5 to the consolidated financial statements.
IMPACT OF INFLATION
- -------------------
The effects of inflation have been minor over the past few years and are
not expected to have a significant impact in the foreseeable future.
FINANCIAL CONDITION
- -------------------
LIQUIDITY AND CAPITAL
- ---------------------
The capital required for the continued growth at Famous Footwear and Pagoda
could not be totally funded by operations in 1993. As a result, the
corporation increased its total debt to $289 million at the end of fiscal
14
<PAGE>
<PAGE> 16
1993 from $232 million at the end of fiscal 1992. Accordingly, the
corporation's ratio of total debt to total capitalization increased to
55.3% at the end of 1993 from 44.5% at the end of 1992. This ratio was also
negatively impacted since charges for restructuring and discontinued
operations were reflected in 1993 net earnings while the positive cash flow
from these activities, which will be partially used to reduce debt, will
not be reflected until 1994.
Working capital at the end of 1993 was $241 million, which was lower than
the $263 million at the end of 1992. As a result, the corporation's current
ratio, the relationship of current assets to current liabilities, decreased
to 1.6 to 1 from 1.9 to 1 at the end of 1992. These decreases are primarily
due to cash used by operating activities, such as increases in inventories
for new stores at Famous Footwear, which was partially offset by an
increase in trade accounts payable. Accounts receivable decreased in 1993
primarily as a result of lower sales at Brown Shoe Company. Prepaid
expenses and other current assets increased as a result of current deferred
tax assets related to restructuring reserves. These reserves are reflected
in various accounts but primarily in accrued employee compensation and
benefits and other accrued expenses.
Cash used by investing activities was primarily for capital expenditures in
1993 of $30.2 million compared to $22.2 million in 1992. The 1993 capital
expenditures were primarily for the opening of new retail stores, expansion
of the Famous Footwear distribution center, and the remodeling of existing
retail units. Capital expenditures for 1994 are planned to be slightly
higher than in 1993 and will consist primarily of store openings and system
improvements at Famous Footwear.
Expenditures required in 1994 related to the corporation's restructuring
and discontinued operations will be more than offset by cash generated
through associated asset sales and inventory and accounts receivable
liquidations. It is expected that the excess cash generated by these
changes and improved operations in 1994 will enable the company to continue
to fund the growth at Famous Footwear and Pagoda while reducing overall
debt levels. Although borrowing levels are currently higher than in the
past, the corporation's current borrowing capacity is more than adequate to
fund all operational needs.
To fund short-term working capital needs, the corporation issues commercial
paper, which is rated A-2 by Standard and Poor's Corporation and P-2 by
Moody's Investor Service. In addition, the corporation maintains lines of
credit totaling approximately $230 million.
Financing activities reflect an increase in notes payable and a decrease in
current maturities of long-term debt, which is partially due to the
rearrangement of $75 million of the corporation's long-term debt. During
1992, the corporation took steps to rearrange its debt structure to take
advantage of lower interest rates. In January 1993 the corporation issued
$50 million in 6.47% senior notes to partially refinance its $75 million
8-1/8% debentures that were originally due in 1996. In the interim period,
prior to redemption, these proceeds were used to reduce short-term
commercial paper borrowing. In April 1993 the corporation called for
redemption of these debentures. They were paid with proceeds from the
issuance of commercial paper.
DIVIDENDS
- ---------
Brown Group paid a dividend of $1.60 per share in 1993, which was the same
as in 1992, and marked the 71st year of consecutive quarterly dividends.
ENVIRONMENTAL MATTERS
- ---------------------
The corporation is involved in environmental remediation and ongoing
compliance at its closed New York tannery site and two associated landfill
locations. In fiscal 1992 the corporation provided $1.7 million for
remediation costs. Due to a change in the expected holding period of the
property, an additional $6.6 million was charged to earnings in fiscal 1993
to provide for additional remediation costs and future environmental
compliance costs. This additional charge included $5.0 million which was
recorded in conjunction with restructuring charges in January 1994.
Environmental compliance costs include maintenance and operating costs with
respect to pollution control facilities, cost of ongoing monitoring
programs, and similar costs. Based upon current environmental regulations,
the corporation has estimated the remaining remediation costs to be
approximately $.7 million, which will be expended in fiscal 1994, and
future environmental compliance costs to be approximately $4.6 million,
which will be expended over the next 30 years. These amounts have been
accrued and are reflected in the corporation's January 29, 1994 Balance
Sheet.
In addition to the tannery site, the corporation has been identified as a
potentially responsible party by various federal and state authorities for
remediation at certain other landfills. The corporation is one of many
parties involved at these sites. The corporation's involvement relates to
the disposal of solvents and other by-products of the corporation's closed
tannery and shoe manufacturing facilities. Based upon current information
available as to the corporation's ultimate liability related to these
sites, it is estimated to be in the range of $.4 million to $.7 million.
At January 29, 1994, $.5 million has been accrued to cover these costs.
15
<PAGE>
<PAGE> 17
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- -------
Thousands, except (52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
per share
<S> <C> <C> <C> <C> <C>
Operations
- ----------
Net sales $1,597,811 $1,481,644 $1,422,345 $1,429,939 $1,446,471
Cost of goods
sold 1,041,096 959,879 924,107 919,987 944,599
---------- ---------- ---------- ---------- ----------
Gross profit 556,715 521,765 498,238 509,952 501,872
---------- ---------- ---------- ---------- ----------
Selling and
administrative
expenses 529,741 487,402 463,435 452,952 449,412
Interest expense 17,591 16,821 15,997 18,174 20,748
Other expense
(income)--net 21,211 7,924 (3,139) (3,764) (3,831)
---------- ---------- ---------- ---------- ----------
568,543 512,147 476,293 467,362 466,329
---------- ---------- ---------- ---------- ----------
Earnings (loss)
from continuing
operations before
income taxes and
cumulative effect
of accounting
changes (11,828) 9,618 21,945 42,590 35,543
Income taxes (5,116) 1,553 6,506 14,413 11,536
---------- ---------- ---------- ---------- ----------
Earnings (loss)
from continuing
operations before
cumulative effect
of accounting
changes (6,712) 8,065 15,439 28,177 24,007
Earnings (loss)
from discontinued
operations, net
of income taxes 1,714 (3,401) 256 3,598 6,820
Gain on (provision
for) disposal
of discontinued
operations, net
of income taxes (24,400) 3,000
Cumulative effect
of changes in
accounting for
postemployment
benefits in 1993
and postretire-
ment benefits
and income taxes
in 1991 (2,214) (11,931)
---------- ---------- ---------- ---------- ----------
Net earnings
(loss) $ (31,612) $ 4,664 $ 3,764 $ 31,775 $ 33,827
========== ========== ========== ========== ==========
<PAGE>
Returns from
continuing
operations
before
accounting
changes:
Return on
net sales (.4)% .5% 1.1% 2.0% 1.7%
Return on
beginning
stockholders'
equity (2.3)% 2.6% 4.6% 8.3% 7.2%
Return on
average invested
capital (1.2)% 1.6% 2.9% 5.0% 4.4%
Dividends paid $ 27,979 $ 27,714 $ 27,646 $ 27,789 $ 27,999
Capital
expenditures 30,175 22,170 22,751 27,666 26,442
Per Common Share
- ----------------
Earnings (loss)
from continuing
operations
before
accounting
changes $ (.39) $ .47 $ .90 $ 1.64 $ 1.39
Net earnings
(loss) (1.83) .27 .22 1.85 1.95
Dividends paid 1.60 1.60 1.60 1.60 1.60
Stockholders'
equity 13.27 16.69 18.10 19.47 19.39
Financial Position
- ------------------
Receivables, net $ 109,968 $ 114,594 $ 84,353 $ 101,878 $ 122,313
Inventories 375,465 333,215 304,908 295,287 261,083
Working capital 240,554 262,611 297,239 285,310 306,440
Property, plant
and equipment,
net 97,430 99,536 112,824 114,103 110,923
Total assets 771,734 735,691 682,033 714,875 689,058
Long-term debt
and capitalized
lease
obligations 135,324 123,024 144,564 128,611 132,398
Stockholders'
equity 233,863 288,988 313,387 336,182 338,963
Average Common
Shares
Outstanding 17,270 17,132 17,070 17,184 17,346
</TABLE>
All data presented reflects the fiscal year ended on the Saturday nearest to
January 31.
16
<PAGE>
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Thousands, except number of shares January 29, 1994 January 30, 1993
---------------- ----------------
<S> <C> <C>
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 16,892 $ 21,625
Receivables, net of allowances
of $11,425 in 1993 and $10,482 in 1992 109,968 114,594
Inventories, net of adjustment
to last-in, first-out cost of $52,849
in 1993 and $65,962 in 1992 375,465 333,215
Net current assets of discontinued
operations 38,942 50,181
Deferred income taxes 47,774 19,557
Prepaid expenses and other current assets 22,824 18,980
-------- --------
Total Current Assets 611,865 558,152
Net Noncurrent Assets of
Discontinued Operations 7,062 22,944
Other Assets 55,377 55,059
Property, Plant and Equipment, Net 97,430 99,536
-------- --------
$771,734 $735,691
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Notes payable $146,090 $ 11,645
Trade accounts payable 105,437 102,815
Employee compensation and benefits 43,591 32,968
Other accrued expenses 64,696 46,175
Income taxes 3,788 5,073
Current maturities of long-term debt 7,709 96,865
-------- --------
Total Current Liabilities 371,311 295,541
Other Liabilities
Long-term debt, including capitalized
lease obligations 135,324 123,024
Deferred income taxes 7,152 4,398
Other liabilities 24,084 23,740
-------- --------
Total Other Liabilities 166,560 151,162
Stockholders' Equity
Preferred stock, $1.00 par value,
1,000,000 shares authorized;
no shares outstanding -- --
Common stock, $3.75 par value,
100,000,000 shares authorized;
17,619,768 and 17,318,883 shares
outstanding 66,075 64,947
Additional capital 35,979 28,264
Cumulative translation adjustment (3,287) (1,571)
Unamortized value of restricted stock (6,827) (4,166)
Retained earnings 141,923 201,514
-------- --------
Total Stockholders' Equity 233,863 288,988
-------- --------
$771,734 $735,691
======== ========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
<PAGE> 19
CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
Thousands, except per share 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales $1,597,811 $1,481,644 $1,422,345
Cost of goods sold 1,041,096 959,879 924,107
---------- ---------- ----------
Gross profit 556,715 521,765 498,238
---------- ---------- ----------
Selling and administrative expenses 529,741 487,402 463,435
Interest expense 17,591 16,821 15,997
Other expense (income) -- net 21,211 7,924 (3,139)
---------- ---------- ----------
568,543 512,147 476,293
---------- ---------- ----------
Earnings (Loss) From Continuing
Operations Before Income Taxes
and Cumulative Effect of
Accounting Changes (11,828) 9,618 21,945
Income taxes (5,116) 1,553 6,506
---------- ---------- ----------
Earnings (Loss) From Continuing
Operations Before Cumulative
Effect of Accounting Changes (6,712) 8,065 15,439
Cumulative effect of changes
in accounting for postemployment
benefits in 1993 and postretirement
benefits and income taxes in 1991 (2,214) -- (11,931)
Discontinued operations:
Earnings (loss) from operations,
net of tax 1,714 (3,401) 256
Provision for disposal,
net of tax benefit (24,400) -- --
---------- ---------- ----------
Net Earnings (Loss) $ (31,612) $ 4,664 $ 3,764
========== ========== ==========
Earnings (Loss) Per Common Share:
Continuing operations before
cumulative effect of accounting
changes $ (.39) $ .47 $ .90
Cumulative effect of changes
in accounting for postemployment
benefits in 1993 and postretirement
benefits and income taxes in 1991 (.13) -- (.70)
Discontinued operations:
Earnings (loss) from operations .10 (.20) .02
Provision for disposal (1.41) -- --
---------- ---------- ----------
Net Earnings (Loss) $ (1.83) $ .27 $ .22
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
<PAGE> 20
CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Thousands 1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net earnings (loss) $(31,612) $ 4,664 $ 3,764
Adjustments to reconcile net earnings
to net cash provided (used) by
continuing operating activities:
Cumulative effect of changes in
accounting for postemployment
benefits in 1993 and postretirement
benefits and income taxes in 1991 2,214 -- 11,931
Discontinued operations 22,686 3,401 (256)
Depreciation and amortization 22,803 23,682 25,152
Loss on sale of facilities and
equipment 12,547 8,728 3,266
Provision for losses on accounts
receivable 5,272 7,771 3,902
Changes in operating assets
and liabilities:
Receivables (646) (3,012) 8,623
Sale of receivables -- (35,000) 5,000
Inventories (42,250) (28,307) (9,621)
Prepaid expenses and other
current assets (30,869) (4,894) (4,667)
Trade accounts payable and
accrued expenses 28,360 16,296 (3,938)
Income taxes (1,285) 5,007 156
Other, net (1,384) (3,125) (2,548)
-------- ------- -------
Net Cash Provided (Used) by
Operating Activities of:
Continuing operations (14,164) (4,789) 40,764
Discontinued operations 4,435 (1,378) 27,574
-------- ------- -------
Net Cash Provided (Used) by
Operating Activities (9,729) (6,167) 68,338
-------- ------- -------
Investing Activities:
Capital expenditures (30,175) (22,170) (22,751)
Proceeds from sales of fixed
assets and businesses 1,407 595 483
Payments received on notes
receivable from sales of businesses -- -- 219
-------- ------- -------
Net Cash Provided (Used) in Investing
Activities (28,768) (21,575) (22,049)
-------- ------- -------
Financing Activities:
Increase (decrease) in short-term
notes payable 134,445 (2,751) (42,389)
Principal payments of long-term
debt and capitalized leases (97,102) (14,310) (3,672)
Additions to long-term debt 20,000 75,288 30,000
Proceeds from issuance of common
stock 4,400 171 154
Payments for purchase of treasury
stock -- -- (388)
Dividends paid (27,979) (27,714) (27,646)
-------- ------- -------
Net Cash Provided (Used) by
Financing Activities 33,764 30,684 (43,941)
-------- ------- -------
<PAGE>
Increase (Decrease) in Cash and
Cash Equivalents (4,733) 2,942 2,348
Cash and Cash Equivalents at
Beginning of Year 21,625 18,683 16,335
-------- ------- -------
Cash and Cash Equivalents at
End of Year $ 16,892 $21,625 $18,683
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
<PAGE> 21
CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Thousands, except number of shares
Common Stock Unamortized
----------------- Cumulative Value of
Additional TranslationRestricted Retained
Shares Dollars Capital Adjustment Stock Earnings
---------- ------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance
February
2, 1991 17,264,381 $64,742 $26,837 $ 1,942 $(6,093) $248,754
Net earnings 3,764
Dividends
($1.60 per
share) (27,646)
Stock issued
under
employee
benefit
plans 5,864 22 132
Purchase of
common stock
for treasury (15,000) (56) (24) (308)
Currency
translation
adjustment (354)
Stock issued
under
restricted
stock plan,
net 56,500 212 1,192 (1,404)
Amortization
of deferred
compensation
under
restricted
stock plan 1,675
---------- ------- ------- ------- ------- --------
Balance
February
1, 1992 17,311,745 64,920 28,137 1,588 (5,822) 224,564
Net earnings 4,664
Dividends
($1.60 per
share) (27,714)
Stock issued
under
employee
benefit
plans 6,888 26 145
Currency
translation
adjustment (3,159)
Stock issued
under
restricted
stock plan,
net 250 1 (18) 17
Amortization
of deferred
compensation
under
restricted
stock plan 1,639
---------- ------- ------- ------- ------- --------
Balance
January
30, 1993 17,318,883 64,947 28,264 (1,571) (4,166) 201,514
Net loss (31,612)
Dividends
($1.60 per
share) (27,979)
Stock issued
under
employee
benefit
plans 168,385 631 3,769
Currency
translation
adjustment (1,716)
Stock issued
under
restricted
stock plan,
net 132,500 497 3,946 (4,443)
Amortization
of deferred
compensation
under
restricted
stock plan 1,782
---------- ------- ------- ------- ------- --------
Balance
January
29, 1994 17,619,768 $66,075 $35,979 $(3,287) $(6,827) $141,923
========== ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
Consolidation
- -------------
The consolidated financial statements include the accounts of Brown Group,
Inc. and its majority-owned subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation. Certain amounts in the
consolidated financial statements for periods prior to the fourth quarter of
fiscal 1993 have been reclassified to conform to the current presentation.
Accounting Period
- -----------------
The corporation's fiscal year is the 52 or 53 week period ending the Saturday
nearest to January 31. Fiscal years 1993, 1992 and 1991 ended on January 29,
1994, January 30, 1993 and February 1, 1992, respectively. Fiscal years 1993,
1992 and 1991 each included 52 weeks.
Inventories
- -----------
All inventories are valued at the lower of cost or market, with 85% of
consolidated inventories using the last-in, first-out (LIFO) method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation and
amortization of property, plant and equipment are provided over the estimated
useful lives of the assets, or the remaining term of leases where applicable,
using the straight-line method.
Income Taxes
- ------------
Provision is made for the tax effects of timing differences between financial
and tax reporting. These differences relate principally to depreciation,
employee benefit plans, facility closing and restructuring reserves, bad debt
reserves and inventory.
Earnings Per Share
- ------------------
Earnings per share of Common Stock is computed by dividing net earnings by the
weighted average number of shares outstanding during the year. The dilutive
effect of stock options is not significant and is therefore excluded from the
calculation.
Pre-opening and Closing Expenses
- --------------------------------
Pre-opening expenses of new facilities are charged to operations when
incurred. Costs of closing facilities, including capital asset disposition
losses, lease termination costs and personnel costs, are accrued when
management makes the decision to close such facilities.
Cash Flows
- ----------
For purposes of the Statement of Cash Flows, short-term investments which have
a maturity of three months or less are considered to be cash equivalents.
Translation of Foreign Currencies
- ---------------------------------
Assets and liabilities of subsidiaries, other than those located in highly
inflationary countries, are translated at the rate of exchange in effect on
the balance sheet date; income and expenses are translated at the average
rates of exchange prevailing during the year. The related translation
adjustments are reflected in the cumulative translation adjustment section of
the Consolidated Statement of Stockholders' Equity. Foreign currency gains and
losses resulting from transactions and the translation of financial statements
of subsidiaries in highly inflationary countries are included in results of
operations.
NOTE 2: DISCONTINUED OPERATIONS
- -------------------------------
During the fourth quarter of fiscal 1993, the corporation adopted a formal
plan to withdraw from the Wohl Leased Shoe Department business, which involves
the management of shoe departments in department stores. Most of the leases
are cancelable after a period of notice by either party and the corporation
expects to complete most of the withdrawals by the end of fiscal 1994.
In connection with this plan an estimated loss on exiting this business of
$24.4 million, net of income tax benefits of $10.4 million, was recognized.
The loss represents primarily inventory liquidation, severance and
headquarters facility closure costs and results of operations during the
estimated phase-out period.
Summarized results of this business are shown separately as Discontinued
Operations in the accompanying consolidated financial statements. Assets and
liabilities shown are at their estimated net realizable value, and
21
<PAGE>
<PAGE> 23
consist primarily of inventory and leasehold improvements. Prior year
financial statements have been reclassified to conform to the current year
presentation. Operating results of this business are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales $292,845 $303,214 $305,471
======== ======== ========
Earnings (loss) before
income taxes 2,904 (4,519) 413
Income taxes 1,190 (1,118) 157
-------- -------- --------
Earnings (loss) from
operations $ 1,714 $ (3,401) $ 256
======== ======== ========
</TABLE>
NOTE 3: RESTRUCTURING CHARGES
- -----------------------------
Included in results from continuing operations for fiscal 1993 is a pretax
restructuring charge of $45.4 million, of which $11.0 million was charged to
cost of goods sold and an additional $13.0 million was charged to selling and
administrative expenses with the remaining $21.4 million charged to other
expense. This charge covers the closing of five shoe factories, the closing of
over 150 shoe stores, estimated severance costs associated with a reduction in
headquarters administrative staffing and consolidation of the corporation's
Brown Shoe and Pagoda divisions, and a provision for additional environmental
monitoring costs related to the corporation's closed tannery. The
restructuring charge, net of the related tax benefit, resulted in a reduction
of $29.5 million, or $1.71 per share, in earnings from continuing operations
for fiscal 1993.
Results from continuing operations in 1992 reflected pretax charges of $22.4
million, of which $5.8 million was charged to cost of goods sold and $3.0
million to selling and administrative expenses with the remaining $13.6
million charged to other expense. These charges related to the closing of
three plants and a warehouse, inventory liquidation, and the closing of the
corporation's tannery. These charges, net of the related tax benefits,
resulted in a reduction of $14.8 million, or $.87 per share, in earnings from
continuing operations for fiscal 1992.
NOTE 4: RETIREMENT AND OTHER BENEFIT PLANS
- ------------------------------------------
The corporation and its subsidiaries have several non-contributory pension
plans covering substantially all U. S. employees. Plans covering salaried and
management employees provide pension benefits that are based on the employee's
highest consecutive five years of compensation during the ten years before
retirement. Plans covering hourly employees and union members generally
provide benefits of stated amounts for each year of service. The corporation's
funding policy for all plans is to make the minimum annual contributions
required by applicable regulations. The corporation also participates in
several multiemployer plans, which provide defined benefits to certain of the
corporation's union employees.
The following table sets forth the plans' funded status at the December 31,
1993 and 1992 measurement dates, and amounts recognized in the corporation's
Balance Sheet at January 29, 1994 and January 30, 1993 (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $118,243 $114,982
======== ========
Accumulated benefit obligation $123,289 $118,025
======== ========
Projected benefit obligation $138,930 $133,422
Plan assets at fair value 188,338 175,662
-------- --------
Excess of plan assets over
projected benefit obligation 49,408 42,240
Unrecognized net gain (20,420) (10,617)
Unrecognized prior service costs 7,123 4,695
Unrecognized net transition asset (7,015) (10,067)
-------- --------
Net pension asset recognized
in the balance sheet $ 29,096 $ 26,251
======== ========
</TABLE>
Pension plan assets are invested primarily in listed stocks and bonds. The
plan assets are valued using the current market value for bonds and a
five-year moving average for equities.
Prior service costs are amortized over the average remaining service period of
employees expected to receive benefits under the plan.
22
<PAGE>
<PAGE> 24
Pension costs included the following components (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Service cost $ 6,180 $ 6,180 $ 5,896
Interest cost 9,532 10,420 9,836
Actual return on
plan assets (30,847) (8,715) (31,557)
Net amortization
and deferral 12,864 (10,675) 13,871
Multiemployer plans 143 166 192
------- ------- -------
Total pension (income) $(2,128) $(2,624) $(1,762)
======= ======= =======
Actuarial assumptions
used were:
Discount rate 7.25% 7.5% 7.5%
Expected return on
plan assets 9.5% 9.5% 9.5%
Compensation increase 5.0% 5.0% 5.0%
</TABLE>
The corporation sponsors several defined contribution 40l(k) plans covering
salaried, management and certain hourly employees who have one year of service
and who are 21 years of age. Company contributions represent a partial
matching of employee contributions generally up to a maximum of 3.5% of the
employee's salary. The company's expense for these plans was $3,350,000 in
1993, $3,380,000 in 1992 and $3,400,000 in 1991.
In addition to providing pension benefits, the corporation sponsors unfunded
defined benefit postretirement health and life insurance plans that cover both
salaried and hourly employees. The postretirement health care plans are
offered only to employees electing early retirement on a shared-cost basis.
This coverage ceases when the employee reaches age 65 and becomes eligible for
Medicare. The retiree contributions are adjusted annually, and the corporation
intends to continue to increase retiree contributions in the future. The life
insurance plans provide coverage ranging from $1,000 to $38,000 for qualifying
retired employees.
In fiscal 1991, the corporation adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." In applying this pronouncement,
the corporation immediately recognized the Accumulated Postretirement Benefit
Obligation as of the beginning of fiscal 1991 of $17,320,000 in the first
quarter of 1991 as a change in accounting principle. On an aftertax basis,
this charge was $11,431,000 or $.67 per share.
The following tables set forth the plans' funded status reconciled with the
amount shown in the corporation's Balance Sheet at January 29, 1994 and
January 30, 1993 (in thousands):
<PAGE>
<TABLE>
<CAPTION>
1993 1992
---------------------- -------------------
Life Life
Health Insurance Health Insurance
Plans Plans Plans Plans
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Accumulated
postretirement
benefit obligations:
Retirees $ 4,347 $4,825 $ 5,176 $5,215
Active participants 3,229 499 9,353 352
------- ------ ------- ------
$ 7,576 $5,324 $14,529 $5,567
======= ====== ======= ======
Plan assets $ -- $ -- $ -- $ --
Accumulated
obligation in excess
of plan assets 7,576 5,324 14,529 5,567
Unrecognized
net gain (loss) 3,758 (310) (1,398) (376)
------- ------ ------- ------
Accrued postretire-
ment benefit cost $11,334 $5,014 $13,131 $5,191
======= ====== ======= ======
</TABLE>
Net postretirement benefit cost for 1991, 1992 and 1993 included the following
components (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Life
Health Insurance
Plans Plans
------ ---------
<S> <C> <C>
1991
Service cost $ 404 $ 19
Interest cost 960 402
Net amortization and deferral -- --
------ ----
Postretirement benefit cost $1,364 $421
====== ====
1992
Service cost $ 447 $ 18
Interest cost 1,032 402
Net amortization and deferral (3) --
------ ----
Postretirement benefit cost $1,476 $420
====== ====
1993
Service cost $ 534 $ 25
Interest cost 667 387
Net amortization and deferral (2,088) --
------ ----
Postretirement benefit cost $ (887) $412
====== ====
</TABLE>
23
<PAGE>
<PAGE> 25
In the fourth quarter of 1993, the corporation terminated postretirement
health coverage for salaried employees who will not become eligible by January
1, 1995. The effect of this change was the recognition of a pretax gain of
$1.8 million.
Actuarial assumptions used were (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Projected health care cost
trend rate (A) 9% 13% 14%
Ultimate trend rate (A) 5% 6% 6%
Year ultimate trend rate is achieved 2001 2000 2000
Effect of a 1% point increase in the
health care cost trend rate on the
postretirement benefit obligation $309 $1,200 $1,000
Effect of a 1% point increase in the
health care cost trend rate on the
aggregate of service and interest cost 84 157 140
Discount rate 7.25% 7.5% 7.5%
<FN>
(A) The health care cost trend rate assumption has a significant effect on the
amounts reported. Rates listed above represent assumed increases in per capita
cost of covered health care benefits for 1994, 1993 and 1992, respectively.
For future years the rate was assumed to decrease gradually and remain at the
ultimate trend rate thereafter.
</TABLE>
In the fourth quarter of 1993, the corporation adopted, retroactive to January
31, 1993, the Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits." Prior to 1993, expenses
related to postemployment medical benefits were recognized on a pay-as-you-go
basis. The corporation elected to immediately recognize the cumulative effect
of the change in accounting for postemployment benefits of $3.4 million. On an
aftertax basis, this charge was $2.2 million or $.13 per share. The effect of
this change on 1993 operating results was not material.
NOTE 5: INCOME TAXES
- --------------------
In fiscal 1991, the corporation adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires the adjustment of previously deferred taxes for changes
in tax rates under the liability method. The corporation chose to reflect the
cumulative effect of adopting this pronouncement as a change in accounting
principle at the beginning of fiscal 1991 with a charge to earnings of
$500,000. This charge represents the writedown of net deferred tax assets and
liabilities from tax rates in effect when they arose to current statutory tax
rates. The adoption of the new standard had no effect on the tax provision for
1991.
The components of earnings (loss) before income taxes (in thousands) consisted
of Domestic earnings (loss) before taxes of $(25,767), $258 and $12,994 in
1993, 1992, and 1991, respectively, and Foreign earnings before taxes of
$13,939, $9,360, and $8,951 in 1993, 1992, and 1991, respectively.
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- ------
<S> <C> <C> <C>
Federal
Currently payable $ 4,231 $ 3,034 $2,469
Deferred (14,216) (3,206) 1,548
-------- ------- ------
(9,985) (172) 4,017
State 2,702 1,050 1,089
Foreign 2,167 675 1,400
-------- ------- ------
Total income tax expense
(benefit) on earnings (loss)
from continuing operations
before cumulative effect of
accounting changes (5,116) 1,553 6,506
Tax benefit of cumulative
effect of accounting changes (1,192) -- (6,389)
Tax expense (benefit) of
discontinued operations:
Results of operations 1,190 (1,118) 157
Provision for disposal (10,454) -- --
-------- ------- ------
Total income tax expense
(benefit) $(15,572) $ 435 $ 274
======== ======= ======
</TABLE>
Cash payments of income taxes for fiscal 1993, 1992 and 1991 were $12,855,000,
$2,387,000, and $7,535,000, respectively.
24
<PAGE>
<PAGE> 26
The differences between the income tax expense (benefit) from continuing
operations reflected in the financial statements and the amounts calculated at
the federal statutory income tax rate of 35% in 1993 and 34% in 1992 and 1991
are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Income taxes at
statutory rate $(4,140) $ 3,270 $ 7,461
State income taxes, net
of federal tax benefit 1,756 693 719
Foreign earnings not
currently taxed (2,056) (2,247) (1,934)
Effect of revaluation of net
deferred tax assets due to
1993 increase in federal tax
rate from 34% to 35% (422) -- --
Other (254) (163) 260
------- ------- -------
$(5,116) $ 1,553 $ 6,506
======= ======= =======
</TABLE>
Significant components of the corporation's deferred income tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Deferred tax assets
Employee benefits, compensation,
and insurance $ 9,525 $ 8,529
Allowance for doubtful accounts 3,617 2,321
Inventory capitalization and
inventory reserves 1,746 1,689
Discontinued operations, restructuring
and store closing reserves 38,911 5,660
Countervailing duty reserves 3,336 2,917
Other postretirement and
postemployment benefit plans 7,302 6,229
Other 8,544 6,552
------- -------
Total deferred tax assets 72,981 33,897
1993 1992
-------- --------
<PAGE>
Deferred tax liabilities
Excess depreciation (8,122) (7,277)
Retirement plans (10,165) (9,169)
LIFO inventory valuation (11,417) (1,923)
Other (2,655) (369)
------- -------
Total deferred tax liabilities (32,359) (18,738)
------- -------
Net deferred income
tax asset $40,622 $15,159
======= =======
</TABLE>
No valuation reserve has been provided for these deferred tax assets at
January 29, 1994 and January 30, 1993 as full realization of these assets is
expected.
As of January 29, 1994, there is approximately $29,000,000 of accumulated
unremitted earnings from the corporation's Canadian subsidiary and
approximately $47,000,000 from other foreign entities on which deferred taxes
have not been provided. Based on the current United States and Canadian income
tax rates, it is anticipated that no additional United States tax would be
incurred if the accumulated Canadian earnings were distributed. In the event
that the other foreign entities' earnings were distributed, it is estimated
that U.S. taxes, net of foreign tax credits, of approximately $16,500,000
would be due. The Internal Revenue Service has made an assessment that
approximately $3,600,000 of U.S. taxes, plus interest, is currently due on
unremitted foreign earnings. The corporation is litigating the assessment and
believes that it will prevail.
NOTE 6: COMMITMENTS AND CONTINGENCIES
- -------------------------------------
The corporation is responsible for environmental remediation and ongoing
environmental compliance costs at its closed tannery production site and two
landfill locations. In fiscal 1992 the corporation provided $1,700,000 for
remediation costs. Due to a change in the expected holding period of the
property, an additional $6,600,000 was charged to earnings in fiscal 1993 to
provide for additional remediation costs and future environmental compliance
costs. Environmental compliance costs include maintenance and operating costs
with respect to pollution
25
<PAGE>
<PAGE> 27
control facilities, cost of ongoing monitoring programs, and similar costs.
Based upon current environmental regulations, the corporation has estimated
the remaining remediation costs to be approximately $700,000, which will be
expended in fiscal 1994, and future environmental compliance costs to be
approximately $4,600,000, which will be expended over the next 30 years. These
amounts have been reflected in Other Accrued Expenses and Other Liabilities at
January 29, 1994.
In addition to the tannery site, the corporation has been identified as a
potentially responsible party by various Federal and State authorities for
remediation at several sites. The corporation is one of many parties involved
at these sites. The corporation's involvement relates to the disposal of
solvents and other by-products of the corporation's closed tannery and shoe
manufacturing facilities. Based upon current information available, the
corporation's ultimate liability related to these sites is estimated to be in
the range of $400,000 to $650,000. At January 29, 1994, $500,000 has been
reflected in Other Accrued Expenses to cover these costs.
NOTE 7: INVENTORIES
- -------------------
Inventories are valued at the lower of cost or market determined principally
by the last-in, first-out (LIFO) method and consist of the following (in
thousands):
<TABLE>
<CAPTION>
January 29 January 30
1994 1993
---------- ----------
<S> <C> <C>
Finished goods $352,243 $309,363
Work-in-progress 6,291 3,611
Raw materials and supplies 16,931 20,241
-------- --------
$375,465 $333,215
======== ========
</TABLE>
If the first-in, first-out (FIFO) cost method had been used, inventories would
have been $52,849,000 and $65,962,000 higher at January 29, 1994 and January
30, 1993, respectively.
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------
Property, plant and equipment consist of the following (in thousands):
<PAGE>
<TABLE>
<CAPTION>
January 29 January 30
1994 1993
---------- ----------
<S> <C> <C>
Land $ 1,903 $ 2,014
Buildings and leasehold
improvements 81,224 86,533
Machinery and equipment 149,815 157,231
--------- ---------
232,942 245,778
Allowances for depreciation
and amortization (135,512) (146,242)
--------- ---------
$ 97,430 $ 99,536
========= =========
</TABLE>
NOTE 9: LONG-TERM AND SHORT-TERM FINANCING ARRANGEMENTS
- -------------------------------------------------------
Long-term debt, including capitalized lease obligations, net of unamortized
discounts and current maturities, consists of the following (in thousands):
<TABLE>
<CAPTION>
January 29 January 30
1994 1993
---------- ----------
<S> <C> <C>
Commercial paper $ 25,000 $ 25,000
6.47% Senior notes due 1996 50,000 50,000
8.4% - 8.6% Debentures due 1999 15,000 15,000
7.07% - 8.8% Debentures due 2002 19,987 14,985
7.125% Debentures due 2003 15,000 --
7-3/8% Sinking Fund Debentures,
payments of $2,000,000 due
annually to 1998 5,995 7,991
Capitalized lease obligations 3,564 9,244
Other 778 804
-------- --------
$135,324 $123,024
======== ========
/TABLE
<PAGE>
Maturities of long-term debt and capitalized lease obligations for 1994
through 1998 are: 1994 -- $7,709,000; 1995 -- $2,082,000; 1996 -- $52,051,000;
1997 -- $2,046,000; 1998 -- $37,000.
The rates for the corporation's commercial paper ranged from 3.1% to 3.75% in
1993 and 3.25% to 5.1% in 1992.
In early fiscal 1993, the corporation called for redemption its 8-1/8%
debentures, which were scheduled to fully mature in 1996. The balance of these
debentures
26
<PAGE>
<PAGE> 28
of $74,763,907 was classified with current maturities of long-term debt as of
January 30, 1993. To refinance this debt, the corporation in December 1992
entered into a long-term private placement of $50,000,000 in 6.47% senior
notes due in 1996. The remaining $25,000,000 is refinanced through commercial
paper. The commercial paper is intended to be maintained on a long-term basis
with ongoing credit provided by the corporation's long-term noncancelable
revolving credit agreement which expires in December 1996. Accordingly,
$25,000,000 of commercial paper borrowing outstanding has been classified as
long-term debt at January 29, 1994 and January 30, 1993.
In December 1992, the corporation entered into a three-year interest rate swap
agreement, for which cash consideration of $3,150,000 was received in 1992.
Under the agreement, the corporation is paying a fixed rate of 8-1/8% on
$75,000,000 and is receiving a fixed rate of 6.47% on $50,000,000 and a
floating rate based on LIBOR on the remaining $25,000,000. The cash
consideration received on the swap has been deferred and is being amortized as
an offset to interest expense over the life of the agreement.
The corporation maintains short-term lines of credit which total approximately
$230,000,000 at January 29, 1994. The maximum amount of short-term borrowings
(under these arrangements and in the form of commercial paper) at the end of
any month was $182,015,000 in 1993 and $68,754,000 in 1992. The average
short-term borrowings during the year were $139,105,000 in 1993 and
$50,575,000 in 1992. The weighted average interest rates approximated 3.6% and
4.6% in 1993 and 1992, respectively.
Cash payments of interest for fiscal 1993, 1992 and 1991 were $18,691,000,
$15,823,000 and $16,581,000, respectively.
NOTE 10: LEASES
- ---------------
The corporation leases substantially all of its retail locations and certain
other equipment and facilities. Approximately one-third of the retail store
leases are subject to renewal options for varying periods.
In addition to minimum rental payments, certain of the retail store leases
require contingent payments based on sales levels.
Rent expense from continuing operations for operating leases amounted to (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Minimum payments $82,085 $76,860 $73,816
Contingent payments 2,307 1,598 989
------- ------- -------
$84,392 $78,458 $74,805
======= ======= =======
/TABLE
<PAGE>
Rent expense has been reduced by rental income from subleases of $3,023,000 in
1993, $2,709,000 in 1992 and $2,819,000 in 1991.
Future minimum payments under noncancelable operating leases with an initial
term of one year or more were as follows at January 29, 1994 (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1994 $ 81,043
1995 74,592
1996 65,310
1997 54,194
1998 39,291
Thereafter 90,703
--------
Total minimum lease payments $405,133
========
</TABLE>
Operating lease commitments have been reduced for rental income from
noncancelable subleases by approximately $2,675,000 in 1994 and lesser amounts
thereafter (total reductions $8,804,000). The lease commitments of
approximately $6,141,000 related to the discontinued leased departments are
excluded from the above table. The corporation is contingently liable for
lease commitments of approximately $29,000,000 which primarily relate to the
Meis and Etage specialty retailing chains which were sold.
NOTE 11: CAPITAL STOCK
- ----------------------
Common Stock
- ------------
The corporation's Common Stock has a par value of $3.75 per share and
100,000,000 shares are authorized. At January 29, 1994 and January 30, 1993,
there were 17,619,768 shares and 17,318,883 shares, net of 4,386,129 shares
and 4,687,014 shares held in treasury, outstanding,
27
<PAGE>
<PAGE> 29
respectively. The stock is listed and traded on the New York and Chicago Stock
Exchanges (symbol BG). There were approximately 11,000 stockholders at March
1, 1994.
Each outstanding share of the corporation's Common Stock carries one Common
Stock Purchase Right. When exercisable, each right will entitle its holder to
buy one share of the corporation's stock at $150 per share. The Rights will
become exercisable if a person acquires 20% of the corporation's common stock
or makes an offer to acquire 30% of the corporation's common stock. In the
event that a person acquires 40% of the common stock of the corporation, each
Right shall entitle the holder, other than the acquirer, to purchase one share
of common stock of the corporation for one-third of the market price of the
common stock. In the event that the corporation is acquired in a merger or
transfers 50% or more of its assets or earnings to any one person, each Right
entitles the holder to purchase common stock of the surviving or purchasing
company having a market value of twice the exercise price of the Right. The
Rights may be redeemed by the corporation at a price of $.05 per Right and
they expire in March 1996.
Preferred Stock
- ---------------
The corporation has 1,000,000 authorized shares of $1 par value Preferred
Stock. None has been issued.
NOTE 12: STOCK OPTION AND STOCK RELATED PLANS
- ---------------------------------------------
The corporation has stock option, stock appreciation and restricted stock
plans under which certain officers and employees are participants.
All stock options are granted at market value. Stock appreciation units may
also be granted in tandem with options. Such units entitle the participant to
receive an amount, in cash and/or stock, equal to the difference between the
current market value of a share of stock at the exercise date and the option
price of such share of stock. The options and appreciation units become
exercisable one year from the date of the grant at a rate of 25% per year and
are exercisable for up to 10 years from date of grant. Since the stock
appreciation rights are issued in tandem with stock options, the exercise of
either cancels the other.
Options for 843,643 and 1,076,978 shares were exercisable as of January 29,
1994 and January 30, 1993, respectively, at prices ranging from $23 to $41.
Under the plans, 11,980 and 121,396 additional shares of common stock were
available to be granted in the form of options or restricted stock as of
January 29, 1994 and January 30, 1993, respectively.
The following summary sets forth the activity for the three years ended
January 29, 1994:
<PAGE>
<TABLE>
<CAPTION>
Number of
----------------------------
Option Appreciation Grant
Shares Units Prices
---------- ------------ ----------
<S> <C> <C> <C>
Outstanding
February 2, 1991 1,557,901 145,834 $23 to $41
Granted 16,000 -- 23 to 26
Exercised (6,632) -- 23 to 29
Terminated (188,284) (61,653) 23 to 41
--------- -------
Outstanding
February 1, 1992 1,378,985 84,181 23 to 41
Granted -- --
Exercised (9,615) -- 23 to 28
Terminated (159,017) (20,288) 23 to 39
--------- -------
Outstanding
January 30, 1993 1,210,353 63,893 23 to 41
Granted 10,000 -- 32 to 34
Exercised (208,054) -- 23 to 33
Terminated (101,781) (8,748) 23 to 41
--------- -------
Outstanding
January 29, 1994 910,518 55,145 $23 to $39
========= =======
</TABLE>
Under the corporation's restricted stock program, common stock of the
corporation may be granted at no cost to certain officers and key employees.
Plan participants are entitled to cash dividends and to vote their respective
shares. Restrictions limit the sale or transfer of these shares during an
eight-year period whereby the restrictions lapse on 50% of these shares after
4 years, 25% after 6 years and the remaining 25% after 8 years. Upon issuance
of stock under the plan, unearned compensation equivalent to the market value
at the date of grant is charged to stockholders' equity and subsequently
amortized to expense over the eight-year restriction period.
28
<PAGE>
<PAGE> 30
Restricted shares granted, net of forfeitures, were 132,500; 250; and 56,500
in 1993, 1992 and 1991, respectively. The expense associated with these awards
was $1,781,903 in 1993, $1,639,000 in 1992 and $1,675,000 in 1991.
NOTE 13: BUSINESS SEGMENT INFORMATION
- -------------------------------------
The corporation operates in two business segments: Footwear and Specialty
Retailing. The Footwear Segment comprises the manufacture, supply and sale of
women's, men's and children's footwear and the operation of shoe stores. The
Specialty Retailing Segment comprises the Cloth World chain of retail fabric
stores.
<TABLE>
<CAPTION>
Thousands 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
Footwear $1,373,745 $1,257,737 $1,203,015
Specialty Retailing 224,066 223,907 219,330
---------- ---------- ----------
$1,597,811 $1,481,644 $1,422,345
========== ========== ==========
Operating Earnings
(Loss)
Footwear (A)(B) $ 11,894 $ 28,455 $ 38,115
Specialty
Retailing 3,879 8,366 12,054
---------- ---------- ----------
Total operating
earnings 15,773 36,821 50,169
Corporate interest
income and other 192 (889) (3,249)
Corporate expense (10,202) (9,493) (8,978)
Interest expense (17,591) (16,821) (15,997)
---------- ---------- ----------
Earnings (loss) from
continuing operations
before income taxes and
accounting changes $ (11,828) $ 9,618 $ 21,945
========== ========== ==========
<PAGE>
<FN>
(A) 1993 includes charges totaling $45.4 million to establish reserves for the
closing of retail stores, factory closings, inventory liquidation associated
with the store closings and additional costs for environmental monitoring
related to U. S. footwear operations.
(B) 1992 includes a charge of $22.4 million to establish reserves for
organization changes, factory closings and inventory liquidation related to U.
S. footwear operations.
</TABLE>
<TABLE>
<CAPTION>
Thousands 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Identifiable Assets
Footwear $586,776 $528,444 $500,237
Specialty Retailing 96,517 88,684 84,121
Discontinued Operations 46,004 73,125 75,149
-------- -------- --------
729,297 690,253 659,507
Corporate 42,437 45,438 22,526
-------- -------- --------
$771,734 $735,691 $682,033
======== ======== ========
Capital Expenditures
Footwear $ 26,066 $ 17,142 $ 19,156
Specialty Retailing 3,061 4,664 2,957
Corporate 1,048 364 638
-------- -------- --------
$ 30,175 $ 22,170 $ 22,751
======== ======== ========
Depreciation and
Amortization Expense
Footwear $ 19,347 $ 20,145 $ 20,496
Specialty Retailing 2,947 2,793 3,111
Corporate 509 744 1,545
-------- -------- --------
$ 22,803 $ 23,682 $ 25,152
======== ======== ========
/TABLE
<PAGE>
Approximately 52% of 1993 footwear sales were made at retail. When combined
with the sales of the Specialty Retailing Segment, 58% of the corporation's
total sales were made directly to retail customers.
The corporation's Footwear Segment also conducts foreign operations in the Far
East, South America and Europe where footwear is sourced for sale primarily to
United States customers and to a lesser extent European, Latin American and
Asian Pacific customers, and in Canada, where there are both manufacturing and
retailing operations. A summary of the corporation's operations by geographic
area follows:
29
<PAGE>
<PAGE> 31
<TABLE>
<CAPTION>
Thousands 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
United States $1,202,195 $1,139,926 $1,120,648
Far East 291,106 256,595 217,419
Other Foreign 137,189 120,565 99,346
Inter-Area
Transfers (32,679) (35,442) (15,068)
---------- ---------- ----------
$1,597,811 $1,481,644 $1,422,345
========== ========== ==========
Earnings (Loss)
Before Taxes and
Accounting Changes
United States $ (25,767) $ 258 $ 12,994
Far East 10,119 8,410 6,976
Other Foreign 3,820 950 1,975
---------- ---------- ----------
$ (11,828) $ 9,618 $ 21,945
========== ========== ==========
Identifiable Assets
United States $ 652,465 $ 628,942 $ 583,284
Far East 56,574 42,296 42,263
Other Foreign 62,695 64,453 56,486
---------- ---------- ----------
$ 771,734 $ 735,691 $ 682,033
========== ========== ==========
</TABLE>
Inter-area transfers to affiliates are generally priced to recover cost plus
an appropriate markup for profit. Identifiable foreign assets consist
primarily of cash items, receivables and inventories.
<PAGE>
NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
Carrying amounts reported on the balance sheet for Cash and Cash Equivalents
and Notes Payable approximate fair value due to the short maturity of these
instruments.
The fair value of the corporation's long-term debt (excluding capitalized
lease obligations), including current maturities, at January 29, 1994 is
estimated to be $140,143,000 which compares to $133,785,000 recorded on the
corporation's balance sheet at that date. The fair value at January 30, 1993
was estimated to be $213,040,000 compared to $210,567,000 recorded on the
corporation's balance sheet at that date. This estimate was based on the
borrowing rates currently available to the corporation for financing
arrangements with similar terms and maturities.
NOTE 15: SUPPLEMENTARY INFORMATION
- ----------------------------------
Balance Sheet
- -------------
Cash equivalents of $21,399,000 and $31,811,000 at January 29, 1994 and
January 30, 1993, respectively, are stated at cost which approximates fair
value.
Statement of Consolidated Earnings
- ----------------------------------
Advertising costs totaled $53,118,000, $49,175,000, and $48,502,000 in 1993,
1992 and 1991, respectively. Other expense, net included interest income of
$1,475,000 in 1993, $1,472,000 in 1992 and $1,885,000 in 1991. This income was
more than offset by restructuring charge components of $21,400,000 in 1993 and
$13,600,000 in 1992.
30
<PAGE>
<PAGE> 32
REPORTS ON FINANCIAL STATEMENTS
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
- -----------------------------------------------------------
The management of Brown Group, Inc. has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity. The
statements were prepared in accordance with generally accepted accounting
principles, and are not misstated due to material fraud or error. The
financial statements include amounts that are based on management's best
estimates and judgments. Management also prepared the other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
The corporation's financial statements have been audited by Ernst & Young,
independent auditors elected by the stock-holders. Management has made
available to Ernst & Young all the corporation's financial records and related
data, as well as the minutes of stockholders' and directors' meetings.
Furthermore, management believes that all representations made to Ernst &
Young during its audit were valid and appropriate.
The Audit Committee of Brown Group's Board of Directors comprises four outside
directors. The Committee meets regularly with the corporation's independent
auditors, Ernst & Young, and management. The purpose of these meetings is to
review, among other things, the scope and results of the annual audit, the
internal audit activities and the system of internal accounting control. To
ensure complete independence, Ernst & Young and the internal audit staff have
direct access to the Audit Committee without the presence of management to
discuss the results of their examinations.
Management of the corporation has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of
fraudulent financial reporting. The system of internal control provides for
appropriate division of responsibility and is documented by written policies
and procedures that are communicated to employees with significant roles in
the financial reporting process and updated as necessary. The corporation
maintains an internal auditing program that independently assesses the
effectiveness of the internal controls and recommends possible improvements
thereto. Management believes that the corporation's system of internal control
is adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the corporation's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the corporation's code of conduct, which is
published throughout the corporation. The code of conduct addresses, among
other things, the necessity of ensuring open communication within the
corporation; potential conflicts of interest; compliance with all domestic and
foreign laws, including those relating to financial disclosure; and the
confidentiality of proprietary information. The corporation maintains a
systematic program to assess compliance with these policies. The results of
this compliance program are discussed with the Audit Committee.
/s/ B. A. Bridgewater, Jr. /s/ Harry E. Rich
- -------------------------- -----------------
B. A. Bridgewater, Jr. Harry E. Rich
Chief Executive Officer Chief Financial Officer
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- ---------------------------------------------
Stockholders and Board of Directors
Brown Group, Inc.
We have audited the accompanying consolidated balance sheets of Brown Group,
Inc. as of January 29, 1994 and January 30, 1993, and the related statements
of consolidated earnings, stockholders' equity, and cash flows for each of the
three years in the period ended January 29, 1994. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brown Group,
Inc. at January 29, 1994 and January 30, 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 29, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 4 and 5 to the consolidated financial statements, in
1991 the company changed its method of accounting for other postretirement
benefits and income taxes and in 1993 changed its method of accounting for
postemployment benefits.
/s/ Ernst & Young
-------------------
St. Louis, Missouri
March 2, 1994
31
<PAGE>
<PAGE> 33
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY INFORMATION unaudited
- ------------------------------
Following is a summary of selected quarterly information (in thousands of
dollars except per share) for fiscal years ended January 29, 1994 and January
30, 1993.
<TABLE>
<CAPTION>
Quarters
-----------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1993
Net Sales $389,072 $381,028 $445,787 $381,924
Cost of Goods Sold 249,492 243,140 288,000 260,464
Earnings (Loss)From
Continuing Operations
Before Cumulative
Effect of Accounting
Changes 4,483 6,482 12,871 (30,548)
Cumulative Effect of
Change in Accounting for
Postemployment Benefits (2,214) -- -- --
Discontinued Operations (284) (915) 1,323 (22,810)
Net Earnings (Loss) 1,985 5,567 14,194 (53,358)
Per Share of Common Stock:
Earnings (Loss) From
Continuing Operations
Before Cumulative
Effect of Accounting
Changes .26 .38 .74 (1.76)
Cumulative Effect of
Changes in Accounting
for Postemployment
Benefits (.13) -- -- --
Net Earnings (Loss) .11 .33 .82 (3.07)
Dividends Paid .40 .40 .40 .40
Market Value:
High 33 7/8 33 1/2 35 3/4 36
Low 28 3/4 29 3/4 31 3/4 32 5/8
1992
Net Sales $368,992 $344,149 $409,682 $358,821
Cost of Goods Sold 250,844 217,231 264,792 227,012
Earnings (Loss) From
Continuing Operations (13,225) 4,947 9,311 7,032
Discontinued Operations (7,533) 506 1,517 2,109
Net Earnings (Loss) (20,758) 5,453 10,828 9,141
Per Share of Common Stock:
Earnings (Loss)
From Continuing
Operations (.77) .29 .54 .41
Net Earnings (Loss) (1.21) .32 .63 .53
Dividends Paid .40 .40 .40 .40
Market Value:
High 27 3/8 24 3/4 27 29 7/8
Low 23 1/8 21 23 5/8 24 3/8
<FN>
Note 1: Fourth Quarter 1993 results from continuing operations include an
aftertax charge of $29.5 million for factory and store closings and related
inventory liquidation and severance costs. Results from discontinued
operations include an aftertax provision of $24.4 million for the withdrawal
from the leased shoe department business.
Note 2: First Quarter 1992 results from continuing operations include aftertax
charges of $14.8 million related to organization changes, factory closings and
inventory liquidation. Results from discontinued operations for the same
period include an aftertax charge of $6.7 million related to inventory
liquidations.
Directors' and Officers' Liability Insurance
The New York Business Corporation Act requires that New York corporations
provide to their stockholders information regarding any policies of directors'
and officers' liability insurance which have been purchased or renewed.
Accordingly, notice is hereby given that on October 31, 1993 the
corporation renewed, for a one-year term, a policy of directors' and officers'
liability insurance from Federal Insurance Company, a member of the Chubb
Insurance Group. This policy covers all duly elected directors and all duly
elected or appointed officers of Brown Group, Inc. and its subsidiary
companies. The policy premium for a one-year term is $98,424. To date, no
claims have been paid under any policy of directors' and officers' liability
insurance.
</TABLE>
32
<PAGE>
<PAGE> 34
DIRECTORS, OFFICERS AND OPERATING COMMITTEE
BOARD OF DIRECTORS
- ------------------
B. A. Bridgewater, Jr. 1
Chairman of the Board, President and Chief Executive Officer
Joseph L. Bower 1,3
Donald Kirk David Professor,Chairman of Doctoral Programs and Director of
Research, Harvard Business School
W. L. Hadley Griffin 1
Chairman of the Executive Committee
Joan F. Lane 1,3,4
Consultant to higher education, currently associated with Stanford University;
foundation trustee
John D. Macomber 3,4
Director of various corporations
William E. Maritz 2,4
Chairman of the Board and Chief Executive Officer, Maritz, Inc., a motivation,
travel, training, communications and marketing research services company
General Edward C. Meyer 2,4
Retired Chief of Staff of the U.S. Army and international business consultant
Harry E. Rich 1
Executive Vice President and Chief Financial Officer
Morton I. Sosland 2,3
Chairman, Sosland Companies, Inc., a publishing and venture investing firm
Daniel R. Toll 1,2,3
Corporate and civic director
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Compensation Committee
4 Member of Governance and Nominating Committee
CORPORATE OFFICERS
- ------------------
B. A. Bridgewater, Jr.
Chairman of the Board, President and Chief Executive Officer
Harry E. Rich
Executive Vice President and Chief Financial Officer
John B. Biggs, Jr.
Senior Vice President
Brian C. Cook
Vice President -- Footwear Retailing and President, Famous Footwear
Robert D. Pickle
Vice President, General Counsel and Corporate Secretary
Andrew M. Rosen
Vice President and Treasurer
Mary Sylvia Siverts
Vice President -- Public Affairs
Thomas A. Williams
Vice President -- Footwear Wholesaling, President, Brown Shoe Company and
Chairman, Pagoda
E. Lee Wyatt, Jr.
Vice President -- Planning and Controller
OPERATING COMMITTEE
- -------------------
B. A. Bridgewater, Jr.
Chairman of the Board, President and Chief Executive Officer
John B. Biggs, Jr.
Senior Vice President
Brian C. Cook
Vice President -- Footwear Retailing and President, Famous Footwear
Arthur G. Croci
President, Pagoda Trading
Ronald N. Durchfort
President, Pagoda International
Ronald A. Fromm
Executive Vice President,Famous Footwear
Curtis R. Johnson
Executive Vice President, Brown Shoe Company
Raymond F. Moseley
President, Wohl Shoe Company
Joseph P. Pearce
Executive Vice President, Brown Shoe Company
Gary M. Rich
President, Pagoda U.S.A.
Harry E. Rich
Executive Vice President and Chief Financial Officer
Donald L. Richey
President, Cloth World
Andrew M. Rosen
Vice President and Treasurer
Richard L. Stonner
Senior Vice President -- Retail Sales, Famous Footwear
Thomas A. Williams
Vice President -- Footwear Wholesaling, President, Brown Shoe Company and
Chairman, Pagoda
George J. Zelinsky
Senior Vice President and General Merchandise Manager, Famous Footwear
Secretary to the Committee:
E. Lee Wyatt, Jr.
Vice President -- Planning and Controller
33
<PAGE>
<PAGE> 35
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Brown Group, Inc.
8300 Maryland Avenue
Post Office Box 29
St. Louis, Missouri 63166-0029
(314) 854-4000 Telephone
(314) 854-4274 Fax
FORM 10-K ANNUAL REPORT
A copy of the company's Form 10-K Annual Report, as filed with the Securities
and Exchange Commission, is available without charge to stockholders upon
request to:
Vice President and Treasurer
Brown Group, Inc.
8300 Maryland Avenue
Post Office Box 29
St. Louis, Missouri 63166-0029
ANNUAL MEETING
11:00 a.m.
Thursday, May 26, 1994
Brown Group, Inc.
Corporate Headquarters
8300 Maryland Avenue
St. Louis, Missouri
STOCK LISTED
New York Stock Exchange
Chicago Stock Exchange
Ticker Symbol BG
NUMBER OF STOCKHOLDERS OF RECORD
11,000
NUMBER OF EMPLOYEES
22,000
INDEPENDENT AUDITORS
Ernst & Young
St. Louis, Missouri
TRUSTEE OF DEBENTURES/NOTES
Citibank, N.A.
111 Wall Street
New York, New York 10043
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Boatmen's Trust Company
Corporate Trust Division
510 Locust Street
St. Louis, Missouri 63101
DIVIDEND REINVESTMENT PLAN
A dividend reinvestment plan is offered to stockholders of Brown Group, Inc.
The plan provides a means of automatic dividend reinvestment and includes a
provision for voluntary investment of additional cash.
For more information contact:
Boatmen's Trust Company
Corporate Trust Division
510 Locust Street
St. Louis, Missouri 63101
(314) 466-1581 or
(800) 456-9852
This report is printed on recycled paper consisting of 100 percent recycled
fiber and 25 percent post-consumer waste.
34
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
BROWN GROUP, INC.
JANUARY 29, 1994
State or Country
Name of Incorporation
Brown Cayman Ltd. Cayman Islands
Brown Group International, Inc. Delaware
Brown Group International Calcados Ltda. Brazil
Brown Group Retail, Inc. Pennsylvania
d/b/a
Wohl Shoe Company
Cloth World
Famous Footwear
Brown Retail Development Company Louisiana
Brown Shoe Company of Canada, Ltd. Canada
d/b/a
Chaussures Famous
F. X. LaSalle
Naturalizer
C. W. Nevada Wholesale, Inc. Nevada
C. W. Nevada Wholesale Two, Inc. Nevada
CW Wholesale One L.P. Texas
Clayton License, Inc. Delaware
Cloth World, Inc. Missouri
Cloth World of California, Inc. California
Cloth World of Nevada, Inc. Nevada
Cloth World of Texas, Inc. Texas
Concord & Brown Limited Hong Kong
KidNATION, Inc. Missouri
Laysan Company Limited Hong Kong
Linway Investment Limited Hong Kong
d/b/a
Leeway International Company
The Leather Factory, Inc. Delaware
Maryland Square, Inc. Missouri
d/b/a
Ampersands
Maryland Square
Maserati Footwear, Inc. New York
PIC International Corporation Cayman Islands
PLD, Inc. North Carolina
Pagoda Asia Pacific Limited Hong Kong
Pagoda International Corporation do Brazil Brazil
Pagoda International Corporation e CIA Brazil
Pagoda International Footwear Limited Hong Kong
Pagoda International Limited Taiwan
Pagoda International SARL France
Pagoda Netherlands C.V. Netherlands
Pagoda Netherlands Investment Corporation Missouri
Pagoda Trading Company, Inc. Missouri
The Right Shoe Only, Inc. North Carolina
Sidney Rich Associates, Inc. Missouri
Sunbelt Footwear, Ltd. California
Whitenox Limited Hong Kong
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Exhibit 21
Subsidiaries of the Registrant (Continued)
Wohl Shoe Company may either assume the department store name in the case of
leased shoe departments, or assume one or more of the following names in the
case of company-owned stores:
American Shoe Liquidators
Castleby
Connie Express
Connie Shop
Fanfares
National Shoe Liquidators
Naturalizer
Naturalizer Plus
North Carolina Leather Company
Regal Shoes
Famous Footwear does business under the following names:
Air Step/Buster Brown
Bari Shoes
Brown Shoe Company Outlet
Factory Brand Shoes
Famous Footwear
Fashion Footwear
Gattis Shoes
Jack's Shoes
Jack Somers
Naturalizer Etc.
Naturalizer Outlet
Supermarket of Shoes
Brown Group, Inc. does business under the following name:
Brown Shoe Company
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EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Brown Group, Inc. of our report dated March 2, 1994, included in the 1993
Annual Report to Stockholders of Brown Group, Inc.
Our audits also included the financial statement schedules listed in
Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules, referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the Registration Statement
Form S-8 Number 2-58347 as amended through Post Effective Amendment Number 6
dated January 25, 1983, pertaining to the Stock Purchase Plan of 1977, and
Registration Statement Form S-8 Number 33-22328 dated June 6, 1988, pertaining
to the Employee Stock Appreciation Plans, as Amended, and Registration
Statement Form S-3 Number 33-21477 dated April 26, 1988, and related
Prospectus of our report dated March 2, 1994, with respect to the consolidated
financial statements and schedules of Brown Group, Inc. included and
incorporated by reference in the Annual Report (Form 10-K) for the year ended
January 29, 1994.
St. Louis, Missouri Ernst & Young /s/
April 21, 1994
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