<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
(Mark One) FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended July 29, 1995
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
____________
Commission file number 1-2191
____________
BROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 43-0197190
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8300 Maryland Avenue
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
As of August 26, 1995, 17,942,277 shares of the registrant's common stock were
outstanding.
<PAGE>
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BROWN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands) (Unaudited)
------------------
July 29, July 30, January 28,
1995 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 23,016 $ 26,928 $ 18,922
Receivables, net of allowances of $11,582 at
July 29, 1995, $10,682 at July 30, 1994, and
$11,664 at January 28, 1995 86,250 111,965 98,079
Inventories (net of adjustment to last-in,
first-out cost of $32,824 at July 29, 1995,
$42,160 at July 30, 1994, and $37,286
at January 28, 1995) 368,981 330,883 322,029
Net Current Assets of Discontinued Operations - 62,032 -
Other Current Assets 48,177 64,075 39,930
--------- --------- ---------
Total Current Assets 526,424 595,883 478,960
Property, Plant and Equipment 211,634 194,046 203,227
Less allowances for depreciation and amortization (118,066) (102,140) (110,323)
--------- --------- ---------
93,568 91,906 92,904
Net Noncurrent Assets of Discontinued Operations - 12,673 -
Other Assets 59,709 57,372 64,651
--------- --------- ---------
$ 679,701 $ 757,834 $ 636,515
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 91,571 $ 111,089 $ 41,085
Accounts Payable 135,080 129,663 85,045
Accrued Expenses 80,046 101,251 92,231
Income Taxes 5,109 7,983 (642)
Current Maturities of Long-Term Debt 52,763 3,095 2,063
--------- --------- ---------
Total Current Liabilities 364,569 353,081 219,782
Long-Term Debt and Capitalized Lease Obligations 57,467 135,220 133,213
Other Liabilities 33,247 30,640 33,793
Stockholders' Equity
Common Stock 67,286 67,203 67,388
Additional Capital 46,519 44,938 46,957
Cumulative Translation Adjustment (4,710) (4,254) (5,556)
Unamortized Value of Restricted Stock (8,668) (12,056) (10,878)
Retained Earnings 123,991 143,062 151,816
--------- --------- ---------
224,418 238,893 249,727
--------- --------- ---------
$ 679,701 $ 757,834 $ 636,515
========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<PAGE> 3
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- --------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $342,861 $353,000 $700,303 $722,488
Cost of Goods Sold 226,352 229,199 463,599 471,227
-------- -------- -------- --------
Gross Profit 116,509 123,801 236,704 251,261
-------- -------- -------- --------
Selling and Administrative
Expenses 121,425 108,652 245,341 220,696
Interest Expense 3,964 4,210 7,880 8,489
Other (Income) Expense 4,030 (684) 3,422 (1,147)
-------- -------- -------- --------
Earnings (Loss)from Continuing
Operations Before Income Taxes (12,910) 11,623 (19,939) 23,223
Income Tax (4,529) 4,090 (7,147) 8,356
-------- -------- -------- --------
Earnings (Loss) from
Continuing Operations (8,381) 7,533 (12,792) 14,867
Earnings (Loss) from Discontinued
Operations, Net of Taxes - (92) - 505
-------- -------- -------- --------
NET EARNINGS (LOSS) $ (8,381) $ 7,441 $(12,792) $ 15,372
======== ======== ======== ========
NET EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ (.48) $ .43 $ (.73) $ .85
Discontinued Operations - (.01) - .02
-------- -------- -------- --------
NET EARNINGS (LOSS)
PER COMMON SHARE $ (.48) $ .42 $ (.73) $ .87
======== ======== ======== ========
Weighted Average Number of
Outstanding Shares
of Common Stock 17,578 17,543 17,593 17,497
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE $ .40 $ .40 $ .80 $ .80
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------
July 29, July 30,
1995 1994
--------- ---------
<S> <C> <C>
Net Cash Provided (Used) by Operating Activities of:
Continuing operations $ 10,484 $ 32,352
Discontinued operations - (4,382)
-------- --------
Net Cash Provided (Used) by Operating Activities 10,484 27,970
Investing Activities
Capital expenditures (17,159) (16,467)
Proceeds from sales of assets of discontinued
operations - 48,231
Other 88 744
-------- --------
Net Cash Provided (Used) by Investing Activities (17,071) 32,508
Financing Activities
Increase/(decrease) in short-term notes payable 25,486 (35,001)
Principal payments of long-term debt (49) (4,720)
Dividends paid (14,359) (14,233)
Payments for purchase of treasury stock (824) -
Proceeds from issuance of common stock 427 3,512
-------- --------
Net Cash Provided (Used) by Financing Activities 10,681 (50,442)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 4,094 10,036
Cash and Cash Equivalents at Beginning of Period 18,922 16,892
-------- --------
Cash and Cash Equivalents at End of Period $ 23,016 $ 26,928
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<PAGE> 5
BROWN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
------------------------------
The accompanying condensed consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and reflect all adjustments
which management believes necessary (which include only normal recurring
accruals and the effect on LIFO inventory valuation of estimated annual
inflationary cost increases and year-end inventory levels) to present fairly
the results of operations. These statements, however, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flow in conformity with generally
accepted accounting principles.
The Corporation's business is subject to seasonal influences, and interim
results may not necessarily be indicative of results which may be expected for
any other interim period or for the year as a whole.
For further information refer to the consolidated financial statements and
footnotes included in the Corporation's Annual Report and Form 10-K for the
period ended January 28, 1995.
Note B - Earnings Per Share
---------------------------
Net earnings per share of Common Stock is computed by dividing net earnings by
the weighted average number of shares outstanding. The dilutive effect of
stock options is not significant and is therefore excluded from the
calculation.
Note C - Inventories
--------------------
The components of inventory are as follows ($000):
<TABLE>
<CAPTION>
July 29, July 30, January 28,
1995 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
Finished Goods $353,586 $309,042 $298,235
Work in Process 2,354 5,251 4,193
Raw Materials and Supplies 13,041 16,590 19,601
-------- -------- --------
$368,981 $330,883 $322,029
======== ======== ========
</TABLE>
During fiscal 1995, inventory quantities will be reduced at one of the
Corporation's divisions, which will result in a liquidation of LIFO inventory
layers. On an aftertax basis, the effect of this liquidation is to increase
second quarter's net income by $2.4 million.
<PAGE>
<PAGE> 6
Note D - Factory Closing Costs
------------------------------
Included in results from continuing operations for the second quarter of fiscal
1995 is a pretax charge of $14.8 million to provide for the cost of closing
the Corporation's five remaining United States footwear manufacturing plants
and several related facilities prior to the end of fiscal 1995. Approximately
2,400 factory positions will be eliminated and the Corporation's headquarters
support staff will be reduced by 60 positions. The cost of termination
benefits included in cost of sales is $8.1 million and an additional amount of
termination benefits of $.5 million is included in selling and administrative
expense. Costs to liquidate raw material inventories of $2.0 million were also
included in cost of sales. The estimated asset writeoffs associated with the
closings of $4.2 million is included in other expense. This charge, net of the
related tax benefit, resulted in a reduction in earnings from continuing
operations of $9.6 million, or $.55 per share, for the second quarter of fiscal
1995.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
---------------------
Quarter ended July 29, 1995 compared to the Quarter ended July 30, 1994
-----------------------------------------------------------------------
Consolidated net sales for the second quarter ended July 29, 1995, were $342.9
million, a decrease of 3% from last year's second quarter.
A loss from continuing operations of $8.4 million for the second quarter of
1995 compares to earnings of $7.5 million last year.
The net loss of $8.4 million for the second quarter of 1995 compares to
earnings of $7.4 million last year. Last year's net earnings figure reflects
aftertax losses from discontinued operations of $.1 million. The 1995 loss
includes an aftertax charge of $9.6 million to provide for the costs of the
planned closing of the Corporation's five remaining domestic manufacturing
facilities. The closure costs include inventory writedowns, factory asset
writeoffs associated with factory buildings and machinery, and severance and
benefit costs. Offsetting these costs in part, the Corporation also recorded
an aftertax credit of $2.4 million from the liquidation of LIFO inventories,
as described previously.
Sales from the footwear retailing operations increased 19% from the second
quarter of 1994. Famous Footwear's sales increased 27% due to a same-store
increase of 2% and 164 more units in operation. The Canadian retailing
operation's sales also showed improvement, posting an increase of 9% with a
same-store increase of 4%. Naturalizer stores' sales decreased 2% over last
year's second quarter, reflecting same-store sales gains of 3% and a net
decrease of 29 units.
Sales from footwear wholesaling activities decreased 29% over the same period
last year. Pagoda's sales decreased 31% and Brown Shoe's decreased 27%. The
decline was due to weakness in the Corporation's retail customers' business,
the sale of the men's business in June 1994, and decreases in shipments of
Connie branded footwear.
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<PAGE> 7
Gross profit as a percent of sales decreased to 34.0% from 35.1% for the same
period last year. Retailing footwear activities experienced a decrease in
gross profit as a percent of sales of 2.5% and wholesale margins decreased by
4.9%. The overall gross profit and wholesale gross profit were negatively
impacted by the charges recorded to close the remaining manufacturing
facilities.
Selling and administrative expenses as a percentage of sales increased to 35.4%
from 30.8%, primarily due to reduced sales levels at the wholesale operations
and to costs associated with the rapid expansion at Famous Footwear.
Other expense for the second quarter of 1995 was $4.0 million compared to
income of $.7 million for the same period last year. Royalty income for 1995
was equal to last year but was offset by the expenses for the closing of the
remaining manufacturing facilities.
Year-to-Date 1995 compared to Year-to-Date 1994
-----------------------------------------------
Consolidated net sales of $700.3 million were 3% lower than the first six
months of last year.
The loss from continuing operations of $12.8 million for the first six months
of 1995 compares to earnings of $14.9 million last year. Fiscal 1995 includes
a charge for plant closures previously discussed, which was partially offset
by an aftertax credit of $2.4 million from the projected liquidation of LIFO
inventories.
The loss for the first six months of 1995 was $12.8 million compared to
earnings of $15.4 million for the same period last year. Last year's net
earnings reflect aftertax earnings from discontinued operations of $.5 million.
Sales in the footwear retailing operations increased 15% compared to the first
six months of last year. Sales at Famous Footwear increased 24%, while
decreasing .6% on a same-store basis. There were 797 Famous Footwear stores
in operation at the end of the second quarter, 164 more than at the same time
last year. The Canadian retailing operation's sales also improved, increasing
by 5%, including a same-store increase of 1%. The Naturalizer retailing
operation's sales declined 9%, including a same-store decrease of 4%.
Sales from footwear wholesaling activities decreased by 23%. Pagoda's sales
decreased 18% and Brown Shoe's decreased 33%. The declines were primarily due
to weakness in the Corporation's retail customers' businesses, the sale of the
men's business, and decreased shipments of Connie branded footwear.
Gross profit as a percentage of sales decreased to 33.8% from 34.8% for the
same period last year. Retailing footwear activities experienced a decrease
in gross profit as a percent of sales of 2.2%, with wholesale margins
decreasing by 3.5%. The overall gross profit and wholesale gross profit were
negatively impacted by the charges recorded to close the remaining
manufacturing facilities.
Selling and administrative expenses as a percentage of sales increased to 35.0%
from 30.5% for the same period in 1994, primarily due to reduced sales levels
at the wholesale operations and to costs associated with the rapid expansion
and lower same-store sales of Famous Footwear.
<PAGE>
<PAGE> 8
Other income/expense is a net expense of $3.4 million in the first six months
of 1995 compared to income of $1.1 million in the same period last year. The
income in 1994 consisted primarily of royalty income. In 1995, royalty income
equaled 1994's amount but was offset by the expenses associated with the
planned closing of the domestic manufacturing facilities.
Fiscal 1995 Second Half Outlook
-------------------------------
Although retail conditions improved slightly in the second quarter, they were
still well below historic levels for this time, and early back-to-school
business has been disappointing. The second half is a seasonally stronger
period for the Corporation. The orders now in hand are expected to lead to
higher wholesale shipments for Brown Shoe Company and Pagoda in the second
half, and back-to-school is the strongest sales and earnings season for Famous
Footwear. In August, Brown Group earned slightly more than $5 million and
expects to report solid profitability in the third quarter and in the second
half.
Financial Condition
-------------------
A summary of key financial data and ratios at the dates indicated is as
follows:
<TABLE>
<CAPTION>
July 29, July 30, January 28,
1995 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
Working Capital (millions) $161.9 $242.8 $259.2
Current Ratio 1.4 1.7 2.2
Total Debt as a Percentage of
Total Capitalization 47.4% 51.1% 41.4%
Net Debt (Total Debt less Cash and
Cash Equivalents) as a Percentage
of Total Capitalization 44.3% 48.2% 38.7%
</TABLE>
Cash flow from operating activities of continuing operations for the first six
months of fiscal 1995 was $21.9 million less than in the first six months of
1994. The decrease was primarily the result of lower earnings and increased
inventories at Famous Footwear, partially offset by lower accounts receivable
at Brown Shoe and Pagoda and higher accounts payable.
Financing activities in the first six months of fiscal 1995 reflect an increase
in notes payable which is due primarily to lower earnings and growth at Famous
Footwear. In the first six months of 1994, the Corporation was able to reduce
total debt with proceeds from the sale of assets from the discontinued leased
department business.
Subsequent to the end of the second quarter, in view of prevailing business
conditions, the Board of Directors at their September 7, 1995 meeting, reduced
the regular quarterly dividend to 25 cents per share from the previous level
of 40 cents per share.
<PAGE>
<PAGE> 9
The decrease in the ratio of total debt as a percentage of total capitalization
at July 29, 1995, compared to the end of the second quarter in 1994, is due
primarily to the Corporation paying down short-term debt in the third and
fourth quarters of fiscal 1994 with additional cash flow generated from
discontinued operations. The decrease in the current ratio is due primarily
to approximately $75 million of long-term debt becoming current in the first
quarter of 1995. The Corporation's financial condition and debt to
capitalization ratios provide additional borrowing capacity, if needed.
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings
--------------------------
There have been no material developments during the quarter ended July 29,
1995, in the legal proceedings described in the Corporation's Form 10-K for
the period ended January 28, 1995.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Listing of Exhibits
(11) Computation of Earnings Per Share (Page 10)
(27) Financial Data Schedule (Page 11)
(b) Reports on 8-K
There were no reports on Form 8-K for the quarter ended
July 29, 1995.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROWN GROUP, INC.
Date: September 12, 1995 /s/ Harry E. Rich
------------------------ -------------------------------
Executive Vice President
and Chief Financial Officer and
On Behalf of the Corporation as
the Principal Financial Officer
<PAGE>
<PAGE> 10
EXHIBIT 11
PART II - OTHER INFORMATION
COMPUTATION OF EARNINGS PER SHARE
BROWN GROUP, INC.
(Thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 17,578 17,543 17,593 17,497
Net effect of dilutive stock options
based on the treasury stock method
using average market price 1 116 13 113
-------- ------- -------- --------
TOTAL 17,579 17,659 17,606 17,610
======== ======= ======== ========
Earnings (loss) from continuing operations $ (8,381) $ 7,533 $(12,792) $ 14,867
Discontinued operations - (92) - 505
-------- ------- -------- --------
Net earnings (loss) $ (8,381) $ 7,441 $(12,792) $ 15,372
======== ======= ======== ========
Earnings (loss) per share from
continuing operations $ (.48) $ .43 $ (.73) $ .85
Discontinued operations - (.01) - .02
-------- ------- -------- --------
Net earnings (loss) per share (1) $ (.48) $ .42 $ (.73) $ .87
======== ======= ======== ========
FULLY DILUTED
Weighted average shares outstanding 17,578 17,543 17,593 17,497
Net effect of dilutive stock options
based on the treasury stock method
using the period-end market price,
if higher than the average market price 1 116 40 120
-------- ------- -------- --------
TOTAL 17,579 17,659 17,633 17,617
======== ======= ======== ========
Earnings (loss) from continuing operations $ (8,381) $ 7,533 $(12,792) $ 14,867
Discontinued operations - (92) - 505
-------- ------- -------- --------
Net earnings (loss) $ (8,381) $ 7,441 $(12,792) $ 15,372
======== ======= ======== ========
Earnings (loss) per share from
continuing operations $ (.48) $ .43 $ (.73) $ .85
Discontinued operations - (.01) - .02
-------- ------- -------- --------
Net earnings (loss) per share (1) $ (.48) $ .42 $ (.73) $ .87
======== ======= ======== ========
</TABLE>
(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>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> JUL-29-1995
<CASH> 23,016
<SECURITIES> 0
<RECEIVABLES> 97,832
<ALLOWANCES> (11,582)
<INVENTORY> 368,981
<CURRENT-ASSETS> 526,424
<PP&E> 211,634
<DEPRECIATION> (118,066)
<TOTAL-ASSETS> 679,701
<CURRENT-LIABILITIES> 364,569
<BONDS> 57,467
<COMMON> 67,286
0
0
<OTHER-SE> 157,132
<TOTAL-LIABILITY-AND-EQUITY> 679,701
<SALES> 700,303
<TOTAL-REVENUES> 700,303
<CGS> 463,599
<TOTAL-COSTS> 708,940
<OTHER-EXPENSES> 3,422
<LOSS-PROVISION> 2,258
<INTEREST-EXPENSE> 7,880
<INCOME-PRETAX> (19,939)
<INCOME-TAX> (7,147)
<INCOME-CONTINUING> (12,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,792)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
