<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
1994 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
____________
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 1, 1995, 17,951,452 common shares were outstanding, and the
aggregate market value of the common shares held by non-affiliates of the
registrant was approximately $521 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended January 28, 1995,
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders to be
held May 25, 1995, are incorporated by reference into Part III.
<PAGE>
<PAGE> 2
PART I
ITEM 1 - BUSINESS
- -----------------
The Corporation, founded in 1878 and incorporated in 1913, operates in
the Footwear industry. Current activities include the operation of retail
shoe stores and the manufacture, importing, foreign sourcing, and marketing of
women's, men's and children's footwear. During 1994, footwear sales were
approximately 61% women's, 23% men's and 16% children's. This composition has
remained relatively constant over the past few years. Approximately 54% of
1994 footwear sales were made at retail compared to 52% in 1993 and 47% in
1992. The trend of increasing retail sales as a percentage of total sales
will continue as the Corporation continues to support the growth of Famous
Footwear, a retail chain of branded discount shoe stores. In prior years, the
Corporation conducted business in the Footwear and Specialty Retailing
industry segments. The Specialty Retailing segment, which comprised a chain
of retail fabric stores, was sold in the third quarter of fiscal 1994. See
Note 6 of Notes to Consolidated Financial Statements on page 29 of the Annual
Report to Shareholders for the year ended January 28, 1995, which is
incorporated herein by reference, for additional information regarding the
Corporation's business segment and operations by geographic area.
Retail Operations
- -----------------
The Corporation's retail footwear operations comprise a large number of
retail footwear stores in the United States and Canada. The stores operate
under various names including: Famous Footwear, Naturalizer and F.X. LaSalle.
Prior years operations included Connie and Regal retail stores, which were
closed during fiscal 1994 as part of the restructuring initiatives announced
in January 1994. A portion of the retail sales carries Corporate owned and
licensed 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
fragmented market with many organizations of various sizes operating retail
shoe stores. Competitors include local, regional and national 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:
<PAGE>
<PAGE> 3
ITEM 1 - BUSINESS (Continued)
- -----------------
Company-Owned Retail Footwear Stores
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<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. 451 457 431 450 418
Famous Footwear
Family footwear stores which
feature "brand names for less";
located in strip centers and
regional and outlet malls. 304 353 477 567 722
F. X. LaSalle
Stores selling men's and women's
branded footwear in major malls
in Canada. 13 14 14 15 14
Connie
Stores selling Connie and other
branded women's footwear. 134 119 106 81 0
Regal/Castleby
Men's footwear stores. 89 75 65 35 0
Other Family Footwear Stores
Selling men's, women's and
children's footwear. 63 71 4 4 4
----- ----- ----- ----- -----
Total 1,054 1,089 1,097 1,152 1,158
===== ===== ===== ===== =====
</TABLE>
Wholesale Operations
- --------------------
Footwear is distributed by the Corporation's marketing, manufacturing,
importing and foreign sourcing operations in the United States, Canada,
Europe, South America and the Far East to approximately 8,600 retailers,
including independent and chain operators of shoe and department stores and to
affiliates. Most 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 by the Corporation in company-owned factories or under
contract to its specifications by domestic and foreign suppliers. Products
sold under license agreements, such as with Schering-Plough HealthCare
Products, Inc. and The Walt Disney Company, were responsible for approximately
17%, 13%, and 11% in 1994, 1993, and 1992, respectively, of total sales. The
Corporation competes with both domestic manufacturers and importers of
foreign-produced footwear.
Foreign sourced footwear accounts for the vast majority 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, which
primarily consist of large discount store operations. During 1994, this
operation was responsible for sourcing approximately 85 million pairs of
shoes. 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.
<PAGE>
<PAGE> 4
ITEM 1 - BUSINESS (Continued)
- -----------------
The Corporation's Brown Shoe Company has annual domestic manufacturing
capacity of approximately seven million pairs. Capacity has been decreasing
over the past decade through factory closings as production of footwear is
moved overseas. 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.
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, spring and back-to-school periods.
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
Maserati
Melange
Naturalizer
<PAGE>
<PAGE> 5
ITEM 1 - BUSINESS (Continued)
- -----------------
Women's: NaturalSport
Nature Sole
Penaljo
Revelations (under license from Lowell Shoe, Inc.)
Waikiki (under license from DDKA, S.A.)
Men's: Brittania (under license from Brittania Sportswear, Ltd.)
Britt Gear (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.)
Reed St. James (under license from Haggar Apparel Company)
Regal
Remington (under license from Remington Arms Company, Inc.)
UnionBay (under license from Seattle Pacific Industries, Inc.)
Children's: Barbie for Girls (under license from Mattel, Inc.)
Buster Brown
Candie's (under license from Candie's, Inc.)
Casper (under license from MCA/Universal Merchandising, Inc.)
Disney (under license from The Walt Disney Company)
Disney Babies (under license from The Walt Disney Company)
Donnay (under license from Donnay International, S.A.)
Fanfares
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)
Mickey Unlimited (under license from The Walt Disney Company)
101 Dalmatians (under license from The Walt Disney Company)
Playskool (under license from Hasbro, Inc.)
Remington (under license from Remington Arms Company, Inc.)
Rookie League (under license from Major League Baseball
Properties, Inc.)
UnionBay (under license from Seattle Pacific Industries, Inc.)
Waikiki (under license from DDKA, S.A.)
Wildcats
YDS (under license from Schering-Plough HealthCare
Products, Inc.)
Discontinued Operations
- -----------------------
On October 2, 1994, the Corporation sold its Cloth World chain of fabric
stores to Fabri-Centers of America, Inc. This business involved the operation
of approximately 340 retail stores selling fabrics and sewing accessories. It
was acquired by the Corporation in 1970 when it had 14 stores. In addition to
the Cloth World sale, the Corporation announced a formal plan to close the
Maryland Square catalog operation. The closure of this business was
substantially completed in the fourth quarter of fiscal 1994.
In 1994, the Corporation completed its withdrawal from the Wohl Leased
Shoe Department business, which was announced in the fourth quarter of fiscal
1993. This business involved the management of over 500 shoe departments in
department stores primarily on the West Coast and in the Midwest.
<PAGE>
<PAGE> 6
ITEM 1 - BUSINESS (Continued)
- -----------------
See pages 16 and 25 of the Annual Report to Shareholders for the year
ended January 28, 1995, which is incorporated herein by reference, for a
discussion of the financial impact of the Discontinued Operations on the
Corporation.
Restructuring
- -------------
The restructuring initiatives announced in January 1994 are proceeding
as planned. To date, 5 plants and more than 150 Naturalizer, Connie and Regal
retail stores have been closed, Brown Shoe Company's men's shoe business has
been sold, and substantial consolidation of Pagoda and Brown Shoe Company
administrative operations has been accomplished. It is expected that these
restructuring initiatives will be completed in the first half of fiscal 1995.
See pages 16 and 25 of the Annual Report to Shareholders for the year ended
January 28, 1995, which is incorporated herein by reference, for a discussion
of the financial impact of the restructuring on the Corporation.
Corporate-wide Business Influence
- ---------------------------------
In addition to the 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,
at an owned factory that is currently leased to another party and has been
identified by various governmental authorities as a potentially responsible
party at certain other landfills. See pages 18 and 32 of the Annual Report to
Shareholders for the year ended January 28, 1995, which is incorporated herein
by reference, for a discussion of the financial statement 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.
The Corporation manufactures and sells certain patented items but does
not consider its business to be dependent on patents.
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 14,500 full and part-time employees.
Approximately 850 employees engaged in the manufacture of footwear are
employed under union contracts. Such contracts vary in duration and expire
in 1996 and 1997.
ITEM 2 - PROPERTIES
- -------------------
The principal executive, sales and administrative offices of the
Corporation are located in Clayton (St. Louis), Missouri, and consist of an
owned complex of two adjoining office buildings. In prior years, the complex
consisted of four adjoining office buildings, two of which were sold in
fiscal 1994 as a result of the reduction in staffing.
<PAGE>
<PAGE> 7
ITEM 2 - PROPERTIES (Continued)
- -------------------
The Corporation's footwear manufacturing and warehousing operations are
primarily carried out at five footwear and component manufacturing plants, one
leather cutting facility, and two 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 subject to long-term capital leases. Five
manufacturing plants were closed in fiscal 1994.
The Corporation's retail footwear operations are conducted throughout
the United States and Canada and involve the operation of 1,158 shoe stores,
including 109 in Canada. In addition, Famous Footwear has leased office space
and a 750,000 square foot distribution center, including a mezzanine level, in
Madison, Wisconsin, and plans to have a new leased 800,000 square foot
distribution center, including mezzanine levels, in Lebanon, Tennessee,
completed in September 1995. The new distribution center will initially
service stores in the Southeast United States. All store locations are leased
with approximately two-thirds 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.
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 pages 18 and 32 of the Annual Report to
Shareholders for the year ended January 28, 1995, 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 shareholders during the fourth
quarter of fiscal 1994.
<PAGE>
<PAGE> 8
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, 1995.
Name Age Current Position
- ---- --- ----------------
B. A. Bridgewater, Jr. 61 Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee
Brian C. Cook 55 Vice President, Footwear Retailing and
President, Famous Footwear
Arthur G. Croci 43 President, Pagoda Trading and Executive Vice
President of Sourcing, Brown Shoe Company
Ronald N. Durchfort 41 President, Pagoda International
Ronald A. Fromm 44 Executive Vice President, Famous Footwear
Joseph P. Pearce 49 Executive Vice President, Brown Shoe Company
Robert D. Pickle 57 Vice President, General Counsel and
Corporate Secretary
Gary M. Rich 44 President, Pagoda U.S.A.
Harry E. Rich 55 Director, Executive Vice President,
Chief Financial Officer and Member of the
Executive Committee
James M. Roe 49 Senior Vice President, Sales and Operations,
Famous Footwear
Andrew M. Rosen 44 Vice President and Treasurer
Richard C. Schumacher 47 Vice President and Controller
Mary Sylvia Siverts 35 Vice President, Public Affairs
Thomas A. Williams 46 Vice President, Footwear Wholesaling;
President, Brown Shoe Company; and Chairman,
Pagoda
E. Lee Wyatt, Jr. 42 Senior Vice President, Finance and
Administration, Brown Shoe Company and Pagoda
George J. Zelinsky 46 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> 9
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.
Brian C. Cook, Vice President, Footwear Retailing of the registrant since
March 1992; President of Famous Footwear since 1981.
Arthur G. Croci, Executive Vice President of Sourcing, Brown Shoe Company
since September 1994. 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.
General Manager of Operations, France Office, from 1988 through March 1993.
Ronald A. Fromm, Executive Vice President, Famous Footwear since September
1992. Vice President and Chief Financial Officer of Famous Footwear from 1988
to 1992.
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.
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.
James M. Roe, Senior Vice President, Sales and Operations, Famous Footwear
since December 1994. Vice President, Real Estate, Famous Footwear from
January 1992 to 1994. Director, Strip Center Real Estate of the registrant
from 1987 to 1992.
Andrew M. Rosen, Vice President and Treasurer of the registrant since January
1992. Treasurer of the registrant from 1983 to 1992.
Richard C. Schumacher, Vice President and Controller of the registrant since
June 1994. Vice President and Chief Financial Officer of Wohl Shoe Company
from November 1992 to June 1994. Assistant Controller of the registrant from
1985 to 1992.
Mary Sylvia Siverts, Vice President of Public Affairs since September 1993.
Director of Public Relations from 1988 to 1993.
<PAGE>
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- ------------------------------------
Thomas A. Williams, Vice President, Footwear Wholesaling; President, Brown
Shoe Company; and Chairman, Pagoda since January 1994. Chairman, Pagoda
Trading Company, Inc., since January 1990. Vice President, International
Operations of the registrant and Chairman, Brown Group International, Inc.,
from March 1993 to January 1994. Vice Chairman of Pagoda Trading Company from
June 1989 to December 1989. Other management positions at Pagoda Trading
Company from 1982 to 1990.
E. Lee Wyatt, Jr., Senior Vice President of Finance and Administration, Brown
Shoe Company and Pagoda since May 1994. Vice President, Planning and
Controller of the registrant from March 1994 to May 1994. Vice President,
Planning and Taxes of the registrant from November 1992 to March 1994.
Director, Corporate Planning and Taxes and Assistant Secretary from June 1990
to November 1992. Director, Corporate Planning and Tax from October 1989 to
June 1990. Other management positions with the registrant from 1986 to 1989.
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> 11
PART II
ITEM 5 -MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------
Common Stock market prices and dividends on page 35 of the annual
shareholders report and the number of shareholders of record on page 37 of the
annual shareholders report for the year ended January 28, 1995 are
incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
Selected Financial Data on page 19 of the annual shareholders report for
the year ended January 28, 1995 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 14 through 18 of the annual shareholders report for the
year ended January 28, 1995 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements of the Corporation and its
subsidiaries on pages 20 through 34, and the supplementary financial
information on page 35 of the annual shareholders report for the year ended
January 28, 1995 are incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------
None.
<PAGE>
<PAGE> 12
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding Directors of the Corporation on pages 3 through 10
of the proxy statement for the annual meeting of shareholders to be held May
25, 1995 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 11 through 17 and
21 through 23 of the proxy statement for the annual meeting of shareholders to
be held May 25, 1995 is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
- ---------------------------------------------------------
Security Holdings of Directors and Management on pages 3 and 4 of the
proxy statement for the annual meeting of shareholders to be held May 25, 1995
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.(i) (a) 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> 13
(i) (b) 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.
(ii) Bylaws of the Corporation as amended
through March 2, 1995, 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.
<PAGE>
<PAGE> 14
(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.
(d)* Stock Option and Restricted Stock
Plan of 1994, incorporated herein by
reference to Exhibit 3 to the
Corporation's definitive proxy
statement dated April 20, 1994.
11. Computation of earnings per share.
13. Annual Report to Shareholders of
Brown Group, Inc. for the fiscal
year ended January 28, 1995. 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).
27. Financial Data Schedule.
(b) Reports on Form 8-K:
There were no reports on Form 8-K
for the quarter ended January 28,
1995.
(c) Exhibits:
Exhibits begin on page 20 of this
Form 10-K.
On request copies of any exhibit will be
furnished to shareholders upon payment of the
Corporation's reasonable expenses incurred in
furnishing such exhibits.
(d) Financial Statement Schedules.
*Denotes management contract or compensatory plan arrangements.
<PAGE>
<PAGE> 15
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 19, 1995 BROWN GROUP, INC.
- -------------------- (Registrant)
By 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 19, 1995, 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
Richard C. Schumacher /s/ Vice President and Controller
- -------------------------
<PAGE>
<PAGE> 16
Signature Title
--------- -----
Joseph L. Bower /s/ Director and Chairman of
- ------------------------- Compensation Committee
Richard A. Liddy /s/ Director
- -------------------------
William E. Maritz /s/ Director
- -------------------------
Daniel R. Toll /s/ Director and Chairman of
- ------------------------- Audit Committee
<PAGE>
<PAGE> 17
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 28, 1995
BROWN GROUP, INC.
ST. LOUIS, MISSOURI
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FORM 10-K - ITEM 14 (a) (1) and (2), and (d)
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 shareholders for
the year ended January 28, 1995 are incorporated by reference in Item 8:
Consolidated Balance Sheets - January 28, 1995 and January 29, 1994.
Consolidated Earnings - Years ended January 28, 1995, January 29, 1994 and
January 30, 1993.
Consolidated Cash Flows - Years ended January 28, 1995, January 29, 1994
and January 30, 1993.
Consolidated Shareholders' Equity - Years ended January 28, 1995, January
29, 1994 and January 30, 1993.
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
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.
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SCHEDULE VIII
-------------
VALUATION AND QUALIFYING ACCOUNTS
BROWN GROUP, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 28, 1995
- ---------------------------
Deducted from assets:
For doubtful accounts
and discounts $10,817 $6,442 $5,595-A $11,664
YEAR ENDED JANUARY 29, 1994
- ---------------------------
Deducted from assets:
For doubtful accounts
and discounts 9,930 5,043 4,156-A 10,817
YEAR ENDED JANUARY 30, 1993
- ---------------------------
Deducted from assets:
For doubtful accounts
and discounts 6,160 7,507 3,737-A 9,930
</TABLE>
A. Accounts written off, net of recoveries
and discounts taken.
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BROWN GROUP,INC.
ANNUAL REPORT TO SHAREHOLDERS ON FORM 10-K
INDEX TO EXHIBITS
Exhibit
-------
3.(ii) Bylaws as amended through March 2, 1995
11. Computation of earnings per share
13. 1994 Annual Report to Shareholders of
Brown Group, Inc.
21. Subsidiaries of the registrant
23. Consent of Independent Auditors
24. Power of Atttoreny (see signature page)
27. Financial Data Schedule
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EXHIBIT 3. (II)
BROWN GROUP, INC.
A NEW YORK CORPORATION
BYLAWS
ADOPTED BY THE STOCKHOLDERS
JANUARY 11, 1946
AMENDED THROUGH MARCH 2, 1995
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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
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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.
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
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.
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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.
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
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<PAGE> 5
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.
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
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sum and expenses of attendance, if any, for attendance at committee
meetings.
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
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.
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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.
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
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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.
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
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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.
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
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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.
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
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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.
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
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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.
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
<PAGE>
<PAGE> 13
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)
<TABLE>
<CAPTION>
1994 1993 1992
PRIMARY ---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding 17,555 17,270 17,132
Net effect of dilutive stock options
based on treasury stock method
using average market price 84 64 10
------ ------ ------
TOTAL 17,639 17,334 17,142
====== ====== ======
Earnings (loss) from continuing
operations before accounting change $ 33,566 $ (9,296) $ 3,239
Cumulative effect of accounting change -- (2,214) --
Discontinued operations 5,832 (20,102) 1,425
---------- -------- --------
Net earnings (loss) $ 39,398 $(31,612) $ 4,664
========== ======== ========
Earnings (loss) per share from continuing
operations before accounting change $ 1.91 $ (0.54) $ 0.19
Cumulative effect of accounting change -- (0.13) --
Discontinued operations 0.33 (1.16) 0.08
---------- -------- --------
Net earnings (loss) per share (1) $ 2.24 $ (1.83) $ 0.27
========== ======== ========
FULLY DILUTED
Weighted average shares outstanding 17,555 17,270 17,132
Net effect of dilutive stock options
based on treasury stock method
using year-end market price, if
higher than average market price 98 76 15
------ ------ ------
TOTAL 17,653 17,346 17,147
====== ====== ======
Earnings (loss) from continuing
operations before accounting change $ 33,566 $ (9,296) $ 3,239
Cumulative effect of accounting change -- (2,214) --
Discontinued operations 5,832 (20,102) 1,425
---------- -------- --------
Net earnings (loss) $ 39,398 $(31,612) $ 4,664
========== ======== ========
Earnings (loss) per share from
continuing operations before
accounting change $ 1.91 $ (0.54) $ 0.19
Cumulative effect of accounting change -- (0.13) --
Discontinued operations 0.33 (1.16) 0.08
---------- -------- --------
Net earnings (loss) per share (1) $ 2.24 $ (1.83) $ 0.27
========== ======== ========
</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>
<PAGE> 1
Brown Group, Inc.
1994
Annual Report to Shareholders
<PAGE>
<PAGE> 2
CONTENTS
- --------
1 Financial Highlights
2 Letter to Shareholders
6 Review of Operations
13 Financial Statements
34 Management Report
34 Report of Independent Auditors
36 Directors, Officers and Operating Committee
37 Investor Information
<PAGE>
- ------------------
Corporate Overview
- ------------------
BROWN GROUP, INC. is a leading footwear company with worldwide
operations in the sourcing, marketing and retailing of footwear for
women, men and children. The company's primary operations include:
Footwear Retail operations -- Famous Footwear is the nation's largest
chain of branded family shoe stores. This business is carrying out an
aggressive growth program that will permit its continued success.
Famous Footwear accounted for 42% of the company's fiscal 1994 sales
and the majority of its earnings. Brown Group also owns and operates
the Naturalizer chain of retail stores that sells the company's
flagship Naturalizer brand in the United States and Canada and the F.
X. LaSalle chain of better-grade shoe stores in Canada.
Footwear Wholesale operations -- Brown Shoe Company and Pagoda are
leading marketers of brand name footwear throughout the world. Major
brand names include Naturalizer, Life Stride, NaturalSport, Penaljo,
Air Step and Connie for women; Dr. Scholl's for men and women; and a
wide variety of children's brands including Disney, Barbie, Buster
Brown, Playskool and Candie's. A flexible sourcing strategy,
including a structure of sourcing offices all over the world, provides
the opportunity for the company to source the best footwear to support
its wholesale brand strategies.
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
For the Fiscal Years Ended January 28, 1995 and January 29, 1994
<CAPTION>
Thousands, except per share 1994 1993
---------- ----------
<S> <C> <C>
Net sales $1,461,637 $1,361,039
Earnings (loss) from continuing operations
before cumulative effect of accounting change 33,566 (9,296)
Earnings (loss) per common share from
continuing operations before cumulative
effect of accounting change 1.91 (.54)
Net earnings (loss) per common share 2.24 (1.83)
Dividends paid per common share 1.60 1.60
Shareholders' equity 249,727 233,863
Return on beginning shareholders' equity 14.4% (3.2)%
Return on average invested capital 6.5% (1.6)%
Working capital 259,178 240,554
Current ratio 2.2:1 1.7:1
</TABLE>
1
<PAGE>
<PAGE> 3
- --------------------
To Our Shareholders:
- --------------------
- ----------------------------------------------------------------------
In 1994 Brown Group carried out the challenging program of change that
was announced in late 1993 and described in this report last year.
- ----------------------------------------------------------------------
We discontinued the Wohl Leased Shoe Department business; closed five
shoe factories and announced the planned closing of a sixth; closed
116 Connie and Regal specialty stores, withdrawing from those
retailing operations, and closed 50 Naturalizer stores in locations
that were performing poorly; consolidated the Brown Shoe Company and
Pagoda Divisions' administrative operations, and completed reductions
in Corporate administrative staffing. In addition, in the fall, the
Cloth World retail fabric chain was sold and the Maryland Square
catalog business was discontinued. These changes were completed sooner
than planned and at materially lower cost.
The Program Concluded: A Decade's Perspective
- ---------------------------------------------
The decisive steps we took in 1994 concluded a decade-long program
which has concentrated the assets and operations of the company in
footwear businesses with historically strong performance and high
potential. During the decade, Brown Group has shed unproductive
investment in mature and declining Recreational Products, Specialty
Retailing and Footwear businesses, and eliminated overhead costs and
excess manufacturing and retail operating capacity. We have closed
more than 2,400 retail stores and leased shoe departments and 25 shoe
factories, and sold or disposed of more than 110 businesses and brands
representing $1.2 billion in sales and more than $400 million in assets.
During the same period, we have expanded Famous Footwear from a
recently acquired small regional operation to a 722-store national
chain of value-oriented, branded retail shoe stores; we acquired
Pagoda and developed it into a $600 million worldwide footwear
sourcing and marketing organization; we established Brown Group
International to source quality branded footwear, merged it into
Pagoda, and in 1994 consolidated Pagoda leadership and administrative
operations in the Brown Shoe Company.
With these changes, we have sought to transform Brown Group from a
company with a great past, into one with a promising future.
Results Confirm The Value of Changes
- ------------------------------------
Our 1994 results confirm the value of these fundamental structural
changes. Brown Group achieved planned earnings of $1.91 per share from
continuing operations on sales of $1.5 billion which exclude over $500
million in annualized sales of discontinued Leased Shoe Department,
Cloth World and Maryland Square operations. Our net earnings per share
including results from these discontinued operations were $2.24.
2
<PAGE>
<PAGE> 4
The company also accomplished positive cash flow of $115 million and
carried out an important expansion program at Famous Footwear,
investing more than $50 million in systems, distribution and 183 new
stores. During 1994 we reduced net debt by $115 million from 53.8
percent of capital to 38.7 percent, maintained our dividend, improved
return on equity to 14.4 percent and increased shareholder equity by
$16 million.
These results were achieved in a year in which retail sales of apparel
and footwear were generally below anticipated levels, particularly in
value-oriented businesses like Famous Footwear and Pagoda's retail
customers. Operating earnings were lower at Famous Footwear and were
flat at Pagoda, but these below-plan results were offset by the
elimination of losses from closed businesses, savings from structural
changes and higher earnings at Brown Shoe Company and in our Canadian
operations.
Expansion, Investment, Lower Earnings At Famous Footwear
- --------------------------------------------------------
Famous Footwear continued an aggressive expansion program during 1994,
opening 183 stores while closing 28. This brought the chain to 722
stores at year-end and plans are in place to continue expansion in
1995. Famous Footwear sales increased 26 percent during the year to
$619 million; same-store sales increased 3 percent for the year.
The company began 3-shift, 7-day operations at its Sun Prairie,
Wisconsin distribution center and broke ground on a new distribution
center in Lebanon, Tennessee during the year. The "F.I.T." (Famous
Interactive Technology) system was also expanded to all stores as
Famous Footwear continued to invest heavily in infrastructure to
support continued growth. The fixed costs of this infrastructure
contributed significantly to lower earnings at Famous Footwear in
1994's fourth quarter, as aggressive promotion and lower margins were
necessary to achieve sales gains late in the year. This was the first
"down quarter" at Famous Footwear since 1990, and led to a 7 percent
decline in 1994 operating earnings to $40 million. The value of these
investments, however, will be realized in 1995 and beyond, as they
support expansion, better execution and higher sales levels.
Pagoda, Brown Shoe Company and Naturalizer Retail:
Consolidation, Coordination and Progress
- --------------------------------------------------
Our footwear wholesale businesses -- Pagoda and the Brown Shoe Company
- --reported combined operating earnings of $33 million for the year,
higher than 1993 on slightly higher sales of $642 million. Improved
margins and a LIFO recovery resulting from reduced inventories
contributed to improved operating earnings at Brown Shoe Company.
Results at Pagoda were level with last year due to the slow retail
business during 1994 that affected the company's major customers.
Results in the wholesale businesses also benefited from cost
reductions associated with the restructuring and consolidation of
administrative operations, which will continue in 1995.
<PAGE>
As we have consolidated these businesses, we have also begun to carry
out our plans to invest in more aggressive marketing programs to
increase the sales of our core brands, especially Naturalizer and
NaturalSport. We are now in position to build on our strength in the
branded footwear business by improving the product offerings in
existing brands and by adding new brands. In 1994, we introduced the
Penaljo brand and created the Melange brand of better-grade footwear.
Early responses to these additions have been encouraging.
3
<PAGE>
<PAGE> 5
Pagoda successfully continued marketing Disney licensed product
worldwide and expanded the reach of Brown Group's brands in 1994.
Naturalizer is now sold in Germany, Brazil, Belgium, Thailand and
Japan; the Buster Brown brand of children's shoes is sold by Pagoda
around the world, including in Mexico, Brazil, Hong Kong and
Singapore. The worldwide marketing of brands is a growth opportunity
that we are aggressively pursuing.
The Naturalizer retail store chain had flat same-store sales in 1994.
After a strong start, store performance declined as consumer
preferences shifted away from moderate, dress-oriented product, and
the stores' offering of casual product and NaturalSport items was
insufficient. Overall sales declined 2 percent to $123 million as 50
unprofitable or marginal stores were closed. However, operating losses
were substantially reduced, and as coordination with the Naturalizer
marketing organization is strengthened, improved product offerings
should lead to better results as 1995 progresses.
Canadian Operations: A Strong Year
- ----------------------------------
Our Canadian operations had an outstanding year in 1994 nearly
doubling operating earnings to $7 million. Wholesale operations
distribute branded footwear throughout Canada, and these operations
benefited from improved inventory control and cost efficiencies in
1994, and earnings increased substantially. Our Canadian retail
operations, which include the Naturalizer and F.X. LaSalle stores in
Canada, reported an 11 percent same-store sales increase for the year
and also had significantly higher operating earnings.
- ------------------------------------------------------------------
COMPOUND ANNUAL RATE
OF TOTAL RETURN TO SHAREHOLDERS
<TABLE>
<CAPTION>
5 Yr. 4 Yr. 3 Yr. 2 Yr. 1 Yr.
------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Brown Group 12.50% 12.08% 12.24% 8.97% (4.40)%
"Peer" Group (0.32) 1.60 (10.56) (13.56) (13.38)
S&P Index 10.49 11.29 7.74 6.36 0.97
15 Yr. 12 Yr. 8 Yr. 4 Yr. 1 Yr.
------ ------ ------- ------- --------
Brown Group 14.48% 6.31% 3.40% 12.08% (4.40)%
"Peer" Group 12.11 7.08 4.40 1.60 (13.38)
S&P Index 14.22 14.19 10.42 11.29 0.97
- ------------------------------------------------------------------
</TABLE>
<PAGE>
Shareholder Perspective:
1994 Total Return Declines, Earning Power Shifts
- ------------------------------------------------
Total return to Brown Group shareholders declined by four percent in
1994 as investors reduced their holdings in Brown Group and similar
footwear-related stocks. Although we outperformed the "Peer" Group (as
characterized in the Proxy Statement), as we have over the past five
years, we are committed to achieving superior total returns for
shareholders.
During the extended period of structural changes which was concluded
in 1994, the compound annual rate of total return to Brown Group
shareholders has generally been better than that of its "Peers." Over
the fifteen year period indicated in the table to the left, it has
also been modestly higher than that of the Standard & Poor's Broad
index for the same period.
This total return performance has not "just happened." In the past
decade, the company has balanced the cost and timing of necessary
changes in mature businesses with the development of offsetting
earning power in acquired and developing businesses. As Brown Group
withdrew from Recreational Products, Specialty Retailing and capital
intensive footwear manufacturing and Leased Shoe Department
operations, and as we developed importing operations that require less
capital and discount branded retailing operations that have been
largely self-financing through greater profitability, we have returned
more than $425 million in capital to shareholders through dividends
and stock repurchase. This strategy has contributed importantly to the
total return that shareholders have received.
4
<PAGE>
<PAGE> 6
- ----------------------------------------------------------------------
In the past decade, the company has balanced the cost and timing of
necessary changes in mature businesses with the development of
offsetting earning power in acquired and developing businesses.
- ----------------------------------------------------------------------
The continuing process of restructuring and consolidation carries with
it a considerable human cost in terms of job loss and uncertainty
among our employees, and Brown Group's policies and programs are
intended to deal with those affected by the changes, with
understanding and compassion. The footwear business is highly
"management intensive," and in 1995 as the new organization takes
shape, the strength of our management and their winning spirit will
determine the degree of our success.
Brown Group is now positioned so that success in achieving earnings
improvements will contribute increasingly to the value of the company
and to the total return shareholders receive. Over time, the changes
we concluded in 1994 will have the effect of increasing our earning
power; they will also shift it to later in the year and concentrate it
to a greater degree in the high-volume months. We no longer have the
significant spring business generated by the leased departments and
Connie stores in the first quarter. Instead, our pattern of results
will continue to shift to the third quarter as Famous Footwear's
strong back-to-school season becomes increasingly important, and
wholesale shipments also now peak in the fall season.
As our earnings strengthen, as these changed patterns develop, and as
investors become more familiar with them, we expect that the long-term
pattern of increased total returns to shareholders will be resumed;
and in the future superior returns can be achieved.
/s/ B. A. Bridgewater, Jr.
----------------------------
Chairman of the Board, President
and Chief Executive Officer
April 19, 1995
- ----------------------------------------------------------------------
BOARD CHANGES
In the past year, Richard A. Liddy and Julie C. Esrey joined Brown
Group's Board of Directors. These new members bring valuable
experience and insight to our company. In May 1994, W. L. Hadley
Griffin announced his retirement from his position as Chairman of the
Executive Committee and from Brown Group's Board of Directors. His
leadership has spanned forty-seven years with Brown Group and
thirty-three years as a Director. He now serves as an Honorary
Director of the company and we continue to value his vision and his
contributions.
- ----------------------------------------------------------------------
5
<PAGE>
<PAGE> 7
- --------------------------
Footwear Retail Operations
- --------------------------
FAMOUS FOOTWEAR continues its leading position in the branded family
footwear marketplace. From its headquarters in Madison, Wisconsin,
Famous Footwear pursues aggressive expansion plans throughout the
country. In 1994, the company added 183 new stores, with a major
thrust in southern California where over 40 stores were opened in the
greater Los Angeles area. Although its primary expansion strategy is
to enter a market and saturate it with stores, Famous Footwear also
continues to expand in existing markets. This expansion philosophy
allows the company to leverage expenses in these areas and increase
market share. At the end of fiscal year 1994, Famous Footwear operated
722 stores in 44 states.
- ---------------------------------
NUMBER OF FAMOUS FOOTWEAR STORES
1994 -- 722
1993 -- 567
1992 -- 477
1991 -- 353
1990 -- 304
- ---------------------------------
Brand names for less -- that's what makes us Famous!
- ----------------------------------------------------
Famous Footwear was founded in 1961 and was purchased by Brown Group
in 1981, when Famous had 36 stores in nine states. The company owes
its success to the concept it has maintained since its founding: Brand
name shoes for less for the entire family. Famous Footwear's stores
are located in strip centers, outlet malls and regional malls. The
stores average 5,000 square feet and offer brand name athletic, dress
and casual shoes for men, women and children at prices that are
generally 10 to 50 percent below manufacturers' list prices. This
every day low pricing strategy is supported by weekly special
promotions advertised in major newspapers across the country. Radio
and television ads supplement the print advertising for additional
emphasis during major selling seasons such as back-to-school, spring
and Christmas.
- ----------------------------------------------------------------------
As consumers continue their search for the best value for their
dollars, Famous Footwear is well-positioned to meet their demands with
name brand family shoes at prices the competition can't beat.
- ----------------------------------------------------------------------
6
<PAGE>
<PAGE> 8
As Famous Footwear continues to grow, it is pursuing long-range plans
to gain even greater market awareness through the development of an
image campaign that will position Famous Footwear as the store for
branded shoes. This course of action is expected to build even greater
equity in the Famous Footwear franchise, and ultimately position the
stores top-of-mind among branded footwear consumers. Plans are to
target the image attributes that have helped make Famous Footwear
truly famous: big brand names, pricing lower than the competition,
value, exceptional service, and most importantly, a satisfied shopping
experience.
Solid base for growth
- ---------------------
Famous Footwear's aggressive growth plans will be strongly supported
by the company's solid infrastructure of people, systems and
distribution capabilities. Significant attention was paid to these
components during 1994 in preparation for the continuing expansion
planned by the company during the remainder of the decade.
Strong relationships with America's top footwear suppliers help
Famous Footwear offer the consumer the best selection in brand names
and styles. While great brands and styles are essential to the
company's success, it also is important that the sales associates at
the stores offer the best possible service to leverage the strength of
these brands at retail and build consumer loyalty. Famous Footwear's
sales associates are well-trained and motivated to do just that.
Integral to the company's growth plans is its highly efficient
logistics and distribution systems. Famous Footwear's 750,000 square
foot distribution center in Sun Prairie, Wisconsin features
state-of-the-art distribution systems which are studied and emulated
by other companies across the country. To serve its ever-growing
network of stores, in 1994 Famous Footwear broke ground on a new
800,000 square foot distribution center in Lebanon, Tennessee which
will begin servicing stores in October 1995.
As consumers continue their search for the best value for their
dollars, Famous Footwear is well-positioned to meet their demands with
name brand family shoes at prices the competition can't beat.
- --------------------------------------------------
NUMBER OF COMPANY OPERATED U.S. NATURALIZER STORES
1994 -- 327
1993 -- 367
1992 -- 355
1991 -- 384
1990 -- 382
- --------------------------------------------------
NATURALIZER RETAIL operates 327 Naturalizer specialty stores in major
malls and shopping centers throughout the United States. These stores
present the company's flagship brand -- Naturalizer -- as well as
<PAGE>
NaturalSport walking and casual shoes and the Penaljo brand. The
Naturalizer stores are destination shopping points for loyal
Naturalizer customers who know they can find the widest selection of
styles and sizes of their favorite brand there.
7
<PAGE>
<PAGE> 9
- --------------------------------------------------------------------
The Naturalizer stores are destination shopping points for loyal
Naturalizer customers who know they can find the widest selection of
styles and sizes of their favorite brand there.
- --------------------------------------------------------------------
The Naturalizer Retail and Wholesale divisions work closely together
to ensure consistency in the selection and presentation of
merchandise. Targeted marketing and customer service programs help to
enhance the consumer's experience when she shops at the Naturalizer
stores. A new database marketing program is being introduced that will
send information directly to about two million dedicated Naturalizer
consumers throughout the country. In addition, new store design, sales
staff training and store marketing programs are being tested to update
the Naturalizer stores and increase sales. These stores help position
Naturalizer as the most recognized brand of women's shoes in the
United States.
- -------------------------
NUMBER OF CANADIAN STORES
NATURALIZER
1994 -- 91
1993 -- 83
1992 -- 76
1991 -- 73
1990 -- 69
F.X. LASALLE
1994 -- 14
1993 -- 15
1992 -- 14
1991 -- 14
1990 -- 13
- --------------------------
CANADA RETAIL comprises the operation of 91 company-owned Naturalizer
shoe stores, 14 F. X. LaSalle better-grade shoe stores and four Famous
Footwear stores. In Canada, the Naturalizer Retail and Wholesale
divisions also work closely together to capitalize on the brand's
strengths in offering fashion, comfort, size and width selection and
superior service to consumers. This helps make Naturalizer the leading
brand of women's shoes in Canada.
The F. X. LaSalle stores are primarily located in the Montreal area.
These stores average 2,500 square feet and sell better-grade men's and
women's footwear brands. In 1994, the company celebrated the 100th
anniversary of this successful chain of stores.
8
<PAGE>
<PAGE> 10
- -----------------------------
Footwear Wholesale Operations
- -----------------------------
BROWN SHOE COMPANY is a leading marketer of branded women's footwear.
The company has recently strengthened its brand management team,
refocused brand strategies, and developed aggressive marketing,
product development, sales and customer service programs to strengthen
its position in the industry. Brown Shoe Company operates five
factories in the United States and works closely with Pagoda Trading
to import shoes that meet its customers' value, quality and delivery
needs. The company is organized around sales and service teams that
are directed to serve the distinct needs of each group of customers.
This helps Brown Shoe Company maintain retail partnerships that are
mutually beneficial.
- -------------------------
BROWN SHOE COMPANY BRANDS
Connie
Life Stride
Melange
Naturalizer
NaturalSport
Penaljo
- --------------------------
Naturalizer Group
- -----------------
The Naturalizer Group markets the corporation's flagship Naturalizer
brand, the NaturalSport walking shoe brand and the new Penaljo brand
of comfort shoes for women.These brands are sold in department stores,
specialty stores and other fine retailers throughout the United
States. Aggressive marketing plans for this brand group include
advertising that focuses on each brand's key characteristics. The
Naturalizer brand has been providing fashion, fit and comfort to women
for more than 65 years. Naturalizer styles include dress, tailored and
casual looks. The shoes are recognized for their comfort and quality.
Naturalizer shoes are available in sizes from 4 to 12 and widths from
AAAA to EE. They range in price from $45 to $65 at retail.
The walking and casual brand in the group, NaturalSport, continues to
emphasize its patented Cradle technology. The walking shoe line is
segmented according to the walking intensity level of the consumer. A
supporting marketing program helps to educate the consumer to make the
right choice for her walking needs. The Cradle technology is also
important in NaturalSport casual shoes and hikers. The NaturalSport
brand successfully appeals to today's woman with an active lifestyle.
The shoes are available in a wide range of sizes and are priced from
$50 to $100.
9
<PAGE>
<PAGE> 11
- --------------------------------------------------------------------
The Naturalizer Group markets the corporation's flagship Naturalizer
brand, the NaturalSport walking shoe brand and the new Penaljo brand
of comfort shoes for women.
- --------------------------------------------------------------------
The newest brand in the group, Penaljo, appeals to women who want the
finest comfort features in their footwear. This brand has been setting
the standard for quality, comfortable, moderately priced shoes since
1946 when its founders developed and patented slip-lasted construction.
This special construction technique allows the upper portion of the shoe to
"form" to the foot. This unique feature is available in many of the Penaljo
styles. In November 1993, Brown Group purchased the Penaljo brand and has
since expanded the number of styles available and the distribution of the
brand. Penaljo shoes are available at Naturalizer shoe stores and
independent shoe stores nationwide for retail prices between $50 and $70.
Life Stride and Connie
- ----------------------
The Life Stride brand is one of the most recognized names in women's
footwear today. The brand features contemporary fashion-right styling
at prices that start at about $30. This brand is primarily sold in
department stores. The target consumer is the career woman looking for
the right combination of fashion and value. The Life Stride brand is
uniquely positioned to address women's needs for moderately priced
fashion footwear from a brand they know and trust for quality and
comfort. The company's Connie brand appeals to updated fashion
consumers. It retails in the $40 to $50 price range.
Melange
- -------
The Melange footwear collection was introduced to better-grade
retailers in 1994. This newest Brown Shoe Company brand is targeted to
sophisticated women seeking stylish, quality footwear. All styles are
made in Italy of the finest materials. The Melange brand offers
stylish shoes that are a perfect complement to contemporary workwear.
Styles range in price from $65 to $85 and will be in stores throughout
the country in fall 1995.
PAGODA is the corporation's global marketing and sourcing
organization, operating three divisions: Pagoda U.S.A., Pagoda
International and Pagoda Trading. Pagoda was founded in 1972 by a
group of entrepreneurs. Brown Group acquired a majority interest in
Pagoda in late 1986 and has continued to invest in this growing
business over the years. Through its worldwide sourcing and sales
capabilities, Pagoda offers its customers a full range of owned and
licensed footwear brands for men, women and children.
10
<PAGE>
<PAGE> 12
Pagoda U.S.A.
- -------------
The Pagoda U.S.A. division markets branded and private label footwear
to an extensive network of both mass merchandise and better-grade shoe
stores throughout the United States. This division continues to expand
the marketing of its existing brands and to develop new brands to
serve its retail customers.
The Dr. Scholl's brand of shoes for men and women has seen great
success since its introduction by Pagoda in 1992. This brand is
licensed by Pagoda from Schering-Plough HealthCare Products, Inc. It
is distributed through mass merchant and mid-tier retail outlets. The
shoes feature comfort designed insoles, leather uppers and
lightweight, flexible bottoms. Average retail prices are $20-$40 for
athletic and men's styles and $15 to $30 for women's styles.
Three new licenses were signed in 1994 for the adult and young
men/women's segments. Remington for men, a line of outdoor footwear
benefiting from the established and popular Remington name in the
outdoors category; UnionBay for young men and boys, reflecting a hot,
young name in the apparel business; and Mickey Unlimited from Disney,
a line of young women's shoes incorporating the well-known characters
of Mickey, Minnie, Donald, Daisy, Pluto and Goofy.
Pagoda U.S.A. also has one of the most successful children's footwear
marketing programs in the country. The Buster Brown brand is the
cornerstone of the Children's Better Brands division of Pagoda U.S.A.
which also licenses and markets the Candie's for girls and UnionBay
for boys brands. The Children's discount division markets a wide range
of brand names including Barbie, Playskool, G. I. Joe and The
Flintstones. In addition, Pagoda licenses Disney character names from
The Walt Disney Company and sells shoes featuring cartoon characters
such as Mickey and Minnie Mouse as well as those from animated films,
including The Lion King, Disney's blockbuster 1994 release.
<PAGE>
- ------------------------------------------------------------------------
PAGODA BRANDS
Air Step
Barbie for Girls 1
Brittania 2
Buster Brown
Candie's 3
Casper 4
Donnay 5
Dr. Scholl's 6
DeLiso
Disney 7
Fanfares
The Flintstones 8
G. I. Joe 9
Jordache 10
Maserati
Nature Sole
Playskool 11
Reed St. James 12
Remington 13
Revelations 14
UnionBay 15
Waikiki 16
Wildcats
Other licensed brands
- ------------------------------------------------------------------------
As denoted, the above brands are under license from:
1 Mattel, Inc.
2 Brittania Sportswear, Ltd.
3 Candie's, Inc. (for girls)
4 MCA/Universal Merchandising, Inc.
5 Donnay International, S. A.
6 Schering-Plough HealthCare Products, Inc.
7 The Walt Disney Company
8 MCA/Universal Merchandising, Inc. and Turner Home Entertainment, Inc.
9 Hasbro, Inc.
10 Jordache Enterprises, Inc.
11 Playskool, Inc.
12 Haggar Apparel Company
13 Remington Arms Company, Inc.
14 Lowell Shoe, Inc.
15 Seattle Pacific Industries, Inc.
16 DDKA, S.A.
- ------------------------------------------------------------------------
<PAGE>
Pagoda International
- --------------------
The global market for footwear offers a wide range of opportunities
for development and growth of the corporation's branded footwear
programs. The Pagoda International division is responsible for
expanding the reach of Brown Group's brands worldwide. The company
currently sells branded footwear in Europe, Latin America and the Far
East. International operations are managed from marketing offices in
Hong Kong; Paris, France; and Sao Paulo, Brazil.
Pagoda International markets children's shoes featuring Disney and
Barbie characters in many countries throughout the world. It markets
the popular Donnay athletic brand in Europe and continues to expand
the distribution of the Buster Brown and Naturalizer brands worldwide.
In addition, the company is expanding the reach of the Dr. Scholl's
licensed brand in Argentina, Chile and Brazil.
11
<PAGE>
<PAGE> 13
- ----------------------------------------------------------------------
Through its worldwide sourcing and sales capabilities, Pagoda offers
its customers a full range of owned and licensed footwear brands for
men, women and children.
- ----------------------------------------------------------------------
Pagoda Trading
- --------------
Pagoda Trading is the footwear sourcing arm of the company. Through
its worldwide operations, Pagoda Trading sourced 85 million pairs of
shoes in 1994, continuing its position as one of the world's leading
suppliers of imported footwear. Brown Group combined the management of
its Brown Shoe Company domestic manufacturing group with Pagoda
Trading in 1994 to integrate overall sourcing capabilities and
decision making.
The company's sourcing structure is responsive to the many needs of
the various marketing and retail divisions of Brown Group. This is
especially important as we expand the global reach of our brands
through Pagoda International. The flexible structure allows the
company to source footwear at virtually any price level from any
significant shoe manufacturing region of the world. Pagoda Trading
currently maintains offices in Brazil, Italy, Taiwan, Vietnam, Poland,
Indonesia, China and Hong Kong. The company is constantly expanding
its sourcing network through the establishment of additional factory
relationships. In 1994, Pagoda Trading continued to develop sourcing
capabilities in the Czech Republic, Vietnam, the Philippines, India
and Bangladesh.
Pagoda Trading's operations are the backbone that supports Brown
Group's marketing and retail businesses. The combined Brown Shoe
Company and Pagoda Trading sourcing team is made up of 2,700 employees
worldwide who are committed to on-time delivery of quality products at
competitive prices.
CANADA WHOLESALE markets branded women's, men's and children's
footwear to retailers throughout Canada, including: Naturalizer,
NaturalSport, Air Step, Connie, Buster Brown, Wildcats, Savage and
Cedar Trail. The company operates two production facilities and one
warehouse in Canada. Naturalizer is the leading brand of women's shoes
in Canada and is sold in the Retail division's Naturalizer specialty
stores, 45 independently operated Naturalizer shoe stores, department
stores and other fine retailers.
12
<PAGE>
<PAGE> 14
FINANCIAL STATEMENTS
--------------------
CONTENTS
- --------
14 Management's Discussion and Analysis of Operations and Financial
Condition
19 Five-Year Summary
20 Consolidated Financial Statements
24 Notes to Consolidated Financial Statements
34 Reports on Financial Statements
* Management Report on Responsibility for Financial Reporting
* Report of Independent Auditors
35 Supplementary Financial Information
13
<PAGE>
<PAGE> 15
- --------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------
- ---------------------
RESULTS OF OPERATIONS
- ---------------------
1994 Compared to 1993
- ---------------------
During 1994 Brown Group, Inc. completed its program to concentrate the
corporation in the footwear industry by selling the Cloth World chain
of fabric stores. In addition to this sale, the corporation also
adopted a plan to close the Maryland Square catalog operation,
completed its withdrawal from the Wohl Leased Shoe Department business
and made substantial progress on restructuring initiatives announced
at the end of fiscal 1993.
Brown Group's sales of $1.46 billion in fiscal 1994 were 7% higher
than the $1.36 billion in fiscal 1993. This increase reflects
substantially higher sales at Famous Footwear partially offset by
decreased sales resulting from the closure of more than 150 Connie,
Regal and Naturalizer stores. Earnings of $33.6 million in 1994 from
continuing operations compare to a loss from continuing operations in
1993 of $9.3 million. Net earnings for 1994 of $39.4 million included
earnings from discontinued operations of $1.3 million from Cloth World
and Maryland Square prior to discontinuance and $4.5 million from the
reversal of a portion of the provision for disposal of Wohl Leased
Shoe Departments.
Earnings for 1993 from continuing operations reflected the impact of
an aftertax charge of $29.5 million for restructuring initiatives
which included plant, office and store closures; consolidation of
Brown Shoe Company and Pagoda; and provided for additional
environmental monitoring costs at the corporation's closed tannery.
Net earnings for 1993 included earnings from discontinued operations
of $4.3 million; an aftertax provision of $24.4 million for withdrawal
from the Wohl Leased Shoe Department business; and an aftertax charge
of $2.2 million for the implementation of the Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits."
Famous Footwear's sales increased 26% in 1994 to $618.8 million and 3%
on a store-for-store basis. This was the ninth consecutive year of
store-for-store sales increases at Famous Footwear. Operating earnings
declined 7% to $39.9 million as a result of lower margins and
increased expenses. Substantial investment spending was incurred in
1994 in building the infrastructure at Famous Footwear particularly to
further develop systems and distribution capabilities, which will be
necessary to support future growth. During 1994, there was a net
addition of 155 stores, bringing the total number of stores to 722.
<PAGE>
Plans for 1995 include the continuing addition of stores and
completion of an additional distribution center in Tennessee.
Naturalizer stores' domestic sales decreased 2% and were flat on a
store-for-store basis. This business was unprofitable again in 1994
but progress was made in reducing the loss through the closure of
poorly performing stores and improved gross margins. There was a net
decrease of 40 stores during the year, reducing the total number of
stores to 327.
The Canadian retail operation's sales increased 10% and were up 11% on
a store-for-store basis. Operating earnings more than doubled in 1994
as a result of increased sales, improved gross margins and leveraging
of expenses. With the net addition of seven stores in 1994, this
business now operates 109 stores. The Canadian wholesale operation
also had a significant increase in operating earnings as a result of
strong sales of Naturalizer footwear and reduced expenses.
Sales from footwear wholesale and manufacturing operations -- Brown
Shoe Company and Pagoda -- were slightly higher than 1993 at $641.6
million. Increased sales of Natural-Sport, Life Stride, and Dr.
Scholl's and the The Lion King licensed products were offset by lower
sales of Connie and Buster Brown, and from the mid-year sale of Brown
Shoe Company's men's business. Naturalizer's branded sales in 1994
were flat with 1993. Combined operating earnings for Brown Shoe
Company and Pagoda were $32.8 million in 1994 compared to a loss of
$2.4 million in 1993. Results for 1994 included a pretax LIFO gain of
$9.8 million and improved gross margins, which were partially offset
by higher expenses as a percentage of sales, as only a partial year
effect of overhead reduction was realized and higher costs were
incurred on brand development and marketing which is expected to
continue in 1995. Included in 1993 results is a pretax restructuring
charge of $24.9 million for plant closures, the consolidation of Brown
Shoe Company and Pagoda and environmental monitoring costs.
14
<PAGE>
<PAGE> 16
The 9% decrease in Brown Group's interest expense in 1994 reflects
higher interest rates which were more than offset by reduced borrowing
levels throughout most of the year. This was due to the withdrawal
from the Wohl Leased Shoe Department business and the sale of Cloth
World stores for $65.7 million, of which $61.0 million was received at
the beginning of October and the balance subsequent to year-end.
Other Income of $12.3 million in 1994 primarily comprises $9.8 million
of income from the settlement of Brazilian countervailing duties and
$3.0 million of royalty income. In 1993, Other Expense of $21.2
million primarily reflected restructuring charges of $21.4 million,
royalty income of $2.7 million, and other offsetting items.
The nonrecurring gain from settlement of the Brazilian countervailing
duties of $9.8 million ($6.4 million aftertax) was offset by the
provision for an Internal Revenue Service tax assessment of $5.8
million, including interest, on a portion of the corporation's
unremitted foreign earnings, which is being appealed. As a result of
this nonrecurring provision, the corporation's effective tax rate in
1994 increased to 44.0% compared to 38.7% in 1993. See Note 5 to the
consolidated financial statements for a further explanation and a
reconciliation of the effective tax rates to the statutory rate.
The corporation has an overall net deferred tax asset of $10.6 million
at January 28,1995, which relates primarily to differences in book and
taxable income arising from net operating loss carryforwards, discontinued
operations reserves and restructuring charges. No valuation allowance is
considered necessary as management believes it is more likely than not that
the deferred tax asset will be realized through 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. Management will continue to evaluate the realizability of the
deferred tax asset.
1993 Compared to 1992
- ---------------------
The financial results for both 1993 and 1992 reflect the impact of
unusual business changes. Fiscal 1993 results included the costs of
restructuring, discontinued operations, and an accounting change as
previously discussed. 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 $1.36 billion in fiscal 1993 were 9% higher than the
$1.24 billion in fiscal 1992. A loss of $9.3 million in 1993 from
continuing operations, before the cumulative effect of an accounting
change, compared to earnings from continuing operations in 1992 of $3.2
million. The net loss of $31.6 million in 1993 compared to net earnings of
$4.7 million in 1992.
<PAGE>
Famous Footwear's sales increased 32% and were up 9% on a store-for-store
basis. Operating earnings increased 33% to $43.1 million in 1993 compared
to 1992, primarily as a result of the higher sales. There was a net
addition of 90 stores during the year, bringing the total number of stores
to 567.
The Naturalizer stores' domestic sales increased 10% in 1993 and 2% on a
store-for-store basis. This business was unprofitable in both 1993 and
1992. Included in the loss for 1993 were charges to close more than 50
unprofitable and marginally profitable stores. There was a net addition of
12 stores during the year, bringing the total number of stores to 367.
Connie and Regal concept stores' sales decreased 30% in 1993. These
stores were unprofitable in both 1993 and 1992. Included in the loss
for 1993 were charges to close these unprofitable chains.
The Canadian retail operation's sales increased 9% in 1993 and 7% on a
store-for-store basis. Earnings also improved in 1993 through increased
sales, improved margins, and lower expenses as a percent of sales. With the
net addition of eight stores in 1993, this chain operated 102 stores at
year-end. 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 from the Brown Shoe Company and Pagoda manufacturing and wholesale
operations of $637.5 million were slightly higher than 1992. Pagoda's sales
increased 16% and operating earnings increased 37% due to increased volume
and expense leverage. The growth of this business was 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. Also in 1993, this division successfully completed the
merger of Brown Group International into Pagoda, further strengthening
sourcing capabilities and improving 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 were charges to further
reduce capacity by closing five manufacturing facilities, reduce
overhead costs, and provide for additional ongoing environmental
compliance costs at the company's closed tannery. 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.
15
<PAGE>
<PAGE> 17
The 7% increase in Brown Group's interest expense in 1993 reflected
increased borrowing levels to fund growth at Famous Footwear and
Pagoda partially offset by lower interest rates.
Other Expense increased from $8.3 million in 1992 to $21.2 million in
1993 reflecting higher restructuring charges.
The corporation's effective tax rate in 1993 was 38.7% compared to a tax
benefit in 1992. For reconciliation of the effective tax rate to the
statutory rate, see Note 5 to the consolidated financial statements.
Restructuring
- -------------
The restructuring initiatives and additional environmental provisions,
which were announced in January 1994, resulted in pretax charges
totaling $45.4 million. These charges consisted of the following:
* Charges of $13.3 million for asset writeoffs associated with the
disposal of manufacturing facilities of Brown Shoe Company and the
closing of over 150 Connie, Regal and Naturalizer shoe stores;
* 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.
A summary of activity in the restructuring reserves, excluding
environmental reserves, which are separately discussed, is as follows
(in millions):
<TABLE>
<S> <C>
Initial establishment of reserve $ 40.4
Asset writeoffs (12.1)
Inventory writedowns (6.8)
Lease buyouts and termination costs (9.2)
Severance and benefit costs (4.8)
Pension settlement and curtailment gains 3.2
------
Reserve balance at January 28, 1995 $ 10.7
======
</TABLE>
<PAGE>
The reserve activity had a $20.8 million negative impact on 1994 cash
flow which was more than offset by positive cash flow generated from
reduced inventories. During 1994, all but eight of the planned 150
retail stores closures were completed, however, lease termination
costs are still being negotiated for 12 of the closed stores. Five
manufacturing plants were closed in fiscal 1994 with an additional
planned closure to be completed in the first quarter of fiscal 1995.
The majority of the planned employee terminations occurred in fiscal
1994 with the remainder to occur in fiscal 1995 as part of the final
phases of the consolidation of Pagoda, Brown Shoe and headquarters
staffs. The remaining reserve relates primarily to personnel
severance, lease termination costs and factory closing costs. These
costs will have a negative impact on cash flow throughout fiscal 1995.
Discontinued Operations
- -----------------------
In the third quarter of fiscal 1994, the corporation adopted a formal
plan to sell the Cloth World chain of fabric stores and to close the
Maryland Square catalog operation. The exit costs of $9.8 million
associated with the sale and closure of these businesses consist
primarily of warehouse closure, inventory liquidation, personnel
severance and other transaction costs. These costs will be covered by
reserves originally established for the withdrawal from the Wohl
Leased Shoe Department business. The Cloth World stores were sold to
Fabri-Centers of America, Inc. on October 2, 1994, for $65.7 million
in cash, of which $61.0 million was received in fiscal 1994 with the
remainder received subsequent to year-end. Maryland Square ceased
operations in January 1995.
In January 1994, the corporation adopted a formal plan to withdraw
from the Wohl Leased Shoe Department business, which involved the
management of shoe departments in department stores. Reserves of $34.8
million were established for the estimated costs associated with the
withdrawal from this business, the components of which were as follows:
16
<PAGE>
<PAGE> 18
* 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.
The corporation completed its withdrawal from the last Wohl Shoe
Company leased shoe department at the end of the third quarter of
fiscal 1994. Due to this earlier than expected withdrawal from the
various leased departments at better than expected terms, operating
losses and inventory liquidation costs were significantly lower than
original estimates. This allowed the corporation to redesignate $9.8
million of the reserve for the sale of Cloth World stores and the
closure of the Maryland Square catalog operation, previously
discussed, and reverse $7.0 million of the reserve to income in the
fourth quarter of 1994. A summary of reserve activity for all
discontinued businesses, to date, is as follows (in millions):
<TABLE>
<S> <C>
Initial establishment of reserve $ 34.8
Asset writeoffs (13.0)
Inventory writedowns and operating
losses during phaseout (5.3)
Severance and benefit costs (7.0)
Other fees and costs (1.0)
Pension settlement and curtailment gains 2.5
Reserve reversal (7.0)
------
Reserve balance at January 28, 1995 $ 4.0
======
</TABLE>
The remaining reserve for the final closure of these businesses
consists primarily of personnel severance and benefit costs and
warehouse facility closure costs, which will be paid throughout 1995.
During 1994, the sale and liquidation of the Wohl Leased Shoe
Departments, Cloth World fabric stores and Maryland Square catalog
operation generated $127.2 million of positive cash flow. These
proceeds were used to reduce the corporation's short-term borrowings.
Impact of Inflation
- -------------------
The effects of inflation have been minor over the last several years
and are not expected to have a significant impact in the foreseeable
future.
<PAGE>
- -------------------
FINANCIAL CONDITION
- -------------------
Liquidity and Capital
- ---------------------
As a result of cash flow generated in 1994 from the sale and
liquidation of discontinued businesses and from restructuring
initiatives, the corporation was able to fund the continued growth at
Famous Footwear, maintain the current dividend rate and reduce its
level of short-term borrowings. The corporation reduced its total debt
to $176.4 million at the end of fiscal 1994 from $289.1 million at the
end of fiscal 1993. Accordingly, the corporation's ratio of net debt
(notes payable and long-term debt less cash and cash equivalents) to
total capitalization decreased to 38.7% at the end of 1994 from 53.8%
at the end of 1993.
Working capital at the end of 1994 was $259.2 million which was $18.6
million higher than the $240.6 million at the end of 1993. As a
result, the corporation's current ratio, the relationship of current
assets to current liabilities, increased to 2.2 to 1 from 1.7 to 1 at
the end of 1993. These increases are primarily due to cash generated
from increased earnings, proceeds from inventory liquidations
associated with the closure of Connie, Regal and Naturalizer stores,
and the sale and liquidation of discontinued businesses.
Cash provided by operating activities of continuing operations in
fiscal 1994 consisted of increased earnings, a reduction in accounts
receivable primarily due to lower sales at Brown Shoe, and lower
prepaid expenses and other current assets from the utilization of tax
benefits related to the corporation's restructuring activities. These
were partially offset by increased inventories at Famous Footwear,
which more than offset reductions of inventory at Brown Shoe Company,
Naturalizer Retail, and the liquidation of Connie and Regal store
inventories, and lower accrued expenses due to the utilization of
restructuring reserves.
Cash generated by investing activities was primarily from the sale of
assets of discontinued operations, which was partially offset by
capital expenditures in 1994 of $32.5 million compared to $27.2
million in 1993. The 1994 capital expenditures were principally for
the opening of new retail stores, system improvements at Famous
Footwear, and the remodeling of existing retail units. Capital
expenditures for 1995 are planned to be approximately the same as in
1994 and will consist primarily of store openings at Famous Footwear.
Financing activities reflect a decrease in notes payable and current
maturities of long-term debt, which was made possible by the
corporation's improved earnings and cash generated from the
liquidation and sale of discontinued businesses in 1994.
17
<PAGE>
<PAGE> 19
Expenditures required in 1995 related to the completion of the
corporation's restructuring initiatives and final closure of
discontinued operations will be approximately $14.7 million. The
excess cash generated from liquidation of discontinued businesses and
improved operations in 1994 enabled the corporation to continue to
fund the growth at Famous Footwear and Pagoda and maintain the
dividend while reducing overall debt levels. To continue the growth of
these two businesses, borrowing levels may increase somewhat in 1995.
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 $220.0
million.
Financial Instruments
- ---------------------
The corporation has assets, liabilities and inventory purchase
commitments outside the United States which are subject to
fluctuations in foreign currency exchange rates. A substantial portion
of inventory sourced from foreign countries, for ultimate sale in the
United States, is purchased in United States dollars and accordingly
is not subject to exchange rate fluctuations. However, where the
purchase price is to be paid in the foreign currency, the corporation
enters into forward foreign exchange contracts to reduce its economic
exposure to changes in exchange rates. The level of outstanding
contracts during the year is dependent on seasonality of the
corporation's business and on demand for footwear from various
locations throughout the world.
Assets and liabilities outside the United States are primarily located
in Canada, France, Hong Kong, Brazil and Mexico. The corporation's
investments in foreign subsidiaries with a functional currency other
than the United States dollar are generally considered long-term. As a
result, the corporation generally does not hedge these net investments.
Historically, due to the immaterial amount of investment in countries
deemed hyperinflationary, the corporation did not hedge the local
denominated assets and liabilities of subsidiaries located in these
countries. During 1994 as its investment in Brazil increased, the
corporation began a program to hedge the local currency denominated
assets and liabilities of its Brazilian subsidiary. To date, the
corporation has not recorded material losses or gains from its
Brazilian subsidiary due to exchange rate fluctuations.
The corporation periodically enters into interest rate options and
swaps to reduce its exposure to changing interest rates and to reduce
interest costs. See Note 11 to the consolidated financial statements
for a further discussion of these contracts.
<PAGE>
Dividends
- ---------
Brown Group paid a dividend of $1.60 per share in 1994, which was the
same as in 1993, and marked the 72nd year of consecutive quarterly
dividends.
Environmental Matters
- ---------------------
The corporation is involved in environmental remediation and ongoing
compliance at several sites. At its closed New York tannery and two
associated landfills, remaining minor remediation work is expected to
be completed in 1995 with ongoing maintenance and monitoring programs
expected to be required over the next 29 years. In 1994, the
corporation became aware of potential exposure at an owned factory
that is currently leased to another party. Preliminary testing was
completed in late 1994, and remediation work will begin in 1995.
Various federal and state authorities have identified the corporation
as a potentially responsible party for remediation at certain
landfills from disposal of solvents and other by-products from the
closed tannery and shoe manufacturing facilities. At January 28, 1995,
accrued liabilities related to these exposures totaled $5.7 million.
Charges related to the New York tannery site were $1.7 million in
fiscal 1992 and an additional $6.6 million in fiscal 1993 due to a
change in the expected holding period of the property. The 1993 charge
included $5.0 million recorded in conjunction with restructuring
charges in January 1994. The remaining costs accrued related to the
tannery total $4.7 million. The expected remaining costs related to
the owned, but leased, factory and the various landfills total $.8 -
$1.0 million.
18
<PAGE>
<PAGE> 20
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
Thousands, except per share
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C> <C>
Operations
Net sales $1,461,637 $1,361,039 $1,243,842 $1,191,591 $1,208,001
Cost of goods
sold 949,374 915,443 834,591 806,090 801,858
---------- ---------- ---------- ---------- ----------
Gross profit 512,263 445,596 409,251 385,501 406,143
---------- ---------- ---------- ---------- ----------
Selling and
administra-
tive expenses 448,827 422,248 381,835 361,281 348,053
Interest
expense 15,785 17,334 16,260 15,431 18,174
Other expense
(income) --
net (12,320) 21,191 8,318 (2,244) (3,905)
---------- ---------- ---------- ---------- ----------
452,292 460,773 406,413 374,468 362,322
---------- ---------- ---------- ---------- ----------
Earnings
(loss) from
continuing
operations
before income
taxes and
cumulative
effect of
accounting
changes 59,971 (15,177) 2,838 11,033 43,821
Income taxes 26,405 (5,881) (401) 2,771 15,125
---------- ---------- ---------- ---------- ----------
Earnings
(loss) from
continuing
operations
before
cumulative
effect
of accounting
changes 33,566 (9,296) 3,239 8,262 28,696
Earnings from
discontinued
operations,
net of income
taxes 1,282 4,298 1,425 7,433 3,079
(Provision)
credit for
disposal of
discontinued
operations,
net of income
taxes 4,550 (24,400) -- -- --
Cumulative
effect of
changes in
accounting
for
postemploy-
ment benefits
in 1993 and
postretire-
ment benefits
and income
taxes in 1991 -- (2,214) -- (11,931) --
---------- ---------- ---------- ---------- ----------
Net earnings
(loss) $ 39,398 $ (31,612) $ 4,664 $ 3,764 $ 31,775
========== ========== ========== ========== ==========
Returns from
continuing
operations
before
accounting
changes:
Return on
net sales 2.3% (0.7)% 0.3% 0.7% 2.4%
Return on
beginning
shareholders'
equity 14.4% (3.2)% 1.0% 2.5% 8.5%
Return on
average
invested
capital 6.5% (1.6)% 0.6% 1.5% 5.1%
Dividends paid $ 28,610 $ 27,979 $ 27,714 $ 27,646 $ 27,789
Capital
expenditures 32,531 27,207 17,496 19,902 24,917
Per Common
Share
Earnings
(loss) from
continuing
operations
before
accounting
changes $ 1.91 $ (.54) $ .19 $ .48 $ 1.67
Net earnings
(loss) 2.24 (1.83) .27 .22 1.85
Dividends paid 1.60 1.60 1.60 1.60 1.60
Shareholders'
equity 13.90 13.27 16.69 18.10 19.47
Financial
Position
Receivables,
net $ 98,079 $ 109,825 $ 114,042 $ 83,900 $ 101,467
Inventories 322,029 286,992 253,586 228,219 227,707
Working
capital 259,178 240,554 262,611 297,239 285,310
Property and
equipment,
net 92,904 86,695 88,500 104,144 104,886
Total assets 636,515 739,930 705,165 654,696 678,224
Long-term
debt and
capitalized
lease
obligations 133,213 135,324 123,024 144,564 128,611
Shareholders'
equity 249,727 233,863 288,988 313,387 336,182
Average Common
Shares
Outstanding 17,555 17,270 17,132 17,070 17,184
</TABLE>
All data presented reflects the fiscal year ended on the Saturday nearest
to January 31.
19
<PAGE>
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Thousands, except
number of shares January 28, 1995 January 29, 1994
---------------- ----------------
<S> <C> <C>
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 18,922 $ 16,892
Receivables, net of allowances
of $11,664 in 1994 and $10,817
in 1993 98,079 109,825
Inventories, net of adjustment
to last-in, first-out cost of
$37,286 in 1994 and $43,665
in 1993 322,029 286,992
Net current assets of
discontinued operations -- 100,210
Deferred income taxes 23,350 47,774
Prepaid expenses and other
current assets 16,580 18,368
-------- --------
Total Current Assets 478,960 580,061
Net Noncurrent Assets of
Discontinued Operations -- 17,839
Prepaid Pension Costs 34,793 29,096
Other Assets 29,858 26,239
Property and Equipment, Net 92,904 86,695
-------- --------
$636,515 $739,930
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Notes payable $ 41,085 $146,090
Trade accounts payable 85,045 84,694
Employee compensation and benefits 37,394 40,296
Other accrued expenses 54,837 56,930
Income taxes (642) 3,788
Current maturities of long-term debt 2,063 7,709
-------- --------
Total Current Liabilities 219,782 339,507
Other Liabilities
Long-term debt, including
capitalized lease obligations 133,213 135,324
Deferred income taxes 12,734 7,152
Other liabilities 21,059 24,084
-------- --------
Total Other Liabilities 167,006 166,560
Shareholders' 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;
17,969,892 and 17,619,768
shares outstanding 67,388 66,075
Additional capital 46,957 35,979
Cumulative translation adjustment (5,556) (3,287)
Unamortized value of restricted stock (10,878) (6,827)
Retained earnings 151,816 141,923
-------- --------
Total Shareholders' Equity 249,727 233,863
-------- --------
$636,515 $739,930
======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
<PAGE> 22
CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
Thousands, except per share 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales $1,461,637 $1,361,039 $1,243,842
Cost of goods sold 949,374 915,443 834,591
---------- ---------- ----------
Gross profit 512,263 445,596 409,251
---------- ---------- ----------
Selling and administrative expenses 448,827 422,248 381,835
Interest expense 15,785 17,334 16,260
Other expense (income) -- net (12,320) 21,191 8,318
---------- ---------- ----------
452,292 460,773 406,413
---------- ---------- ----------
Earnings (Loss) From Continuing
Operations Before Income
Taxes and Cumulative Effect of
Accounting Change 59,971 (15,177) 2,838
Income taxes 26,405 (5,881) (401)
---------- ---------- ----------
Earnings (Loss) From Continuing
Operations Before Cumulative
Effect of Accounting Change 33,566 (9,296) 3,239
Cumulative effect of change in
accounting for postemployment
benefits in 1993 -- (2,214) --
Discontinued operations:
Earnings from operations,
net of taxes 1,282 4,298 1,425
(Provision) credit for disposal,
net of taxes 4,550 (24,400) --
---------- ---------- ----------
Net Earnings (Loss) $ 39,398 $ (31,612) $ 4,664
========== ========== ==========
Earnings (Loss) Per Common Share:
Continuing operations before
cumulative effect of accounting
change $ 1.91 $ (.54) $ .19
Cumulative effect of change in
accounting for postemployment
benefits in 1993 -- (.13) --
Discontinued operations:
Earnings from operations .07 .25 .08
(Provision) credit for disposal .26 (1.41) --
---------- ---------- ----------
Net Earnings (Loss) $ 2.24 $ (1.83) $ .27
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
<PAGE> 23
CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Thousands 1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Operating Activities:
Net earnings (loss) $ 39,398 $(31,612) $ 4,664
Adjustments to reconcile net
earnings to net cash provided
(used) by continuing operating
activities:
Cumulative effect of change in
accounting for postemployment
benefits in 1993 -- 2,214 --
Discontinued operations (5,832) 20,102 (1,425)
Depreciation and amortization 22,095 19,852 20,916
Loss on disposal of facilities
and equipment 103 12,236 8,619
Provision for losses on accounts
receivable 6,442 5,043 7,507
Changes in operating assets and
liabilities:
Receivables 5,304 (826) (2,649)
Sale of receivables -- -- (35,000)
Inventories (35,037) (33,406) (25,367)
Prepaid expenses and other
current assets 26,212 (30,880) (3,589)
Trade accounts payable and
accrued expenses (7,972) 27,082 13,107
Income taxes (4,430) (1,285) 5,007
Other, net (6,577) (1,397) (2,585)
-------- -------- --------
Net Cash Provided (Used) by
Operating Activities of:
Continuing operations 39,706 (12,877) (10,795)
Discontinued operations 8,677 180 (46)
-------- -------- --------
Net Cash Provided (Used) by
Operating Activities 48,383 (12,697) (10,841)
-------- -------- --------
Investing Activities:
Capital expenditures (32,531) (27,207) (17,496)
Proceeds from sales of fixed assets 4,226 1,407 595
Proceeds from sales of assets of
discontinued operations 118,532 -- --
-------- -------- --------
Net Cash Provided (Used) by
Investing Activities 90,227 (25,800) (16,901)
-------- -------- --------
Financing Activities:
Increase (decrease) in short-term
notes payable (105,005) 134,445 (2,751)
Principal payments of long-term
debt and capitalized leases (7,764) (97,102) (14,310)
Additions to long-term debt -- 20,000 75,288
Proceeds from issuance of
common stock 5,901 4,400 171
Payments for purchase of
treasury stock (1,102) -- --
Dividends paid (28,610) (27,979) (27,714)
-------- -------- --------
Net Cash Provided (Used)
by Financing Activities (136,580) 33,764 30,684
-------- -------- --------
Increase (Decrease) in Cash
and Cash Equivalents 2,030 (4,733) 2,942
Cash and Cash Equivalents at
Beginning of Year 16,892 21,625 18,683
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 18,922 $ 16,892 $ 21,625
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
<PAGE> 24
CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Thousands, except number of shares
Unamortized
Common Stock Cumulative Value of
---------------- Additional Translation Restricted Retained
Shares Dollars Capital Adjustment Stock Earnings
---------- ------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
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
Net earnings 39,398
Dividends
($1.60 per
share) (28,610)
Stock issued
under
employee
benefit
plans 217,924 817 5,084
Purchase
of common
stock for
treasury (35,800) (134) (73) (895)
Currency
translation
adjustment (2,269)
Stock issued
under
restricted
stock plan,
net 168,000 630 5,967 (6,597)
Amortization
of deferred
compensation
under
restricted
stock plan 2,546
---------- ------- ------- ------- -------- --------
Balance
January
28, 1995 17,969,892 $67,388 $46,957 $(5,556) $(10,878) $151,816
========== ======= ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
<PAGE> 25
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 third
quarter of fiscal 1994 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 1994, 1993 and 1992 ended
on January 28, 1995, January 29, 1994 and January 30, 1993, respectively.
Fiscal years 1994, 1993 and 1992 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 and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization of
property 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 inventory liquidation costs, are
accrued when management makes the decision to close such facilities.
Cash and Equivalents/Cash Flow
- ------------------------------
The corporation considers all short-term investments with maturities
of three months or less 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 Shareholders' 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.
Financial Instruments
- ---------------------
The corporation periodically purchases interest rate futures and
options on interest rate futures, which effectively serve as interest
rate caps, and enters into interest rate swaps and foreign currency
contracts to manage exposure to fluctuations in interest and foreign
currency exchange rates.
Gains and losses realized upon settlement of derivative instruments
designated as interest rate hedges are deferred and amortized to
interest expense over a period relevant to the agreement if the
underlying hedged instrument remains outstanding, or immediately if
the underlying hedged instrument is settled. Premiums paid are
amortized to interest expense over the term of the underlying hedged
instrument.
The corporation's foreign exchange contracts do not subject the
corporation's results of operations to risk due to exchange rate
movements because gains and losses on foreign exchange contracts
offset gains and losses resulting from the underlying hedged
transactions. Gains and losses on contracts which hedge foreign
currency assets or liabilities in highly inflationary economies are
recognized in income as incurred because such amounts effectively
offset gains and losses on the assets or liabilities that are hedged.
Gains and losses on contracts that hedge specific foreign currency
commitments, which are primarily for inventory purchases, are deferred
and included in the basis of the transaction when it is consummated.
Material gains and losses on forecasted inventory purchases are
recorded in income in the period the value of the contract changes.
24
<PAGE>
<PAGE> 26
NOTE 2: 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
personnel 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.
At January 28, 1995, $10.7 million remains from the restructuring charges
recorded in fiscal 1993 excluding environmental reserves discussed in Note
14. The remaining liability relates primarily to personnel severance costs,
lease termination costs and closure costs for the final factory closing
associated with the 1993 restructuring charges. To date, $29.7 million of
the reserves which were established by the 1993 restructuring charges have
been utilized: $12.1 million for asset writeoffs, $9.2 million for lease
termination costs, $6.8 million for inventory liquidation costs, and $1.6
million for personnel severance costs, net of pension and postretirement
gains of $3.2 million.
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 costs 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. During fiscal 1994, approximately $.3
million of final closure costs were charged against the 1992
restructuring reserve and no further liabilities remain related to
these charges.
NOTE 3: DISCONTINUED OPERATIONS
- -------------------------------
During the third quarter of fiscal 1994, the corporation announced the
sale of its Cloth World chain of fabric stores to Fabri-Centers of
America, Inc. The sale was completed on October 2, 1994 for $65.7
million in cash. The estimated exit costs associated with the sale of
this business consist primarily of warehouse closure, personnel
severance and other transaction costs. A majority of these costs were
paid in the fourth quarter of fiscal 1994 and the remainder will be
paid in fiscal 1995.
In addition, as of the end of the third quarter of 1994, the
corporation adopted a plan to close the Maryland Square catalog
operation. The closure of this business was substantially completed in
the fourth quarter of fiscal 1994. The costs of exiting this business
consist primarily of inventory liquidation costs and personnel
severance costs.
In 1993, the corporation adopted a formal plan to withdraw from the
Wohl Leased Shoe Department business, which involved the management of
shoe departments in department stores. The corporation completed its
withdrawal from the last Wohl Leased Shoe Department at the end of
October 1994.
The corporation established reserves of $34.8 million in fiscal 1993
for the estimated loss associated with the withdrawal from the Wohl
Leased Shoe Department business. Due to earlier than expected
withdrawals from leased departments at better than expected terms,
$9.8 million of this reserve was redesignated to cover the exit costs
associated with the Cloth World sale and the closure of the Maryland
Square catalog operation, previously discussed, and an additional $7.0
million of the reserve was reversed to income in the fourth quarter of
1994. The remaining liability of $4.0 million for closure of these
businesses primarily consists of warehouse closure and personnel
severance costs, which will be paid in fiscal 1995.
Summarized results of these businesses are shown separately as
Discontinued Operations in the accompanying consolidated financial
statements. In 1993, assets and liabilities primarily consisted of
inventory and leasehold improvements. Prior year financial statements
have been reclassified to conform to the current year presentation.
Operating results of these businesses are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales $148,980 $529,617 $541,016
-------- -------- --------
Earnings before
income taxes $ 1,650 $ 6,253 $ 2,261
Income taxes 368 1,955 836
-------- -------- --------
Earnings from
operations $ 1,282 $ 4,298 $ 1,425
======== ======== ========
</TABLE>
25
<PAGE>
<PAGE> 27
NOTE 4: RETIREMENT AND OTHER BENEFIT PLANS
- ------------------------------------------
During fiscal 1994, the corporation and its subsidiaries merged
several non-contributory pension plans into one plan. This plan covers
substantially all full-time United States employees. Under the plan,
salaried and management employees' pension benefits are based on the
employee's highest consecutive five years of compensation during the
ten years before retirement; hourly employees' and union members'
benefits are based on 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 a multiemployer plan, which provides
defined benefits to certain of the corporation's union employees.
The following table sets forth the plans' funded status at the
December 31, 1994 and 1993 measurement dates, and amounts recognized
in the corporation's Consolidated Balance Sheet at January 28, 1995
and January 29, 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 90,514 $118,243
======== ========
Accumulated benefit obligation $ 92,336 $123,289
======== ========
Projected benefit obligation $100,526 $138,930
Plan assets at fair value 132,266 188,338
-------- --------
Excess of plan assets over
projected benefit obligation 31,740 49,408
Unrecognized net (gain) loss 2,540 (20,420)
Unrecognized prior service costs 3,864 7,123
Unrecognized net transition asset (3,351) (7,015)
-------- --------
Net pension asset recognized
in the balance sheet $ 34,793 $ 29,096
======== ========
</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.
Pension costs included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost $ 5,828 $ 6,180 $ 6,180
Interest cost 9,957 9,532 10,420
Actual return on plan assets 20,269 (30,847) (8,715)
Net amortization
and deferral (37,823) 12,864 (10,675)
Multiemployer plans 78 143 166
------- ------- -------
Total pension (income) $(1,691) $(2,128) $(2,624)
======= ======= =======
Actuarial assumptions
used were:
Discount rate 8.75% 7.25% 7.50%
Expected return on plan assets 9.50% 9.50% 9.50%
Compensation increase 5.00% 5.00% 5.00%
</TABLE>
In addition to the net pension income, the corporation recognized net
curtailment/settlement gains in fiscal 1994 of $3.4 million related to
employee terminations due to personnel reductions as part of the
corporation's restructuring and discontinued operations. These net
gains increased restructuring and discontinued operations reserves
originally established in fiscal 1993.
During fiscal 1994, the corporation's defined contribution 401(k)
plans were merged into one plan. The plan covers 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 corporation's expense for this plan was $2.5
million in 1994, $3.4 million in 1993 and $3.4 million in 1992.
In addition to providing pension benefits, the corporation sponsors
unfunded defined benefit postretirement health and life insurance
plans that cover both salaried employees who had become eligible for
benefits by January 1, 1995, and hourly employees. The postretirement
health care plans are offered on a shared-cost basis only to employees
electing early retirement. 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.
The following tables set forth the plans' funded status
reconciled with the amounts in the corporation's Consolidated Balance
26
<PAGE>
<PAGE> 28
Sheet at January 28, 1995 and January 29, 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
Life Life
Health Insurance Health Insurance
Plans Plans Plans Plans
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligations:
Retirees $ 3,379 $4,850 $ 4,347 $4,825
Active participants 1,861 165 3,229 499
------- ------ ------- ------
$ 5,240 $5,015 $ 7,576 $5,324
Plan assets -- -- -- --
Accumulated obligation
in excess of plan assets 5,240 5,015 7,576 5,324
Unrecognized net
gain (loss) 4,804 (23) 3,758 (310)
------- ------ ------- ------
Accrued postretirement
benefit cost $10,044 $4,992 $11,334 $5,014
======= ====== ======= ======
</TABLE>
Net postretirement benefit cost for 1994, 1993 and 1992 included the
following components (in thousands):
<TABLE>
<CAPTION>
Life
Health Insurance
Plans Plans
-------- ---------
<S> <C> <C>
1994
Service cost $ 266 $ 15
Interest cost 443 397
Net amortization and deferral (845) 7
------ ----
Postretirement benefit cost $ (136) $419
====== ====
1993
Service cost $ 534 $ 25
Interest cost 667 387
Net amortization and deferral (2,088) --
------ ----
Postretirement benefit cost $ (887) $412
====== ====
1992
Service cost $447 $ 18
Interest cost 1,032 402
Net amortization and deferral (3) --
------ ----
Postretirement benefit cost $1,476 $420
====== ====
</TABLE>
In addition to the net postretirement benefit income, the corporation
recognized net curtailment gains in fiscal 1994 of $.6 million related
to employee terminations due to personnel reductions as part of the
corporation's restructuring and discontinued operations. These net
gains increased the restructuring and discontinued operations reserves
originally established in fiscal 1993.
In the fourth quarter of 1993, the corporation terminated
postretirement health coverage for salaried employees who were not
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>
1994 1993 1992
------ ------ -------
<S> <C> <C> <C>
Projected health care
cost trend rate (A) 8.75% 9.00% 13.00%
Ultimate trend rate (A) 5.75% 5.00% 6.00%
Year ultimate trend rate is achieved 2001 2001 2000
Effect of a 1% point increase in the
health care cost trend rate on the
postretirement benefit obligation $ 193 $ 309 $1,200
Effect of a 1% point increase in
the health care cost trend rate on
the aggregate of service and
interest cost 34 84 157
Discount rate 8.75% 7.25% 7.50%
<FN>
(A) The health care cost trend rate assumption has a significant
affect on the amounts reported. Rates listed above represent assumed
increases in per capita cost of covered health care benefits for 1995,
1994 and 1993, respectively. For future years the rate was assumed to
decrease gradually and remain at the ultimate trend rate thereafter.
</FN>
</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
- --------------------
The components of earnings from continuing operations before income
taxes and cumulative effect of accounting change consisted of Domestic
earnings (loss) before taxes of $46.5 million, ($29.1 million), and
($6.6 million) in 1994, 1993, and 1992, respectively, and Foreign
earnings before taxes of $13.5 million, $13.9 million, and $9.4
million in 1994, 1993, and 1992, respectively.
27
<PAGE>
<PAGE> 29
<TABLE>
The components of income tax expense are as follows (in thousands):
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal
Currently payable (receivable) $(8,389) $ 2,777 $ 565
Deferred 29,732 (14,215) (3,103)
------- -------- ------
21,343 (11,438) (2,538)
State 355 3,390 1,462
Foreign 4,707 2,167 675
------- -------- ------
Total income tax expense
(benefit) on earnings (loss)
from continuing operations
before cumulative effect of
accounting change 26,405 (5,881) (401)
Tax benefit of cumulative
effect of accounting change -- (1,192) --
Tax expense (benefit) of
discontinued operations:
Results of operations 368 1,955 836
(Provision) credit for
disposal 2,450 (10,454) --
------- -------- ------
Total income tax expense
(benefit) $29,223 $(15,572) $ 435
======= ======== ======
</TABLE>
The corporation received income tax refunds of $1.2 million in fiscal
1994. Cash payments of income taxes for fiscal 1993 and 1992 were
$12.9 million and $2.4 million, respectively.
The differences between the 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 1994 and
1993 and 34% in 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Income taxes at statutory rate $20,990 $(5,312) $ 965
State income taxes, net
of federal tax benefit 231 2,203 965
Foreign tax in excess of
(less than) domestic rate 55 (2,056) (2,247)
Effect of revaluation of net
deferred tax assets due to
1993 increase in federal tax rate
from 34% to 35% -- (422) --
Provision for tax assessment 5,837(A) -- --
Other, net (708) (294) (84)
------- ------- ------
$26,405 $(5,881) $ (401)
======= ======= ======
<FN>
(A) Represents tax and interest (net of tax) related to an Internal
Revenue Service assessment on a portion of the corporation's unremitted
foreign earnings. In January 1995, the U.S. Tax Court issued a judgment in
favor of the Internal Revenue Service; however, the corporation plans to
appeal this judgment.
</FN>
</TABLE>
Significant components of the corporation's deferred income tax assets
and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets
Employee benefits, compensation,
and insurance $ 8,589 $ 9,525
Allowance for doubtful accounts 3,484 3,617
Inventory capitalization and
inventory reserves 1,940 1,746
Discontinued operations, restructuring,
and store closing reserves 6,669 38,911
Countervailing duty reserves -- 3,336
Other postretirement and
postemployment benefit plans 5,991 7,302
Tax loss carryforward 8,631 --
Other 6,856 8,544
------- -------
Total deferred tax asset 42,160 72,981
Deferred tax liabilities
Excess depreciation (9,633) (8,122)
Retirement plans (11,481) (10,165)
LIFO inventory valuation (8,807) (11,417)
Other (1,623) (2,655)
------- -------
Total deferred tax liabilities (31,544) (32,359)
------- -------
Net deferred income tax asset $10,616 $40,622
======= =======
</TABLE>
At January 28, 1995, the corporation has net operating loss
carryforwards for federal income tax purposes of $24.7 million which
are available to offset future federal taxable income through fiscal
2009.
No valuation reserve has been provided for these deferred tax assets
at January 28, 1995 and January 29, 1994 as full realization of these
assets is expected.
As of January 28, 1995, there is approximately $33.0 million of
accumulated unremitted earnings from the corporation's Canadian
subsidiary and approximately $55.0 million 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 $15.0 million
would be due.
28
<PAGE>
<PAGE> 30
NOTE 6: BUSINESS SEGMENT INFORMATION
- ------------------------------------
The corporation operates in the Footwear industry throughout the
world. Operations include the manufacture, sourcing, wholesale
distribution, and retailing of women's, men's and children's footwear.
In 1994, approximately 54% of the corporation's sales were at retail,
compared to 52% in 1993 and 47% in 1992.
The corporation 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:
<TABLE>
<CAPTION>
Thousands 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
United States $1,030,315 $ 965,423 $ 902,124
Far East 310,902 291,106 256,595
Canada 67,225 66,107 67,834
Other Foreign 90,417 71,082 52,731
Inter-Area Transfers (37,222) (32,679) (35,442)
---------- ---------- ----------
$1,461,637 $1,361,039 $1,243,842
========== ========== ==========
Operating Income
United States (A)(B) $ 64,472 $ (1,283) $ 19,830
Far East 5,972 9,992 8,036
Canada 6,565 3,330 967
Other Foreign 1,621 1,516 624
Less Corporate, interest
and other income
(expense) (18,659) (28,732) (26,619)
---------- ---------- ----------
$ 59,971 $ (15,177) $ 2,838
========== ========== ==========
Identifiable Assets
United States $ 517,139 $ 620,661 $ 598,416
Far East 46,547 56,574 42,296
Canada 41,909 39,487 42,491
Other Foreign 30,920 23,208 21,962
---------- ---------- ----------
$ 636,515 $ 739,930 $ 705,165
========== ========== ==========
<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.
</FN>
</TABLE>
Inter-area transfers to affiliates are generally priced to recover
cost plus an appropriate margin for profit. Identifiable foreign
assets consist primarily of cash items, receivables and inventories.
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 28 January 29
1995 1994
---------- ----------
<S> <C> <C>
Finished goods $298,235 $263,770
Work-in-progress 4,193 6,291
Raw materials and supplies 19,601 16,931
-------- --------
$322,029 $286,992
======== ========
</TABLE>
If the first-in, first-out (FIFO) cost method had been used,
inventories would have been $37.3 million and $43.7 million higher at
January 28, 1995 and January 29, 1994, respectively.
During fiscal 1994, inventory quantities were reduced at certain of
the corporation's divisions, which resulted in a liquidation of LIFO
inventory layers carried at lower costs which prevailed in prior
years. On an aftertax basis, the effect of this liquidation was to
increase 1994 net income by $6.7 million.
NOTE 8: PROPERTY AND EQUIPMENT
- ------------------------------
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
January 28 January 29
1995 1994
---------- ----------
<S> <C> <C>
Land and buildings $ 35,528 $ 37,801
Leasehold improvements 35,829 34,178
Furniture, fixtures and equipment 131,870 126,072
--------- ---------
203,227 198,051
Allowances for depreciation and
amortization (110,323) (111,356)
--------- ---------
$ 92,904 $ 86,695
========= =========
</TABLE>
29
<PAGE>
<PAGE> 31
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 28 January 29
1995 1994
---------- ----------
<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 19,988 19,987
7.125% Debentures due 2003 15,000 15,000
7.375% Sinking Fund Debentures,
payments of $2.0 million due
annually to 1998 3,997 5,995
Capitalized lease obligations 3,479 3,564
Other 749 778
-------- --------
$133,213 $135,324
======== ========
</TABLE>
Maturities of long-term debt and capitalized lease obligations for
1995 through 1999 are: 1995 - $2.1 million; 1996 - $52.0 million; 1997
- - $2.0 million; 1998 - $37,000; and 1999 - $15.0 million.
In early fiscal 1993, the corporation called for redemption its 8 1/8%
debentures, which were scheduled to fully mature in 1996. To refinance
this debt, the corporation in December 1992 entered into a long-term
private placement of $50.0 million in 6.47% Senior notes due in 1996.
The remaining $25.0 million 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, $25.0 million of commercial paper borrowing
outstanding has been classified as long-term debt at January 28, 1995
and January 29, 1994.
In December 1992, the corporation entered into a three-year interest
rate swap agreement, for which cash consideration of $3.2 million was
received in 1992. Under the agreement, the corporation is paying a
fixed rate of 8 1/8% on $75.0 million and is receiving a fixed rate of
6.47% on $50.0 million and a floating rate based on LIBOR on the
remaining $25.0 million. 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 $220.0 million at January 28, 1995. The maximum amount
of short-term borrowings (under these arrangements and in the form of
commercial paper) at the end of any month was $190.3 million in 1994
and $182.0 million in 1993. The average short-term borrowings during
the year were $130.5 million in 1994 and $139.1 million in 1993. The
weighted average interest rates approximated 4.5% and 3.6% in 1994 and
1993, respectively. The rates for the corporation's commercial paper
ranged from 3.30% to 6.65% in 1994 and 3.10% to 3.75% in 1993.
Cash payments of interest for fiscal 1994, 1993 and 1992 were $15.8
million, $18.4 million and $15.3 million, respectively.
NOTE 10: LEASES
- ---------------
The corporation leases substantially all of its retail locations and
certain other equipment and facilities. Approximately two-thirds 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>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Minimum payments $67,199 $63,644 $58,791
Contingent payments 2,871 2,194 1,486
------- ------- -------
$70,070 $65,838 $60,277
======= ======= =======
</TABLE>
Rent expense has been reduced by rental income from subleases of $2.6
million in 1994, $2.0 million in 1993 and $2.6 million in 1992.
Future minimum payments under noncancelable operating leases with an
initial term of one year or more were as follows at January 28, 1995
(in thousands):
<TABLE>
<CAPTION>
Operating
Leases
<S> <C>
1995 $ 73,148
1996 71,868
1997 65,378
1998 53,965
1999 40,512
Thereafter 155,517
--------
Total minimum lease payments $460,388
========
</TABLE>
30
<PAGE>
<PAGE> 32
Operating lease commitments have been reduced for rental income from
noncancelable subleases by approximately $3.4 million in 1995 and
lesser amounts thereafter (total reductions $8.5 million). The
corporation is contingently liable for lease commitments of
approximately $98.0 million which primarily relate to the Cloth World,
Meis and Etage specialty retailing chains which were sold.
NOTE 11: FINANCIAL INSTRUMENTS
- ------------------------------
The corporation utilizes derivative financial instruments to reduce
its exposure to market risks from changes in interest rates and
foreign exchange rates. The derivative financial instruments primarily
used by the corporation are interest rate swaps, interest rate
futures, options on interest rate futures, and foreign exchange
contracts. The corporation is exposed to credit related losses in the
event of nonperformance by counterparties to these financial
instruments. Counterparties to these agreements generally are major
international financial institutions, and therefore, the risk of loss
due to nonperformance is believed to be minimal. The corporation does
not hold or issue financial instruments for trading purposes.
The corporation periodically purchases interest rate futures and
options on interest rate futures, which effectively serve as interest
rate caps, to reduce the impact of potential increases in interest
rates on its floating-rate debt. At January 28, 1995, the corporation
had several options on interest rate futures, which effectively
entitle the corporation to receive from a counterparty the amount, if
any, by which the interest payments on up to $35 million of
floating-rate debt exceed 7 percent for the period ending December
1995. The premium paid for these options is included in other assets
and is being amortized to interest expense over the term of the
underlying hedged instrument. The amount of unamortized premium
included in other assets and the unrealized gain on these options at
January 28, 1995, were not material. Amounts received under these
options are recognized as adjustments to interest expense over the
life of the related debt.
In 1992, the corporation entered into a three-year interest rate swap
agreement which is discussed in Note 9. The purpose of entering into
this agreement was to reduce the cost of $75 million of long-term
debt.
The corporation enters into foreign exchange contracts to hedge
foreign currency transactions on a continuous basis for periods
consistent with its committed exposures. The terms of these exchange
contracts are generally less than a year. The primary purpose of the
corporation's foreign currency hedging activities is to protect the
corporation from the risk that the eventual cash outflows resulting
from the purchases of inventory from foreign suppliers will be
adversely affected by changes in exchange rates. In addition, the
corporation also hedges certain foreign currency assets and
liabilities.
At January 28, 1995, the United States dollar equivalent of
contractual amounts of the corporation's forward foreign exchange
contracts was $10.5 million of Italian Lira, $2.6 million of Canadian
Dollars, $2.0 million of French Francs and $2.6 million of other
currencies. The unrealized gains related to these contracts, based on
dealer-quoted prices, was $114,000 at January 28, 1995.
Realized gains and losses on foreign exchange contracts used as hedges
of inventory purchases are included in the basis of the inventory and
are recognized in income as a component of cost of goods sold in the
period in which the related inventory is sold. Material gains and
losses on foreign exchange contracts hedging forecasted purchases are
recorded in income in the period the value of the contracts change.
Gains and losses on foreign exchange contracts which hedge foreign
currency assets or liabilities in highly inflationary economies are
recognized in income as incurred.
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The carrying amounts and fair values of the company's financial
instruments at January 28, 1995 and January 29, 1994 are (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------- -------------------
<S> <C> <C> <C> <C>
Liabilities
Long-term debt $135,276 $132,374 $143,033 $149,391
Interest rate swap 1,272 1,491 2,332 4,098
</TABLE>
Carrying amounts reported on the balance sheet for Cash, Cash
Equivalents, Receivables and Notes Payable approximate fair value due
to the short-term maturity of these instruments.
The fair value of the corporation's long-term debt and interest rate
swap was based upon the borrowing rates currently available to the
corporation for financing arrangements with similar terms and
maturities.
NOTE 13: CONCENTRATIONS OF CREDIT RISK
- --------------------------------------
Financial instruments which potentially subject the company to
significant concentration of credit risk consist primarily of cash,
cash equivalents and trade accounts receivable.
31
<PAGE>
<PAGE> 33
The corporation maintains cash and cash equivalents and certain other
financial instruments with various financial institutions. The
financial institutions are located throughout the world, and the
corporation's policy is designed to limit exposure to any one
institution or geographic region. The corporation's periodic
evaluations of the relative credit standing of these financial
institutions are considered in the corporation's investment strategy.
The corporation's footwear wholesaling businesses sell primarily to
independent retailers and department stores across the United States,
Canada, and to a lesser extent Brazil, Mexico, and France. Receivables
arising from these sales are not collateralized. Credit risk is
affected by conditions or occurrences within the economy and the
retail industry. The corporation establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
NOTE 14: COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The corporation is involved in environmental remediation and ongoing
compliance at several sites. At its closed New York tannery and two
associated landfills, remaining minor remediation work is expected to
be completed in 1995 with ongoing maintenance and monitoring programs
expected to be required over the next 29 years. In 1994, the
corporation became aware of potential exposure at an owned factory
that is currently leased to another party. Preliminary testing was
completed in late 1994, and remediation work will begin in 1995.
Various federal and state authorities have identified the corporation
as a potentially responsible party for remediation at certain
landfills from disposal of solvents and other by-products from the
closed tannery and shoe manufacturing facilities. At January 28, 1995,
accrued liabilities related to these exposures total $5.7 million.
Charges related to the New York tannery site were $1.7 million in
fiscal 1992 and an additional $6.6 million in fiscal 1993 due to a
change in the expected holding period of the property. The 1993 charge
included $5.0 million recorded in conjunction with restructuring
charges in January 1994. The remaining accrued costs related to the
tannery total $4.7 million. The expected remaining costs related to
the owned, but leased, factory and the various landfills total $.8 -
$1.0 million.
NOTE 15: 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 28, 1995 and January 29,
1994, there were 17,969,892 shares and 17,619,768 shares, net of
4,036,005 shares and 4,386,129 shares held in treasury, outstanding,
respectively. The stock is listed and traded on the New York and
Chicago Stock Exchanges (symbol BG). There were 6,000 shareholders of
record at March 1, 1995.
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 acquiror, 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 16: 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.
32
<PAGE>
<PAGE> 34
Options for 575,560 and 843,643 shares were exercisable as of January
28, 1995 and January 29, 1994, respectively, at prices ranging from
$23 to $39. Under the plan 484,500 and 11,980 additional shares of
common stock were available to be granted in the form of options or
restricted stock as of January 28, 1995 and January 29, 1994,
respectively.
The following summary sets forth the activity for the three years
ended January 28, 1995:
<TABLE>
<CAPTION>
Number of
---------------------------
Option Appreciation Grant
Shares Units Prices
--------- ------------ ----------
<S> <C> <C> <C>
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
Granted 48,500 -- 30 to 38
Exercised (265,893) (14,548) 23 to 35
Terminated (59,815) -- 23 to 39
--------- -------
Outstanding
January 28, 1995 633,310 40,597 $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
shareholders' equity and subsequently amortized to expense over the
eight-year restriction period.
Restricted shares granted, net of forfeitures, were 168,000; 132,500; and
250 in 1994, 1993 and 1992, respectively. The expense associated with these
awards was $2.5 million in 1994, $1.8 million in 1993 and $1.6 million in
1992.
NOTE 17: SUPPLEMENTARY INFORMATION
- ----------------------------------
Balance Sheet
- -------------
Cash equivalents of $17.4 million and $21.4 million at January 28, 1995 and
January 29, 1994, respectively, are stated at cost which approximates fair
value.
Statement of Consolidated Earnings
- ----------------------------------
Advertising costs totaled $44.2 million, $42.6 million, and $37.9
million in 1994, 1993, and 1992, respectively.
<TABLE>
<CAPTION>
Other expense (income) consisted of the following (in thousands):
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Interest income $ (1,521) $(1,499) $(1,472)
Provision for restructuring
charges -- 21,400 13,600
Royalty income (3,003) (2,711) (3,752)
Reversal of countervailing
duty reserve (9,819) -- --
Other, net 2,023 4,001 (58)
-------- ------- -------
Total $(12,320) $21,191 $ 8,318
======== ======= =======
</TABLE>
33
<PAGE>
<PAGE> 35
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 LLP, independent auditors elected by the shareholders. Management has
made available to Ernst & Young LLP all the corporation's financial records
and related data, as well as the minutes of shareholders' and directors'
meetings. Furthermore, management believes that all representations made to
Ernst & Young LLP during its audit were valid and appropriate.
The Audit Committee of Brown Group's Board of Directors comprises six
outside directors. The Committee meets regularly with the corporation's
independent auditors, Ernst & Young LLP, 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 LLP 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 for 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
- -------------------------- -----------------------
Chief Executive Officer Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Brown Group, Inc.
We have audited the accompanying consolidated balance sheets of Brown
Group, Inc. as of January 28, 1995 and January 29, 1994, and the
related statements of consolidated earnings, shareholders' equity, and
cash flows for each of the three years in the period ended January 28,
1995. 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 28, 1995 and January 29, 1994, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended January 28, 1995 in conformity
with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, in 1993
the company changed its method of accounting for postemployment benefits.
/s/ Ernst & Young, LLP
- ----------------------
St. Louis, Missouri
March 2, 1995
34
<PAGE>
<PAGE> 36
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 28, 1995
and January 29, 1994.
<TABLE>
<CAPTION>
Quarters
-----------------------------------------------
First Second Third Fourth
-----------------------------------------------
<S> <C> <C> <C> <C>
1994
Net Sales $369,488 $353,000 $406,934 $332,215
Cost of Goods Sold 242,028 229,199 267,422 210,725
Earnings (Loss) From:
Continuing Operations 7,334 7,533 14,926 3,773
Discontinued
Operations 597 (92) 777 4,550
Net Earnings 7,931 7,441 15,703 8,323
Per Share of Common
Stock:
Earnings From
Continuing
Operations .42 .43 .85 .21
Net Earnings .45 .42 .89 .47
Dividends Paid .40 .40 .40 .40
Market Value:
High 38 1/2 38 1/2 37 7/8 32 5/8
Low 34 5/8 34 1/2 33 3/8 30 1/4
1993
Net Sales $326,765 $327,906 $382,631 $323,737
Cost of Goods Sold 215,841 216,334 253,452 229,816
Earnings (Loss)From
Continuing Operations
Before Cumulative
Effect of Accounting
Change 3,895 6,125 12,402 (31,718)
Cumulative Effect of
Change in Accounting
for Postemployment
Benefits (2,214) -- -- --
Discontinued Operations 304 (558) 1,792 (21,640)
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
Change .23 .36 .72 (1.82)
Cumulative Effect of
Change 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
<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 after tax provision of $24.4 million for
the withdrawal from the leased shoe department business.
Directors' and Officers' Liability Insurance
The New York Business Corporation Act requires that New York corporations
provide to their shareholders 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, 1994 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 $108,250.
To date, no claims have been paid under any policy of directors' and
officers' liability insurance.
</FN>
</TABLE>
35
<PAGE>
<PAGE> 37
DIRECTORS, OFFICERS AND OPERATING COMMITTEE
BOARD OF DIRECTORS
- ------------------
B. A. Bridgewater, Jr. 1
Chairman of the Board, President, Chief Executive Officer and Chairman
of the Executive Committee
Joseph L. Bower 1,3
Donald Kirk David Professor, Chairman of Doctoral Programs and
Director of Research, Harvard Business School
Julie C. Esrey 2
Director of various organizations
Joan F. Lane 1,3,4
Consultant to higher education,
currently associated with Stanford University; foundation trustee
Richard A. Liddy 2
Chairman of the Board, President and Chief Executive Officer, General
American Life Insurance Company
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
Honorary Director:
W. L. Hadley Griffin
Retired Chairman of the Board of Brown Group, Inc.
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
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
Richard C. Schumacher
Vice President and Controller
Mary Sylvia Siverts
Vice President -- Public Affairs
Thomas A. Williams
Vice President -- Footwear Wholesaling, President, Brown Shoe Company
and Chairman, Pagoda
OPERATING COMMITTEE
- -------------------
B. A. Bridgewater, Jr.
Chairman of the Board, President and Chief Executive Officer
Brian C. Cook
Vice President -- Footwear Retailing and President, Famous Footwear
Arthur G. Croci
President, Pagoda Trading and
Executive Vice President of Sourcing, Brown Shoe Company
Ronald N. Durchfort
President, Pagoda International
Ronald A. Fromm
Executive Vice President,
Famous Footwear
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
James M. Roe
Senior Vice President -- Sales and Operations, Famous Footwear
Andrew M. Rosen
Vice President and Treasurer
Thomas A. Williams
Vice President -- Footwear Wholesaling, President, Brown Shoe Company
and Chairman, Pagoda
E. Lee Wyatt, Jr.
Senior Vice President -- Finance and Administration, Brown Shoe
Company and Pagoda
George J. Zelinsky
Senior Vice President
and General Merchandise Manager, Famous Footwear
Secretary to the Committee:
Richard C. Schumacher
Vice President and Controller
36
<PAGE>
<PAGE> 38
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
shareholders 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 25, 1995
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 SHAREHOLDERS OF RECORD
6,000
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 shareholders 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
TRUSTEE OF DEBENTURES/NOTES
Citibank, N.A.
111 Wall Street
New York, New York 10043
INDEPENDENT AUDITORS
Ernst & Young LLP
St. Louis, Missouri
NUMBER OF EMPLOYEES
14,500
Brown Group, Inc. is an equal opportunity employer.
Printed on recycled paper.
37
<PAGE>
<PAGE> 39
Brown Group, Inc.
8300 Maryland Avenue
Post Office Box 29
St. Louis, Missouri 63166-0029
(314) 854-4000
<PAGE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
BROWN GROUP, INC.
JANUARY 28, 1995
State or Country
Name of Incorporation
---- ----------------
Brown California, Inc. California
Brown Cayman Ltd. Cayman Islands
Brown Group International, Inc. Delaware
Brown Group International Calcados Ltda. Brazil
Brown Group Retail, Inc. Pennsylvania
Brown Limited Hong Kong
Brown Missouri, Inc. Missouri
Brown Retail Development Company Louisiana
Brown Shoe Company of Canada, Ltd. Canada
Brown Texas, Inc. Texas
C. W. Nevada Wholesale, Inc. Nevada
C. W. Nevada Wholesale Two, Inc. Nevada
CW Wholesale One L.P. (Partnership) Texas
Clayton License, Inc. Delaware
KidNATION, Inc. Missouri
Laysan Company Limited Hong Kong
Linway Investment Limited Hong Kong
Maryland Square, Inc. Missouri
Maserati Footwear, Inc. New York
Moda Universal S.A. De C.V. Mexico (50% owned)
Nevada Brown, Inc. Nevada
PIC International Corporation Cayman Islands
PLD, Inc. North Carolina
Pagoda Argentina S.A. Argentina (75% owned)
Pagoda Asia Pacific Limited Hong Kong
Pagoda International Corporation do Brazil Brazil
Pagoda International Footwear Limited Hong Kong
Pagoda International Limited Taiwan
Pagoda International SARL France
Pagoda Italia, S.r.l. Italy
Pagoda Netherlands C.V. Netherlands
Pagoda Netherlands Investment Corporation Missouri
Pagoda Trading Company, Inc. Missouri
Pagoda Trading North America, Inc. Missouri
The Right Shoe Only, Inc. North Carolina
Sidney Rich Associates, Inc. Missouri
Sunbelt Footwear, Ltd. California
Whitenox Limited Hong Kong
<PAGE>
<PAGE> 2
Exhibit 21
Subsidiaries of the Registrant (Continued)
Naturalizer Retail does business under the following names:
Naturalizer
Naturalizer Plus
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
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
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, 1995, included in
the 1994 Annual Report to Shareholders of Brown Group, Inc.
Our audits also included the financial statement schedule listed in Item
14(a). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedule, referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the (a) 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; (b) Registration Statement Form S-8 Number 33-22328 dated
June 6, 1988 pertaining to the Employee Stock Appreciation Plans, as
Amended; and (c) Registration Statement Form S-3 Number 33-21477 dated
April 26, 1988 and related Prospectus of our report dated March 2, 1995,
with respect to the consolidated financial statements and schedule of Brown
Group, Inc. included and incorporated by reference in the Annual Report
(Form 10-K) for the year ended January 28, 1995.
St. Louis, Missouri Ernst & Young LLP /s/
April 19, 1995
<PAGE>
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<NAME> BROWN GROUP, INC.
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