<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
1995 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 6, 1996, 17,926,402 common shares were outstanding, and the
aggregate market value of the common shares held by non-affiliates of the
registrant was approximately $262 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended February 3, 1996,
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders to be
held May 23, 1996, are incorporated by reference into Part III.
<PAGE>
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 importing, foreign sourcing, and marketing of women's, men's
and children's footwear. During 1995, footwear sales were approximately 61%
women's, 24% men's and 15% children's. This composition has remained
relatively constant over the past few years. Approximately 62% of 1995
footwear sales were made at retail compared to 54% in 1994 and 52% in 1993.
The trend of increasing retail sales as a percentage of total sales will
flatten in 1996 as the Corporation slows the growth of Famous Footwear, a
retail chain of branded discount shoe stores. During 1995, the Corporation
closed its remaining five shoe factories in the United States and now is
operating two shoe factories, both located in Canada. 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 28 of the Annual
Report to Shareholders for the year ended February 3, 1996, 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.
Fiscal year 1994 and 1993 operations also 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 under
contract to its specifications primarily by 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 and departments. 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>
ITEM 1 - BUSINESS (Continued)
-----------------
<TABLE>
<CAPTION>
Company-Owned Retail Footwear Stores
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<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. 457 431 450 418 409
Famous Footwear
Family footwear stores which
feature "brand names for less";
located in strip centers and
regional and outlet malls. 353 477 567 722 814
F. X. LaSalle
Stores selling men's and women's
branded footwear in major malls
in Canada. 14 14 15 14 15
Connie
Stores selling Connie and other
branded women's footwear. 119 106 81 0 0
Regal/Castleby
Men's footwear stores. 75 65 35 0 0
Other Family Footwear Stores
Selling men's, women's and
children's footwear. 71 4 4 4 3
----- ----- ----- ----- -----
Total 1,089 1,097 1,152 1,158 1,241
===== ===== ===== ===== =====
</TABLE>
Wholesale Operations
- --------------------
Footwear is distributed by the Corporation's marketing, importing and
foreign sourcing operations to approximately 8,400 retailers, including
department stores, mass merchandisers, and independent retailers in the United
States, Canada, Europe, South America, and the Far East; athletic footwear
distributors and retailers in Europe and South America; 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 under
contract to its specifications primarily by foreign suppliers. Products sold
under license agreements, such as with Schering-Plough HealthCare Products,
Inc. and The Walt Disney Company, were responsible for approximately 13%, 17%,
and 13% in 1995, 1994, and 1993, 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 China and to a
lesser extent other Far Eastern countries, Brazil and Italy, for other Brown
Group divisions and for outside customers, which primarily consist of large
discount store operations. During 1995, this operation was responsible for
sourcing approximately 70 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. Pagoda's sourcing capabilities are diverse and include a number of
<PAGE>
ITEM 1 - BUSINESS (Continued)
-----------------
countries of origin and manufacturing facilities. Production can be shifted
from country to country.
The Corporation's Brown Shoe Company closed its five remaining United
States manufacturing plants and related facilities during 1995. The loss of
footwear production caused by the domestic plant closings will be made up by
an increase in sourcing from the Corporation's Pagoda organization.
During 1995, the Corporation purchased the Larry Stuart Collection
branded footwear business and the Le Coq Sportif athletic shoe brand. The
total cost of these acquisitions was approximately $10 million.
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 two
selling seasons in each year, spring and fall. Orders placed as a result of
these sales efforts are taken before the shoes are sourced with delivery
generally within three to four months thereafter. Footwear is sold to
wholesale customers on both a first-cost and landed basis. First-cost sales
are those sales in which the Corporation obtains title to footwear from its
overseas suppliers and typically relinquishes title to customers at a
designated overseas port. Landed sales are those sales in which the
Corporation obtains title to footwear from its overseas suppliers, imports the
footwear and relinquishes title to customers after customs formalities have
been satisfied. The Corporation maintains a stock of the higher volume styles
which are available for prompt shipment on reorder.
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, and advertises in trade magazines and publications. In addition,
direct advertising to consumers is carried out through use of print and
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 spring, back-to-school and Christmas 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
Dr. Scholl's (under license from Schering-Plough HealthCare
Products, Inc. and Scholl Latin America Ltd.)
Fanfares
<PAGE>
ITEM 1 - BUSINESS (Continued)
-----------------
Women's: Jordache (under license from Jordache Enterprises, Inc.)
Larry Stuart Collection
Le Coq Sportif
LS Studio
Life Stride
Maserati
Melange
Mickey Unlimited (under license from The Walt Disney Company)
Naturalizer
NaturalSport
Nature Sole
Night Life
Penalo
Penn (under license from Penn Racquet Sports)
Revelations
Men's: Brittania (under license from Brittania Sportswear, Ltd.)
Cedar Trail
Dr. Scholl's (under license from Schering-Plough HealthCare
Products, Inc. and Scholl Latin America Ltd.)
Le Coq Sportif
Penn (under license from Penn Racquet Sports)
Regal
Remington (under license from Remington Arms Company, Inc.)
U.S. 101
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.)
101 Dalmatians (under license from The Walt Disney Company)
Disney Babies (under license from The Walt Disney Company)
Fanfares
The Flintstones (under license from MCA/Universal Merchandising,
Inc. and Turner Home Entertainment)
G. I. Joe (under license from Hasbro, Inc.)
Hello Kitty (under license from Sanrio, Inc.)
The Hunchback of Notre Dame (under license from The Walt Disney
Company)
Jordache (under license from Jordache Enterprises, Inc.)
Kazaam (under license from Interscope Communications, Inc.)
The Lion King (under license from The Walt Disney Company)
Mickey & Co. (Under license from The Walt Disney Company)
Mickey's Stuff for Kids (under license from The Walt Disney
Company)
Nerf (under license from Hasbro, Inc.)
Playskool (under license from Hasbro, Inc.)
Pocahontas (under license from The Walt Disney Company)
Remington (under license from Remington Arms Company, Inc.)
Sailor Moon (under license from DIC Entertainment, L.P.)
That's Donald (under license from The Walt Disney Company)
Tonka (under license from Hasbro, Inc.)
UnionBay (under license from Seattle Pacific Industries, Inc.)
Wildcats
YDS (under license from Schering-Plough HealthCare
Products, Inc.)
<PAGE>
ITEM 1 - BUSINESS (Continued)
-----------------
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. 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 more than 500 shoe departments
in department stores primarily on the West Coast and in the Midwest.
See pages 17 and 25 of the Annual Report to Shareholders for the year
ended February 3, 1996, 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 resulted in five
plants and more than 150 Naturalizer, Connie and Regal retail stores being
closed. In addition, Brown Shoe Company's men's shoe business was sold, and
substantial consolidation of Pagoda and Brown Shoe Company administrative
operations was achieved. See pages 16 and 25 of the Annual Report to
Shareholders for the year ended February 3, 1996, which is incorporated herein
by reference, for a discussion of the financial impact of the restructuring on
the Corporation.
Corporate-wide Business Influence
- ---------------------------------
The Corporation is involved in environmental remediation and ongoing
compliance at several sites. The Corporation has completed remediation
efforts at its closed New York tannery and two associated landfills and is now
only required to monitor and maintain these properties. At an owned factory
that is currently leased to another party, the Corporation is involved in
remediation at the property. In addition, the Corporation 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 February 3, 1996, 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 sources and sells certain patented items but does not
consider its business to be dependent on patents.
<PAGE>
ITEM 1 BUSINESS (continued)
---------------
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 11,000 full and part-time employees.
Approximately 130 employees engaged in the warehousing of footwear are
employed under a union contract, which is due to expire in August 1996.
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.
The Corporation's wholesale footwear operations are carried out at two
warehouses located in Missouri and two manufacturing and one warehouse
facility located in Ontario, Canada. All of the facilities are owned or
subject to long-term capital leases. Five manufacturing plants and related
facilities were closed in fiscal 1995 and 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 1,241 shoe stores,
including 114 in Canada. All store locations are leased with more than half
having renewal options. In addition, Famous Footwear has leased office space,
a leased 750,000 square foot distribution center, including a mezzanine level,
in Madison, Wisconsin, and a leased 800,000 square foot distribution center,
including mezzanine levels, in Lebanon, Tennessee, which began operations in
November 1995. The new distribution center will initially service stores in
the Southeast United States.
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.
In January 1995, the U.S. Tax Court issued a judgment in favor of the
Internal Revenue Service related to an assessment on a portion of the
Corporation's unremitted foreign earnings. This judgment was reversed by an
Appeals Court ruling in fiscal 1995. The Internal Revenue Service has
appealed the most recent ruling but the Corporation believes it will prevail.
The potential financial impact on the Corporation is discussed on pages 15 and
28 of the Annual Report to Shareholders for the year ended February 3, 1996,
which is incorporated herein by reference.
The Corporation is working with Federal and various State Environmental
Protection Agencies to resolve clean-up issues at several sites. The
potential financial impact on the Corporation is discussed on pages 18 and 32
of the Annual Report to Shareholders for the year ended February 3, 1996,
which is incorporated herein by reference.
<PAGE>
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 1995.
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, 1996.
Name Age Current Position
- ---- --- ----------------
B. A. Bridgewater, Jr. 62 Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee
Brian C. Cook 56 Vice President, Footwear Retailing and
President, Famous Footwear
Ronald N. Durchfort 42 President, Pagoda International
Ronald A. Fromm 45 Executive Vice President, Famous Footwear
Robert D. Pickle 58 Vice President, General Counsel and
Corporate Secretary
Gary M. Rich 45 President, Pagoda U.S.A.
Harry E. Rich 56 Director, Executive Vice President,
Chief Financial Officer and Member of the
Executive Committee
James M. Roe 50 Senior Vice President, Sales and Operations,
Famous Footwear
Andrew M. Rosen 45 Vice President and Treasurer
Richard C. Schumacher 48 Vice President and Controller
David H. Schwartz 51 President, Pagoda Trading
Mary S. Siverts 36 Vice President, Public Affairs
Thomas A. Williams 47 Vice President, Footwear Wholesaling;
President, Brown Shoe Company; and Chairman,
Pagoda
E. Lee Wyatt, Jr. 43 Senior Vice President, Finance and
Administration, Brown Shoe Company and Pagoda
George J. Zelinsky 47 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>
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.
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.
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.
David H. Schwartz, President, Pagoda Trading since February 1996. President,
Men's, Athletic and Children's Divisions from March 1995 to February 1996.
President, Marathon Division, Pagoda from March 1981 to March 1995.
Mary S. Siverts, Vice President, Public Affairs since September 1993.
Director of Public Relations from 1988 to 1993.
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.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
------------------------------------
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>
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 Report
to Shareholders and the number of shareholders of record on page 37 of the
Annual Report to Shareholders for the year ended February 3, 1996, are
incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
Selected Financial Data on page 19 of the Annual Report to Shareholders
for the year ended February 3, 1996, 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 Report to Shareholders for the
year ended February 3, 1996, 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 Report to Shareholders for the year ended
February 3, 1996, are incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------------------------
None.
<PAGE>
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding Directors of the Corporation on pages 3 through 11
of the Proxy Statement for the Annual Meeting of Shareholders to be held
May 23, 1996, 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 12 through 18 and
22 through 24 of the Proxy Statement for the Annual Meeting of Shareholders to
be held May 23, 1996, 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 23,
1996, 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>
(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
January 11, 1996, filed, herewith.
4.(a) Rights Agreement dated as of March 7, 1996
between the Corporation and Boatmen's Trust
Company, which includes as Exhibit A the form
of Rights Certificate evidencing the
Corporation's Common Stock Purchase Rights,
incorporated herein by reference to Form 8-K
dated March 7, 1996.
(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, 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.
(b)* 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.
(c)* 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.
<PAGE>
13. Annual Report to Shareholders of Brown
Group, Inc. for the fiscal year ended
February 3, 1996. 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 February 3, 1996. The Corporation
filed a current report on Form 8-K dated March 7,
1996, in response to item 5, which announced a
new Shareholders' Rights Plan.
(c) Exhibits:
Exhibits begin on page 20 of this Form 10-K.
(d) Financial Statement Schedule.
*Denotes management contract or compensatory plan arrangements.
<PAGE>
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, 1996 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, 1996, 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>
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
Julie Esrey /s/ Director
----------------------------
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED FEBRUARY 3, 1996
BROWN GROUP, INC.
ST. LOUIS, MISSOURI
<PAGE>
FORM 10-K - ITEM 14 (a) (1) and (2), and (d)
BROWN GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
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 February 3, 1996, are incorporated by reference in Item 8:
Consolidated Balance Sheets - February 3, 1996, and January 28, 1995.
Consolidated Earnings - Years ended February 3, 1996, January 28, 1995,
and January 29, 1994.
Consolidated Cash Flows - Years ended February 3, 1996, January 28, 1995,
and January 29, 1994.
Consolidated Shareholders' Equity - Years ended February 3, 1996, January
28, 1995, and January 29, 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
The following consolidated financial statement schedule of Brown Group, Inc.
and subsidiaries is 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.
<PAGE>
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)
<C> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 3, 1996
Deducted from assets:
For doubtful accounts
and discounts $11,664 $5,101 $5,498-A $11,267
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
A. Accounts written off, net of recoveries
and discounts taken.
</TABLE>
<PAGE>
BROWN GROUP, INC.
ANNUAL REPORT TO SHAREHOLDERS ON FORM 10-K
INDEX TO EXHIBITS
Exhibit
-------
3.(ii) Bylaws as amended through January 11, 1996
11. Computation of earnings per share
13. 1995 Annual Report to Shareholders of
Brown Group, Inc.
21. Subsidiaries of the registrant
23. Consent of Independent Auditors
24. Power of Attorney (see signature page)
27. Financial Data Schedule
<PAGE>
<PAGE> 1
BROWN GROUP, INC.
A NEW YORK CORPORATION
BYLAWS
ADOPTED BY THE STOCKHOLDERS
JANUARY 11, 1946
AMENDED THROUGH JANUARY 11, 1996
<PAGE>
<PAGE> 2
BYLAWS
OF
BROWN GROUP, INC.
------------------
ARTICLE I.
Meetings of Stockholders.
SECTION 1. Annual Meeting. The annual meeting of the Stockholders
shall be held at such place within or without the State of New York as
may from time to time be fixed by resolution of the Board of Directors
on the fourth Thursday in May in each and every year (or if said day be
a legal holiday, then on the next succeeding day not a legal holiday),
at eleven o'clock in the forenoon, for the purpose of electing
directors and of transacting only such other business as may be
properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board
of Directors, the Chairman of the Board, or the President, (b)otherwise
properly brought before the meeting by or at the direction of the Board
of Directors, the Chairman of the Board, or the President, or (c),
subject to ARTICLE II, Section 8 hereof, otherwise properly brought
before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the
Company. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company,
not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following
the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of
the business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting, (b) the
name and address, as they appear on the Company's books, of the
stockholder proposing such business, (c) the class and number of shares
of the Company which are beneficially owned by the stockholder, and (d)
any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, but subject to
ARTICLE II, Section 8 hereof, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in
this Section 1. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions
of this Section 1, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the
meeting shall not be transacted. The meeting may be adjourned from
time to time until its business is completed.
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.
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 twelve. Such directors shall be classified in respect of the
time for which they shall severally hold office, by dividing them into
three classes consisting of four directors each. At each annual
election, the successors of the directors of the class whose term shall
expire in that year, shall be elected to hold office for the term of
three years so that the term of office of one class of directors shall
expire in each year. The Board of Directors shall not choose as a
director to fill a temporary vacancy any person over the age of seventy
years, and shall not recommend to the stockholders any person for
election as a director for a term extending beyond the Annual Meeting
of Stockholders following the end of the calendar year during which he
attains his seventieth birthday, provided, however, that this shall not
apply to directors elected or holding office, at the time of the Annual
Meeting of Stockholders in 1967; and provided further, that this shall
not prevent the designation by the Board of such person as an Honorary
Director, to serve without vote.
SECTION 2. Meetings of the Board. Meetings of the Board of Directors
shall be held at such place within or without the State of New York as
may from time to time be fixed by resolution of the Board, or as may be
specified in the call of any meeting. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be fixed
by resolution of the Board. Notice need not be given of the regular
meetings of the Board held at times fixed by resolution of the Board.
Special meetings of the Board may be held at any time upon the call of
the Chairman of the Board or the President or any two directors by
telegraphic or written notice, duly served on or sent or mailed to each
director not less than three days before such meeting. Special
meetings of the Board of Directors may be held without notice, if all
of the directors are present or if those not present waive notice of
the meeting in writing or by telegraph. Any one or more of the
directors may participate in a meeting of the Board of Directors by
means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at
the same time. Participation by such means shall constitute presence
in person at a meeting.
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.
<PAGE>
SECTION 6. Organization. The Board of Directors shall have general
power to direct the management of the business and affairs of the
Company, and may adopt such rules and regulations as they shall deem
proper, not inconsistent with law or with these Bylaws, for the conduct
of their meetings and for the management of the business and affairs of
the Company. Directors need not be stockholders.
SECTION 7. Compensation. Directors, as such, shall not receive any
stated salary for their services, but by resolution of the Board, a
fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board, and
directors shall be entitled to compensation other than a stated salary
in such form and in such amounts as the Board may determine. However,
this Bylaw shall not be construed to preclude any director from serving
in any other capacity and receiving compensation therefor. Members of
the Executive Committee and all other committees may be allowed a fixed
sum and expenses of attendance, if any, for attendance at committee
meetings.
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.
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.
<PAGE>
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 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.
<PAGE>
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
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
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
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.
<PAGE>
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
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.
<PAGE>
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
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>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
BROWN GROUP, INC.
AND SUBSIDIARIES
(Thousands, except per share)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<C> <C> <C>
PRIMARY
Weighted average shares outstanding 17,591 17,555 17,270
Net effect of dilutive stock options
based on treasury stock method
using average market price 7 84 64
-------- -------- --------
TOTAL 17,598 17,639 17,334
======== ======== ========
Earnings (loss) from continuing
operations before accounting change $ 697 $ 33,566 $ (9,296)
Cumulative effect of accounting change -- -- (2,214)
Discontinued operations 2,600 5,832 (20,102)
-------- -------- --------
Net earnings (loss) $ 3,297 $ 39,398 $(31,612)
======== ======== ========
Earnings (loss) per share from continuing
operations before accounting change $ 0.04 $ 1.91 $ (0.54)
Cumulative effect of accounting change -- -- (0.13)
Discontinued operations 0.15 0.33 (1.16)
-------- -------- --------
Net earnings (loss) per share (1) $ 0.19 $ 2.24 $ (1.83)
======== ======== ========
FULLY DILUTED
Weighted average shares outstanding 17,591 17,555 17,270
Net effect of dilutive stock options
based on treasury stock method
using year-end market price, if
higher than average market price 46 98 76
-------- -------- --------
TOTAL 17,637 17,653 17,346
======== ======== ========
Earnings (loss) from continuing
operations before accounting change $ 697 $ 33,566 $ (9,296)
Cumulative effect of accounting change -- -- (2,214)
Discontinued operations 2,600 5,832 (20,102)
-------- -------- --------
Net earnings (loss) $ 3,297 $ 39,398 $(31,612)
======== ======== ========
Earnings (loss) per share from
continuing operations before
accounting change $ 0.04 $ 1.91 $ (0.54)
Cumulative effect of accounting change -- -- (0.13)
Discontinued operations 0.15 0.33 (1.16)
-------- -------- --------
Net earnings (loss) per share (1) $ 0.19 $ 2.24 $ (1.83)
======== ======== ========
(1) The dilutive effect of stock options was not included
in weighted average shares outstanding for purposes of
calculating earnings per share because dilution was less
than 3% and not material.<PAGE>
</TABLE>
<PAGE> 1
Brown Group, Inc.
1995 Annual Report to Shareholders
<PAGE> 2
CONTENTS
- --------
1
Corporate Overview and
Financial Highlights
2
Letter to Shareholders
6
Footwear Retail Operations
9
Footwear Wholesale Operations
13
Financial Statements
36
Directors, Officers and
Operating Committee
37
Investor Information
<PAGE> 3
- ------------------
CORPORATE OVERVIEW
- ------------------
- ---------------------------------------------------------------------------
Brown Group, Inc. is a leading footwear company with worldwide operations.
The company recently completed a series of restructuring moves to focus on
the retailing and wholesaling of footwear for women, men and children.
Our operations include:
- ---------------------------------------------------------------------------
Footwear Retail Operations: Famous Footwear is the largest chain of branded
family shoe stores in the United States, with about 800 stores in 44
states. A solid infrastructure of people, systems and distribution
capabilities helps Famous Footwear provide the consumer with a satisfied
shopping experience. This business accounted for half of Brown Group's
fiscal 1995 sales. Brown Group also owns and operates the Naturalizer chain
of more than 400 retail stores selling 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: The footwear brands sold globally by Brown
Shoe Company and Pagoda are industry leaders in recognition and market
share. In 1995, 70 million pairs of shoes were sourced by the company
through its flexible structure of offices all over the world. This
structure, combined with a dynamic marketing organization, supports the
success of our brands, which include: Naturalizer, Life Stride,
NaturalSport, the Larry Stuart Collection, Penaljo, Air Step, Dr. Scholl's
and Le Coq Sportif, and a wide variety of children's brands including
Disney, Barbie, Buster Brown, Playskool, UnionBay and Candie's.
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
For the Fiscal Years Ended February 3, 1996 and January 28, 1995
Thousands, except per share 1995 1994
---------- ----------
(53 Weeks) (52 Weeks)
<S> <C> <C>
Net sales $1,455,896 $1,461,637
Earnings from continuing operations 697 33,566
Earnings per common share from continuing operations .04 1.91
Net earnings per common share .19 2.24
Dividends paid per common share 1.30 1.60
Shareholders' equity 231,636 249,727
Return on beginning shareholders' equity 0.3% 14.4%
Return on average invested capital 0.2% 6.5%
Working capital 209,399 259,178
Current ratio 1.7:1 2.2:1
</TABLE>
1
<PAGE> 4
- -------------------
TO OUR SHAREHOLDERS
- -------------------
1995 was a difficult and disappointing year for Brown Group. After
successfully concluding in 1994 a decade-long program which concentrated
the assets and operations of the company in footwear businesses with
historically strong performance and high potential, we entered 1995 with
cautious optimism.
It soon became clear that this optimism was unrealistic. Retail traffic
early in the year was well below prior years' levels. Double-digit
same-store sales declines at Famous Footwear and Naturalizer Retail in
February and March, and order cancellations and "push-backs" in our
wholesale businesses at Brown Shoe and Pagoda, led to a $4.4 million first
quarter loss.
In the second quarter, costs associated with the closing of the final group
of five factories led to further losses. Throughout the year retail
business in general, and footwear retailing specifically, continued to be
extremely difficult. For all of 1995, customer traffic declined sharply. In
our retail stores -- in enclosed malls, strip centers, and outlet centers
- -- traffic was 7 percent lower than in 1994.
Continued administrative consolidation and aggressive cost reduction
partially offset the impact of this widely reported poor retail business;
Pagoda and Brown Shoe operations stabilized and strengthened to some degree
in the second half, and sales and earnings of our Canadian business
increased for the year. But at the bottom line, the company was barely
profitable for 1995.
Guiding Priorities: Hard Choices
- --------------------------------
These adverse developments forced hard choices, as management and the Board
of Directors considered and confirmed the priorities that have guided the
company through a decade of strategic repositioning and structural change:
* To develop and invest in our successful growth businesses, recognizing
that this is the best proven way to build long-term value for shareholders.
Although this priority was reaffirmed in 1995, it was pursued much less
aggressively. The net rate of expansion at Famous Footwear was sharply cut
back in 1995, from 155 stores in 1994 to 92 stores in 1995; a net addition
of 23 stores is planned for 1996. This more cautious rate of expansion and
investment will allow the 320 stores added in the past two years to
"mature" and contribute more substantially to earnings, and also allow
management greater stability and the opportunity to improve their execution
of the many details that add up to successful retail operation.
At the same time, in 1995 the company invested more than $10 million in
the acquisition of the Larry Stuart Collection, a better-grade women's
footwear branded business, and the Le Coq Sportif athletic shoe business,
which has good brand recognition and distribution in Europe, South America
and the Far East. These additions will strategically strengthen our branded
marketing position.
2
<PAGE> 5
- -------------------------------------------------------------------------
"In 1995 the company invested more than $10 million in the acquisition of
the Larry Stuart Collection, a better-grade women's footwear branded
business, and the Le Coq Sportif athletic shoe business, which has good
brand recognition and distribution in Europe, South America and the Far
East."
- --------------------------------------------------------------------------
Pagoda International's operations, which were increasingly profitable in
1995, were also expanded . . . particularly in Brazil and the Far East. The
management organization in this business was strengthened, and capital
invested was more than doubled.
* To manage changing operations with intensity,either to "turn them around"
or to withdraw investment from them. The closing of the remaining five shoe
factories in the United States marked the end of an era. The decision to
take this final step was made with great reluctance, and only after
compelling confirmation in 1995 that the company is better able to supply
its customers with intrinsically more valuable branded footwear, which we
have designed and developed, at lower cost, through its well-established
sourcing operations in Brazil, China and Italy.
* To protect the balance sheet and the company's ability to finance our
businesses, maintaining debt at prudent levels. After achieving positive
cash flow of $115 million in 1994, slower expansion and plant closings
contributed importantly to our defense of the balance sheet in 1995. Cash
flow was managed aggressively despite lower earnings. Famous Footwear
inventories per store were reduced 5.5 percent. Net debt as a percent of
capital ended the year at 44 percent, only slightly higher than planned
levels; a $200 million revolving bank credit agreement was renegotiated,
and $50 million in term debt was refinanced four months before maturity,
all on favorable terms.
* To return capital to the shareholders through dividends, recognizing that
this supports shareholders' total return importantly. Perhaps the most
difficult "hard choice" was made at the September meeting of the Board of
Directors, when the quarterly dividend was reduced from $.40 per share to
$.25 per share. The dividend had been increased or maintained for 20 years,
and over the years had contributed very substantially to shareholder
returns. But in recent years the dividend has principally been supported by
cash flow from structural change -- business sale or liquidation and plant
closings. The conclusion of these structural changes, difficult retail
business and pressure on operating earnings in 1995 which was expected to
continue into 1996, and the continuing high priority of protecting the
balance sheet and our capability to finance the operation of the company,
collectively made necessary the lower dividend.
Shareholder Perspective: A Severe Decline in Total Return
- ---------------------------------------------------------
Adversely affected by Brown Group's losses in the first two quarters, the
September dividend reduction and investor caution related to retail stocks,
the price of Brown Group's shares declined from $31.62 to $13.25 in 1995;
total return to shareholders was severely reduced. In past years management
has observed that the total return on investment in Brown Group stock had
exceeded that of Peer Group companies, and the Standard & Poor's broad
index. In 1995, because of this stock price decline, measures of Brown
Group's total return were lower than these indexes, as indicated in the
graph below (which also is presented in Brown Group's Proxy Statement).
3
<PAGE> 6
--------------------------------------------
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
--------------------------------------------
<TABLE>
<CAPTION>
Measurement Period Brown Peer Group Peer Group S&P 500
(Fiscal Year Covered) Group No. 1 No. 2 Index
- --------------------- ----- ---------- ---------- -------
<S> <C> <C> <C> <C>
Measurement Pt 2/1/91 $100 $100 $100 $100
FYE 2/1/91 $111.61 $148.99 $157.99 $122.69
FYE 2/1/92 $132.95 $142.62 $146.70 $135.67
FYE 2/1/93 $165.14 $123.03 $117.91 $152.00
FYE 2/1/94 $157.87 $106.57 $ 77.62 $153.47
FYE 2/1/95 $ 70.35 $112.61 $ 70.32 $212.93
<FN>
Assumes $100 invested on 2/1/91 and dividends reinvested.
Peer Group No. 1 includes Edison Brothers, Genesco, Stride Rite, U.S. Shoe,
Wolverine and Nine West (added last year).
Peer Group No. 2 includes Edison Brothers, Genesco, Stride Rite and
Wolverine. This is the original peer group established in 1992, adjusted
for the sale of U.S. Shoe and the divestiture of the Fabric business.
</FN>
</TABLE>
Over time the value and the price of Brown Group's stock will be determined
by the company's success in improving earnings and achieving growth.
Building shareholder value is management's primary objective, and our
obligation; very difficult industry conditions in part explain the loss of
value which occurred in 1995, but they do not fully explain it, nor do they
make it acceptable. Management does not accept it, and is committed to
increasing the company's earnings and to improving Brown Group's total
return substantially.
Looking Ahead: The Benefits of Structural Change
- ------------------------------------------------
The structural changes Brown Group has made, in 1995 and during the past
decade, leave the company positioned to achieve better performance as
difficult retail business persists in 1996, and to rebuild shareholder
value as higher earnings are accomplished.
* At Famous Footwear, the company's focus is on improved execution and cost
control. A lower operating expense ratio and a reduced rate of new store
openings should lead to better results for this business. Famous Footwear's
strong management, investment in a solid infrastructure -- including
state-of-the-art systems and a second distribution center opened in 1995,
and market leadership have positioned the company well. Improved
performance should result from this in 1996 and beyond, as the costs of
rapid expansion and infrastructure development in 1994 and 1995 are
absorbed and as the more-than-300 stores added in the past two years
mature.
* The Naturalizer Retail chain will continue to benefit from the closing of
poor stores over the past two years, and improved merchandising and
marketing programs. More than 75 stores have been closed in this period as
the chain has been consolidated to a stable base of about 300
better-performing stores. These programs contributed to improved
performance in late 1995, and a solid same-store sales increase in early
spring 1996. The consolidation of 40 outlet stores recently transferred
from Famous Footwear also is expected to contribute to Naturalizer Retail's
results after the first quarter transition period.
* The company has invested in more aggressive brand development and
marketing of our core Naturalizer, NaturalSport, and Life Stride brands,
the rewards of which are already apparent as we move into 1996. With the
purchase of the Larry Stuart Collection branded footwear business in 1995
and improving execution of all brands, the unshipped order position at
March-end was higher than at the corresponding time last year for Brown's
brands. We are encouraged by this, and especially by the performance of the
Life Stride and NaturalSport brands, which are continuing to show strong
gains. In addition, the shift to all-import sourcing of Brown Shoe Company
brands will result in a more than $10 million annual improvement in pre-tax
earnings because of higher margins and significant overhead reductions.
4
<PAGE> 7
- ---------------------------------------------------------------------------
Improved forward-order positions for our branded businesses, better
execution in our retail operations, and a substantially reduced cost base
have strengthened the prospects for Brown Group in 1996 and beyond."
- ---------------------------------------------------------------------------
* Pagoda's results strengthened in the second half of 1995, and will
benefit further in 1996 from a stronger license position, including Walt
Disney's "Hunchback of Notre Dame," and improvement in sales of the Dr.
Scholl's brand. The cost structure at Pagoda has also been tightened
substantially. Pagoda International's marketing operations in Europe and
Latin America are expected to continue to show solid growth and higher
earnings as the company builds the Le Coq Sportif brand of athletic
footwear and apparel acquired in 1995.
* Brown Group also will continue to benefit from staffing reductions and
associated lower costs for workers' compensation, pensions and other
personnel-related plans, and from reduced overhead costs throughout the
organization.
Improved forward-order positions for our branded businesses, better
execution in our retail operations, and a substantially reduced cost base
have strengthened the prospects for Brown Group in 1996 and beyond. We are
planning cautiously for what we expect will continue to be a difficult and
highly competitive marketplace. The seasonally slow first quarter will be
tight, but should reflect these improvements. Brown Group is expected to
achieve further gains as the year progresses.
/s/ B.A. Bridgewater, Jr.
-------------------------
Chairman of the Board, President
and Chief Executive Officer
April 17, 1996
----------------------------------------------------
Board Changes
We welcomed John Peters MacCarthy to the Brown Group
Board of Directors in January. Mr. MacCarthy is
immediate past Chairman and Chief Executive Officer
of Boatment's Trust Company. This spring, Morton I.
Sosland and Joan F. Lane will retire from the Board.
We shall miss their leadership and wise counsel.
----------------------------------------------------
5
<PAGE> 8
- --------------------------
FOOTWEAR RETAIL OPERATIONS
- --------------------------
- ---------------------------------------------------------------------------
With a 30-plus year history of selling "brand names for less," Famous
Footwear is positioned to provide guaranteed satisfaction for today's
value-conscious consumer. It's also a business with a solid infrastructure
of human resources, systems and distribution capabilities that will support
its successful growth into the next century.
- ---------------------------------------------------------------------------
Famous Footwear
- ---------------
Famous Footwear is America's largest branded family footwear retailer. In
fiscal year 1995, it accounted for half of Brown Group's total sales. The
company has taken the necessary steps for its continued success, building
on its reputation as the best place to buy branded footwear for the entire
family.
Headquartered in Madison, Wisconsin, Famous Footwear is a nationwide chain
of value-priced family shoe stores. Famous Footwear stores average 5,000
square-feet and can be found in strip centers, outlet malls and regional
malls.
With a 30-plus year history of selling "brand names for less," Famous
Footwear is positioned to provide guaranteed satisfaction for today's
value-conscious consumer. It's also a business with a solid infrastructure
of human resources, systems and distribution capabilities that will support
its successful growth into the next century.
Everyday Low Prices
- -------------------
Famous Footwear's strategy for success is offering everyday low pricing,
including 10 to 50 percent savings off manufacturers' suggested retail
prices. The stores feature brand name athletic, dress and casual shoes for
men, women and children. Because of its size and reputation, Famous
Footwear has strong brand buying power. The company has developed mutually
beneficial partnerships with many of its largest suppliers. Famous Footwear
also continually expands its brand mix and supplier relationships to ensure
that consumers can find their favorite brand names and styles in the
stores.
- --------------------------------
NUMBER OF FAMOUS FOOTWEAR STORES
1995 -- 814
1994 -- 722
1993 -- 567
1992 -- 477
1991 -- 353
- ---------------------------------
The company's buying power is coupled with a highly efficient distribution
system. The Sun Prairie, Wisconsin, distribution center opened in 1990, and
serves the Northern half of the United States. This center sets the
industry standard for sophisticated, efficient shoe distribution. In
addition, an 800,000 square-foot state-of-the-art distribution center
opened during 1995 in Lebanon, Tennessee, to serve the Southern half of the
United States. Its distribution capabilities and management information
systems allow Famous Footwear to merchandise its stores competitively and
on a timely basis, in each distinct market. This helps guarantee that the
right shoes to satisfy its consumers are in each store.
6
<PAGE> 9
Focusing on "MOM"
- -----------------
Famous Footwear focuses all aspects of its operations on its best customer
- -- "MOM." Women with children are Famous Footwear's "heavy purchasers" and
the company places an intense focus on satisfying their footwear needs.
This includes merchandising plans aimed at selection enhancement in both
the children's and women's footwear areas of the stores.
During 1995, Famous Footwear developed a strong, focused marketing program,
centered on "MOM." This comprehensive program of exciting, new television
advertising, in-store signage and database relationship marketing is
directed toward communicating with the number-one family footwear
decision-maker. This new marketing program is designed to build even
greater equity in the Famous Footwear franchise, positioning the stores
top-of-mind among branded footwear consumers.
Customer Satisfaction
- ---------------------
The retail environment is constantly changing and Famous Footwear knows
that only those stores that truly satisfy their customers will succeed.
That's why the company puts a strong emphasis on training and motivating
its sales associates to provide superior service. Famous Footwear's
emphasis on training and motivation also extends throughout the
organization. In recent years, the company has added talented staff at all
levels and in all areas, to lead to improved execution of all facets of the
business.
For 1996, Famous Footwear is focused on "raising the bar" in operational
excellence and customer satisfaction. Thus, in the very competitive retail
arena, Famous Footwear will continue to stand out as the place to shop for
the best-recognized brands, pricing lower than the competition, and
exceptional service.
- ---------------------------------------------------------------------------
Women with children are Famous Footwear's "heavy purchasers" and the
company places an intense focus on satisfying their footwear needs.
- ---------------------------------------------------------------------------
NATURALIZER RETAIL
- ------------------
The company's Naturalizer stores are premier showcases for the company's
flagship brand of women's shoes. There are more than 300 company-operated
Naturalizer stores in major malls and shopping centers throughout the
United States. These stores offer a complete selection of women's footwear
styles, including dress, casual and athletic. In addition to the
Naturalizer brand, consumers also can find the NaturalSport and Penaljo
brands in these stores.
During 1995, the Naturalizer stores participated in an overall
repositioning program for the Naturalizer brand designed to communicate the
brand's competitive advantage: style plus comfort. As part of this program,
the company began upgrading all aspects of the Naturalizer stores. This
included developing an inviting and comfortable design for the store
environment; new signage and displays; and a renewed focus on visual
presentation and the training and motivation of store managers and sales
associates.
7
<PAGE> 10
- ---------------------------------
NUMBER OF U.S. NATURALIZER STORES
1995 -- 313
1994 -- 327
1993 -- 367
1992 -- 355
1991 -- 384
- ---------------------------------
Marketing programs for the Naturalizer stores focus on the millions of
loyal Naturalizer consumers who know and trust the brand. New database
marketing programs encourage and reward these frequent purchasers. During
1995, Naturalizer's retail and wholesale divisions worked together to
create an ideal shopping experience for the Naturalizer consumer. Their
combined and integrated efforts are helping to deliver the Naturalizer
vision of style plus comfort. In 1996, the company will continue to
emphasize this integrated approach to the Naturalizer brand so that the
stores mirror the brand identity.
- ---------------------------------------------------------------------------
During 1995, Naturalizer's retail and wholesale divisions worked together
to create an ideal shopping experience for the Naturalizer consumer. Their
combined and integrated efforts are helping to deliver the Naturalizer
vision of style plus comfort.
- ---------------------------------------------------------------------------
CANADA RETAIL
- -------------
In Canada, the company operates 96 Naturalizer stores, 15 F. X. LaSalle
better-grade shoe stores and three Famous Footwear stores. Naturalizer is
the leading brand of women's shoes in Canada. The Naturalizer stores also
feature a large selection of the NaturalSport brand of walking and casual
shoes. Naturalizer's retail and wholesale divisions in Canada work closely
together to capitalize on the brand's strengths in offering fashion,
comfort, size and width selection, and superior service to consumers.
- -------------------------
NUMBER OF CANADIAN STORES
NATURALIZER
1995 -- 96
1994 -- 91
1993 -- 83
1992 -- 76
1991 -- 73
F.X. LASALLE
1995 -- 15
1994 -- 14
1993 -- 15
1992 -- 14
1991 -- 14
- -------------------------
The company's F. X. LaSalle stores are primarily located in major malls in
the Montreal area and sell better-grade men's and women's footwear brands.
These updated stores average 2,500 square feet, with average per-store
sales exceeding $800,000 annually.
8
<PAGE> 11
- -----------------------------
FOOTWEAR WHOLESALE OPERATIONS
- -----------------------------
BROWN SHOE COMPANY
- ------------------
Brown Shoe Company markets major brands designed to meet a wide variety of
women's footwear fashion and lifestyle needs. These brands are segmented
into three categories: the Naturalizer Group, LS Group and Better Brands.
The company's brands are sold in department stores, multi-line shoe stores
and branded specialty stores and hold leading positions in consumer
awareness and market share.
In 1995, Brown Shoe continued to focus its brand strategies on each
individual brand's target consumer. Each Brown Shoe brand has a dedicated
team that ensures all aspects of the development and marketing of the brand
are focused and relevant for the target consumer. Once each brand's product
and promotions are developed, Sales and Service teams address the specific
needs of Brown Shoe Company's retail customer segments. This integrated
approach to the design, marketing and support of its product is helping
Brown Shoe Company build on its strong stable of women's brands.
Naturalizer Group
- -----------------
The Naturalizer Group comprises the company's flagship Naturalizer brand,
the NaturalSport brand of walking and casual shoes, and the Penaljo brand.
During 1995, the company began implementing a plan to reposition
Naturalizer to meet the needs of the baby boomer segment:
* The Naturalizer mission is to provide a wide range of quality casual and
dress products combining the brand's legendary comfort and fit with
classic, relevant and up-to-date styling. Naturalizer has a proud position
as the most recognized women's footwear brand. The company is investing in
market research, product development and marketing communications to ensure
the product and marketing address the consumer's need for footwear
combining both style and comfort.
* The comprehensive repositioning program was test-marketed in Kansas
City, including fresh product, new store design, direct-mail marketing, and
the retraining of sales associates. Results were very positive, and the
division is using these results to roll-out further programs reinforcing
Naturalizer's new focus.
* A new multimillion dollar advertising campaign communicating
Naturalizer's style plus comfort position was launched this spring in major
women's magazines, with network television beginning in fall 1996.
- -------------------------
BROWN SHOE COMPANY BRANDS
Larry Stuart Collection
Life Stride
LS Studio
Melange
Naturalizer
NaturalSport
Night Life
Penaljo
- -------------------------
* In 1995, NaturalSport continued its reputation as "The Walker's Choice"
by providing functional walking shoes for an active woman's life. The
brand's heritage in exercise walking now extends to walking sandals, casual
and backland walking shoes and even walking clogs. In the spring of 1996,
the "Roma" clog, recognized for its fashion-right styling and its comfort,
is one of the hottest items in the shoe industry.
LS Group
- --------
The LS Group is made up of the Life Stride brand, the industry's premier
entry-level women's brand; the newer LS Studio brand; and the Night Life
brand of special occasion footwear. These brands are affordably priced and
fashion-right. The company's plans for this group of brands include:
9
<PAGE> 12
* The introduction of a strategic marketing program for Life Stride. In
1996, this includes both print and television advertising focused on the
growing Hispanic market.
* The brand team will also continue to develop the new LS Studio brand of
sophisticated and contemporary footwear. This includes delivering quality
shoes with styling always outpacing the price. In addition, marketing
programs supporting the brand's image were initiated in 1995 and will
continue in 1996.
* For the Night Life brand, in-store presentation and the brand assortment
are being increased. This includes new point-of-purchase store displays and
a wider breadth of product offering.
Better Brands
- -------------
In 1995, Brown Shoe acquired the Larry Stuart Collection, a nationally
recognized better-grade brand of footwear. The Melange brand also is part
of the Better Brands group, offering stylish, sophisticated
European-inspired footwear. The Better Brands group is focusing on:
* Developing widespread awareness of the Larry Stuart Collection through
public relations and marketing. These efforts focus on communicating the
unique benefits of this brand: Italian-made, truly stylish footwear that is
always comfortable and versatile -- all at the right price-points.
* The brand team also is working with retailers to develop focus areas for
both the Larry Stuart Collection and the Melange brand.
- ---------------------------------------------------------------------------
Each Brown Shoe brand has a dedicated team that ensures all aspects of the
development and marketing of the brand are focused and relevant for the
target consumer. Once each brand's product and promotions are developed,
Sales and Service teams address the specific needs of Brown Shoe Company's
retail customer segments.
- ---------------------------------------------------------------------------
PAGODA
- ------
Pagoda's branded businesses offer important growth prospects for Brown
Group. In recent years, Pagoda has concentrated on expanding its offering
of brand name footwear for sale in both the United States and abroad.
Through its worldwide sourcing and sales capabilities, Pagoda offers its
customers a full range of footwear brands for men, women and children.
Pagoda U.S.A.
- -------------
The Pagoda U.S.A. division markets branded and private label footwear to an
extensive network of both mass-merchandise, mid-tier and department stores
throughout the country. In the retail environment of the '90s and beyond,
Pagoda U.S.A. is uniquely positioned to answer the needs of consumers who
are value-driven and convenience-oriented.
10
<PAGE> 13
Pagoda U.S.A. operates five divisions: Women's; Westport Better-Grade;
Men's and Boys'; Athletic; and Children's. In 1995, Pagoda U.S.A. sold 48
million pairs of shoes, representing about 5 percent of the total market in
the United States. Pagoda is a trusted footwear resource to America's
largest retailers, including Wal-Mart, Payless, Famous Footwear, Kmart and
Target.
- ---------------------------------------------------------------------------
PAGODA ADULTS' BRANDS
Air Step
Brittania (1)
Connie
Dr. Scholl's (2)
DeLiso
Fanfares
Jordache (3)
Le Coq Sportif
Maserati
Mickey Unlimited (4)
Nature Sole
Penn (5)
Regal
Remington (6)
Revelations
U. S. 101
Union Bay (7)
- ---------------------------------------------------------------------------
As denoted, the above brands are under license from:
(1) Brittania Sportswear, Ltd.
(2) Schering-Plough HealthCare Products, Inc.
(3) Jordache Enterprises, Inc.
(4) The Walt Disney Company
(5) Penn Racquet Sports, a division of GenCorp. Inc.
(6) Remington Arms Company, Inc.
(7) Seattle Pacific Industries, Inc.
- ---------------------------------------------------------------------------
Leading Pagoda U.S.A.'s extensive list of adults' brands is the popular Dr.
Scholl's shoes for men and women. The Dr. Scholl's line of casual and work
shoes provides consumers with an affordable leather product with a
well-recognized name and quality image. This footwear brand was introduced
by Pagoda in 1992. With it, Pagoda gave the mass market a powerful brand
name and a new standard of quality, and consumers responded
enthusiastically.
Pagoda is one of the largest children's footwear suppliers, with popular
brand names including Buster Brown, Playskool, UnionBay, Candie's and
Barbie. During 1995, the company acquired several new children's licenses,
including Sailor Moon, Kazaam, Tonka and Hello Kitty. 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 101 Dalmatians and Disney's newest
children's animated movie, The Hunchback of Notre Dame.
Pagoda International
- --------------------
The company has a strong and growing international footwear marketing
business under Pagoda International. Through this division, Brown Group's
footwear brands for men, women and children are marketed to retailers in
Europe, Latin America and the Far East. In the five years since Pagoda
International was established, its sales have reached more than $80
million. Growth for this division is expected to continue as the company
increases its position in developing markets. The company maintains
marketing offices in Brazil, France and Hong Kong and has wholesale
distribution joint ventures in Argentina and Mexico.
- ---------------------------------------------------------------------------
PAGODA CHILDREN'S BRANDS
Barbie (1)
Buster Brown
Candie's for girls (2)
Casper (3)
101 Dalmatians (4)
Disney Babies (4)
The Flintstones (5)
G. I. Joe (6)
Hello Kitty (7)
The Hunchback of Notre Dame (4)
Kazaam (8)
The Lion King (4)
Mickey's Stuff for Kids (4)
Nerf (6)
Playskool (6)
Sailor Moon (9)
Tonka (6)
Wildcats
- ---------------------------------------------------------------------------
As denoted, the above brands are under license from:
(1) Mattel, Inc.
(2) Candie's, Inc.
(3) MCA/Universal Merchandising, Inc.
(4) The Walt Disney Company
(5) MCA/Universal Merchandising, Inc. and Turner Home Entertainment, Inc.
(6) Hasbro, Inc.
(7) Sanrio, Inc.
(8) Interscope Communications, Inc.
(9) DIC Entertainment, L.P.
- ---------------------------------------------------------------------------
Pagoda International offers Brown Group a very important strategic growth
channel: the global marketplace. The majority of Pagoda's international
sales have been achieved by names familiar to children everywhere -- Disney
and Barbie. Disney is the number-one children's shoe brand in Europe. The
North American outdoor and comfort shoe trends have also gone global. The
Dr. Scholl's comfort shoe brand has expanded its reach to several Latin
American countries. In addition, the company's Naturalizer and NaturalSport
brands are sold in Japan and Australia through licensing and distribution
agreements.
11
<PAGE> 14
The global market for athletic footwear also is a significant opportunity
for Pagoda International. In July 1995, the company acquired the Le Coq
Sportif brand of footwear and apparel from adidas AG. Le Coq Sportif is
sold in more than 40 countries throughout the world. It ranks among the top
five athletic shoe brands in Latin American countries and is
well-recognized in Europe and the Far East. With its 100-year heritage,
strong positioning and solid reputation, Le Coq Sportif is an important
growth vehicle for the company.
Pagoda Trading
- --------------
Pagoda Trading is the footwear sourcing arm of Brown Group, Inc. Through
its structure of offices in countries throughout the world, Pagoda Trading
sourced 70 million pairs of shoes in 1995. The company currently maintains
offices in Brazil, Italy, China, Hong Kong, Taiwan and Indonesia. This
flexible structure allows Pagoda Trading to source footwear at virtually
any price level from any significant shoe manufacturing region of the
world.
Pagoda Trading supports all of Brown Group's marketing and retail
businesses with a commitment to on-time delivery of quality products at
competitive prices. Brown Group is able to achieve its diverse sourcing
needs through Pagoda Trading's multinational sourcing capabilities,
unequaled factory relationships and long-standing commitment to quality and
superior service.
- ---------------------------------------------------------------------------
Pagoda Trading supports all of Brown Group's marketing and retail
businesses with a commitment to on-time delivery of quality products at
competitive prices.
- ---------------------------------------------------------------------------
CANADA WHOLESALE
- ----------------
In Canada, the company markets brand name shoes for women, men and
children. These brands include Naturalizer, the leading brand of women's
shoes in Canada, NaturalSport, Air Step, Connie, Buster Brown, Wildcats,
Savage and Cedar Trail. They are sold in department stores, chains,
better-grade independent accounts and specialty stores throughout Canada.
The Naturalizer brand is sold in the 96 Naturalizer stores operated by the
Canada Retail division, in 39 independently operated Naturalizer shoe
stores, and in department stores and other fine retailers.
12
<PAGE> 15
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> 16
- ---------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
- ---------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
1995 Compared to 1994
- ---------------------
Brown Group, Inc.'s fiscal 1995 results were adversely affected by the
extremely difficult apparel and footwear retail environment, which
persisted throughout the year. In the fourth quarter of fiscal 1995 Brown
Shoe Company's five remaining domestic factories were closed, ending an
extended period of restructuring for Brown Group, Inc. and its divisions.
Brown Group's sales of $1.456 billion for the 53-week fiscal 1995 were down
slightly from the $1.462 billion in fiscal 1994, which had 52 weeks. The
flat sales between years reflect substantially higher sales at Famous
Footwear more than offset by decreased sales at the corporation's wholesale
operations and by the closing of under-performing Naturalizer stores.
Earnings from continuing operations of $.7 million in 1995 compare to $33.6
million in fiscal 1994. Earnings from continuing operations in fiscal 1995
include nonrecurring after-tax charges of $1.4 million for the early
adoption of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," a $2.7 million provision for a valuation reserve
related to the corporation's deferred tax assets and $9.2 million for the
cost of closing the corporation's last five domestic manufacturing plants.
These charges were substantially offset by an after-tax LIFO recovery of
$6.6 million related to the liquidation of manufacturing inventories and
plant closings, and a reversal of a reserve of $5.8 million resulting from
an Appeals Court ruling overturning an Internal Revenue Service assessment
against the corporation.
Net earnings for fiscal 1995 of $3.3 million compare to $39.4 million for
fiscal 1994. Included in net earnings for 1995 and 1994 are gains of $2.6
million and $4.5 million, respectively, from the reversal of a portion of
the provision for discontinued businesses.
Famous Footwear's sales increased 20% in 1995 to $741.1 million, but
same-store sales declined 3.0% for the year on a comparable 52-week basis.
This is the first same-store sales decline recorded by Famous Footwear in
nine years. Operating earnings declined 51% to $19.6 million as a result of
lower same-store sales, reduced margins and increased expenses. The
decrease in same-store sales and margins was primarily the result of a very
difficult retail market. Increased expenses primarily were related to new
stores, the opening of a second distribution center in Tennessee and the
addition of infrastructure to support the expanded business. Early in 1995,
Famous Footwear's planned rate of expansion was reduced. During the year 92
net stores were added, down from the 155 added in fiscal 1994. Current
plans for fiscal 1996 include the net addition of 23 stores. There were 814
stores in operation at the end of fiscal 1995.
Naturalizer Stores' domestic sales decreased 7% and same-store sales
decreased 4.0% on a comparable 52-week basis. Although the operating loss
recorded in fiscal 1995 was increased from fiscal 1994, progress was made
in improving the long-term outlook for this business. Further improvement
was made in gross margins, although not enough to offset the sales decline,
additional under-performing stores were closed and the writedown of assets
of stores still being operated was recorded with the implementation of SFAS
No. 121. There was a net decrease of 14 stores during the year, reducing
the total number of stores to 313. Plans for fiscal 1996 include the net
addition of five stores. Subsequent to year-end, the operations of 12 Brown
Shoe Company Outlet stores and 28 Naturalizer Outlet stores in outlet malls
were transferred to the Naturalizer Retail division from Famous Footwear.
After a first-quarter transition period, these stores are expected to
contribute positively to this division's results.
The Canadian retail operation's sales increased 5%, but same-store sales
declined .6% for the year on a comparable 52-week basis. Operating profit
increased 3% during fiscal 1995 with lower margins and slightly higher
expenses. With the net addition of five stores in 1995, this business now
operates 114 stores. The Canadian wholesale operation's sales were flat in
fiscal 1995. Operating earnings decreased 10% as improved margins were more
than offset by an increase in royalty expense.
Sales from footwear wholesale operations--Brown Shoe Company and
Pagoda--declined 17% in fiscal 1995 to $530.9 million. Increased sales in
Latin America and Europe and sales of the new Larry Stuart brand in the
United States were more than offset by decreases in Naturalizer and Connie
branded sales, Dr. Scholl's and The Lion King licensed products and lower
first-cost sales from the Far East and Latin America. As a result, an
operating loss of $4.1 million was reported in fiscal 1995 compared to a
profit of $32.8 million in fiscal 1994. Operating earnings of the
corporation's Brazilian and European wholesale operations increased
substantially in 1995 due to higher sales. These gains were partially
offset by a reduction in lower-margin, first-cost sales from Latin America
and the Far East. Domestic operating earnings decreased as a result of
lower sales and margins and increased expenses, primarily related to brand
development and marketing. The 1995 loss included a pretax charge of $14.1
million for the costs of closing the remaining five domestic manufacturing
plants, which was partially offset by a pretax LIFO gain of $10.1 million
from the liquidation of related inventories. Results for fiscal 1994
included a pretax LIFO gain of $9.8 million from the liquidation of
inventories. Plans for 1996 include improved margins, as the fixed costs of
domestic manufacturing have been eliminated. In addition, Pagoda has
secured the license for Walt Disney's "Hunchback of Notre Dame" movie,
which is scheduled to be released in mid-1996, and the acquisition of the
Le Coq Sportif brand is expected to provide further growth in the foreign
wholesaling operations.
14
<PAGE> 17
The 1% increase in Brown Group's interest expense in fiscal 1995 reflects
an increase in the average short-term borrowing rate from 4.5% in fiscal
1994 to 7.0% in fiscal 1995 partially offset by lower average borrowings.
The corporation's borrowing level increased throughout fiscal 1995 as cash
flow, adversely affected by depressed earnings, was insufficient to fund
cash needs.
Other Expense of $1.6 million in 1995 primarily comprises $3.0 million of
royalty income offset by a $3.6 million charge related to factory closings
and a $2.1 million charge from SFAS No. 121. In 1994, Other Income of $12.3
million reflects a $9.8 million gain from the settlement of Brazilian
countervailing duties and $3.0 million of royalty income.
The corporation's tax benefit recorded in fiscal 1995 of $5.4 million, on a
pretax loss of $4.7 million, includes the recovery of $5.8 million,
including interest, resulting from a court ruling overturning an Internal
Revenue Service assessment on a portion of the corporation's unremitted
foreign earnings. See Note 5 to the consolidated financial statements for a
further explanation and a reconciliation of the effective tax rates to the
statutory rates.
The corporation had an overall net deferred tax asset of $19.2 million at
February 3, 1996, which relates primarily to differences in book and
taxable income and net operating loss carry forwards. At February 3, 1996,
the corporation carried a valuation reserve related to this asset of $3.3
million, of which $2.7 million was provided in fiscal 1995. Management
believes 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, net of the valuation reserve. Management will continue
to evaluate the realizability of deferred tax assets.
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 $1.462 billion in fiscal 1994 were 7% higher than
the $1.361 billion in fiscal 1993. Earnings from continuing operations of
$33.6 million in 1994 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
after-tax 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 after-tax
provision of $24.4 million for withdrawal from the Wohl Leased Shoe
Department business; and an after-tax 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 and 3.3% on a same-store
basis. 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, particularly
systems and distribution capabilities. During 1994, there was a net
addition of 155 stores, bringing the total number of stores to 722.
Naturalizer Stores' domestic sales decreased 2% and were flat on a
same-store basis. This business was unprofitable again in 1994, but a
number of poorly performing stores were closed and gross margins improved.
There was a net decrease of 40 stores during the year, bringing the total
number of stores to 327.
The Canadian retail operation's sales increased 10% and were up 11.2% on a
same-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 operated 109 stores
at year-end. 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, Dr. Scholl's and The Lion
King licensed product were offset by lower sales of Connie and Buster
Brown, and by the midyear sale of Brown Shoe Company's men's business.
Naturalizer's branded sales in 1994 were flat with 1993. Combined operating
earnings for these two businesses 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, partially offset by higher
expenses as a percentage of sales. Only a partial year effect of overhead
reduction was realized and higher costs were incurred for brand development
and marketing which is expected to continue. 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.
15
<PAGE> 18
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 in fiscal 1995.
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 after-tax) was offset by the provision
of $5.8 million for an Internal Revenue Service tax assessment, including
interest, on a portion of the corporation's unremitted foreign earnings,
which was in the process of being appealed by the corporation. 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. For a reconciliation of
the effective tax rates to the statutory rates, see Note 5 to the
consolidated financial statements.
Restructuring and Factory Closings
- ----------------------------------
In the second quarter of fiscal 1995 the corporation made a decision to
close Brown Shoe Company's five remaining domestic manufacturing plants and
related facilities. A pretax charge of $14.1 million was recorded to cover
the cost of these closings. This charge consisted of the following:
* Charges of $3.6 million for asset writeoffs associated with the disposal
of manufacturing and related facilities and equipment;
* Inventory writedowns of $2.0 million to liquidate manufacturing
inventories; and
* Charges of $8.5 million for severance and benefit costs for those
employees terminated due to plant and facility closures.
In addition to the charge recorded in fiscal 1995, $2.6 million of the
reserves established in fiscal 1993 were redesignated to cover additional
costs associated with the final factory closings in fiscal 1995.
The restructuring initiatives and additional environmental provisions,
which were announced in January 1994, resulted in pretax charges of $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 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 factory closing and restructuring reserves,
excluding environmental reserves, which are separately discussed, is as
follows (in millions):
<TABLE>
<CAPTION>
1995
Factory 1993
Closings Restructuring
-------- -------------
<S> <C> <C>
Initial establishment of reserve $14.1 $ 40.4
Asset writeoffs (2.2) (12.2)
Inventory writedowns (5.9) (6.9)
Lease buyouts and termination costs -- (11.6)
Severance and benefit costs (2.8) (10.7)
Pension settlement and curtailment
gains (losses) (1.8) 3.6
Redesignated to 1995 factory closings 2.6 (2.6)
----- ------
Reserve balance at February 3, 1996 $ 4.0 $ --
===== ======
</TABLE>
The reserve activity had a $12.8 million and $20.8 million negative cash
flow impact on 1995 and 1994, respectively. In 1995 this usage was
partially offset and in 1994 this usage was more than offset by positive
cash flow generated from reduced inventories and sales of facilities. As of
February 3, 1996, all of the planned 150 retail store closures were
completed and all domestic manufacturing facilities had been closed. The
majority of the planned employee terminations occurred in fiscal 1994 with
the remainder occurring in fiscal 1995 as part of the final phases of the
consolidation of Pagoda, Brown Shoe and headquarters staffs and the exit
from domestic manufacturing. The remaining reserve relates primarily to
personnel severance and benefit costs for 1995 factory closings. These
costs will have a modest negative impact on cash flow throughout fiscal
1996.
16
<PAGE> 19
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 were 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 in fiscal 1995. 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:
* Charges of $14.6 million for asset writeoffs associated with leasehold
improvements and headquarter's 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 $4.0 million and $7.0 million
of the reserve to income in the fourth quarters of 1995 and 1994,
respectively. 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 (10.6)
Inventory writedowns and operating
losses during phaseout (5.3)
Severance and benefit costs (9.7)
Other fees and costs (1.0)
Pension settlement and curtailment gains 2.8
Reserve reversal (11.0)
------
Reserve balance at February 3, 1996 $ --
======
</TABLE>
The reserve activity in fiscal 1995 used $.3 million of cash flow. During
1994, the sale and liquidation of the discontinued businesses generated
$127.2 million of positive cash flow. These proceeds were used to pay down
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.
- -------------------
FINANCIAL CONDITION
- -------------------
Liquidity and Capital
- ---------------------
The corporation's borrowing level increased throughout fiscal 1995 as
earnings were less than amounts expended on store openings at Famous
Footwear and payment of the corporation's dividend. In order to protect the
corporation's financial position during these very difficult retail
business conditions, the rate of store openings at Famous Footwear was
reduced and in September 1995, the regular quarterly dividend was reduced
from 40 cents per share to 25 cents per share. Total debt increased to
$219.5 million at the end of fiscal 1995 from $176.4 million at the end of
fiscal 1994. Accordingly, the ratio of net debt (notes payable and
long-term debt less cash and cash equivalents) to total capitalization
increased to 44.3% at the end of 1995 from 38.7% at the end of 1994.
Working capital at the end of 1995 was $209.4 million which was $49.8
million lower than the $259.2 million at the end of 1994. As a result, the
corporation's current ratio, the relationship of current assets to current
liabilities, decreased to 1.7 to 1 from 2.2 to 1 at the end of 1994. These
decreases reflect the net cash usage, previously discussed, all of which
was funded with short-term borrowings.
Cash provided by operating activities of continuing operations in fiscal
1995 consisted of decreased earnings, a reduction in accounts receivable
primarily due to lower sales at Brown Shoe, increased trade accounts
payable at Famous Footwear and Pagoda, and the collection of a tax loss
carryback. These were partially offset by increased inventories at Famous
Footwear, and lower accrued expenses due to the utilization of
restructuring reserves and factory closings.
Cash used by investing activities was primarily from capital expenditures
in 1995 of $26.9 million compared to $32.5 million in 1994. The 1995
capital expenditures were principally for the opening of new retail stores,
and the remodeling of existing retail units. Capital expenditures for 1996
are planned to be approximately 25% lower than in 1995 and will consist
primarily of store openings at Famous Footwear. The cash used for capital
expenditures was partially offset by the proceeds from the sale of
manufacturing plants and related facilities and the final sale of
discontinued assets.
17
<PAGE> 20
Financing activities reflect an increase in notes payable, which was
primarily due to the corporation's lower earnings level and cash used. In
October 1995, the corporation refinanced $50 million of 6.47% unsecured
Senior notes due in February 1996 with $50 million of 7.36% unsecured
Senior notes. The new debt agreement requires annual principal payments of
$10 million in 1999 through 2003.
In addition, the corporation amended certain terms of its $200 million
revolving bank Credit Agreement, which will now expire in 1999. At February
3, 1996, $112.0 million was borrowed under this agreement.
The Senior notes and the Credit Agreement contain covenants which, among
other things, require the maintenance of certain financial ratios related
to fixed charge coverage and long-term debt-to-capital, establish minimum
levels of net worth and working capital, and limit the sale of assets and
the level of liens and certain investments. The corporation is in
compliance with all of these covenants at year-end, and expects to continue
to be in compliance based on current estimates for 1996. These estimates
reflect operational improvements in a continuing difficult retail
environment.
The corporation's current borrowing capacity under the bank Credit
Agreement is more than adequate to fund its operational needs. In 1996, in
order to fund capital expenditures, primarily at Famous Footwear, complete
the remaining expenditures related to the factory closings, and continue to
pay a regular quarterly dividend, there may be a modest increase in
borrowings to supplement cash provided by operations. The corporation plans
to monitor market conditions, and if advantageous, will consider issuing
medium-term notes in 1996. The proceeds from such notes would be used to
reduce short-term borrowings under the Credit Agreement.
The corporation's long-term debt is rated Baa3 by Moody's Investors Service
and BB by Standard & Poor's Corporation; commercial paper is rated Prime-3
by Moody's.
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 is accordingly 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. In
countries where the economy is deemed to be hyperinflationary, including
Brazil, the corporation hedges the local currency denominated assets and
liabilities.
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.
Dividends
- ---------
Brown Group paid a dividend of $1.30 per share in 1995, and $1.60 per share
in 1994. This marked the 73rd year of consecutive quarterly dividends. In
September of fiscal 1995 the regular quarterly dividend was reduced from 40
cents per share to 25 cents per share.
Environmental Matters
- ---------------------
The corporation is involved in environmental remediation and ongoing
compliance at several sites. The corporation has completed remediation
efforts at its closed New York tannery and two associated landfills. As
such, in September 1995, state environmental authorities reclassified the
status of the site to one that has been properly closed and that requires
only continued maintenance and monitoring. This change in status has
allowed the corporation to reliably estimate the future liability for
monitoring and maintenance, which is required over the next 28 years, based
on a specific site plan. Accordingly, in the third quarter of 1995, the
estimated liability of $5.3 million related to this site was discounted,
using a 6.4% rate, resulting in a $2.0 million reduction in the previously
recorded liability of $4.7 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 expected payments for the next
five years are approximately $.2 million per year with the balance due
thereafter.
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 began in 1995. In addition,
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. The expected remaining costs related to the
owned, but leased, factory and the various landfills total $.8 - $1.0
million. At February 3, 1996, the total accrued environmental liabilities
for all sites, including the above discounted liability, total $3.1
million.
18
<PAGE> 21
FIVE-YEAR SUMMARY
-----------------
<TABLE>
<CAPTION>
Thousands, except per share
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $1,455,896 $1,461,637 $1,361,039 $1,243,842 $1,191,591
Cost of goods
sold 948,925 949,374 915,443 834,591 806,090
---------- ---------- ---------- ---------- ----------
Gross profit 506,971 512,263 445,596 409,251 385,501
---------- ---------- ---------- ---------- ----------
Selling and
administrative
expenses 494,098 448,827 422,248 381,835 361,281
Interest expense 15,969 15,785 17,334 16,260 15,431
Other expense
(income)--net 1,630 (12,320) 21,191 8,318 (2,244)
---------- ---------- ---------- ---------- ----------
Earnings (loss)
from continuing
operations
before income
taxes and
accounting
changes (4,726) 59,971 (15,177) 2,838 11,033
Income tax
(provision)
benefit 5,423 (26,405) 5,881 401 (2,771)
---------- ---------- ---------- ---------- ----------
Earnings (loss)
from
continuing
operations
before
cumulative
effect of
accounting
changes 697 33,566 (9,296) 3,239 8,262
Earnings from
discontinued
operations,
net of income
taxes -- 1,282 4,298 1,425 7,433
(Provision)
credit for
disposal of
discontinued
operations,
net of income
taxes 2,600 4,550 (24,400) -- --
Cumulative
effect of
changes in
accounting
for
postemployment
benefits in
1993 and
postretirement
benefits and
income taxes
in 1991 -- -- (2,214) -- (11,931)
---------- ---------- ---------- ---------- ----------
Net earnings
(loss) $ 3,297 $ 39,398 $ (31,612) $ 4,664 $ 3,764
========== ========== ========== ========== ==========
Returns from
continuing
operations
before
accounting
changes:
Return on
net sales 0.1% 2.3% (0.7%) 0.3% 0.7%
Return on
beginning
share-
holders'
equity 0.3% 14.4% (3.2%) 1.0% 2.5%
Return on
average
invested
capital 0.2% 6.5% (1.6%) 0.6% 1.5%
Dividends paid $ 23,325 $ 28,610 $ 27,979 $ 27,714 $ 27,646
Capital
expenditures 26,939 32,531 27,207 17,496 19,902
PER COMMON
SHARE
Earnings
(loss) from
continuing
operations
before
accounting
changes $ .04 $ 1.91 $ (.54) $ .19 $ .48
Net earnings
(loss) .19 2.24 (1.83) .27 .22
Dividends paid 1.30 1.60 1.60 1.60 1.60
Shareholders'
equity 12.92 13.90 13.27 16.69 18.10
FINANCIAL
POSITION
Receivables,
net $ 86,417 $ 98,079 $ 109,825 $ 114,042 $ 83,900
Inventories 342,282 322,029 286,992 253,586 228,219
Working capital 209,399 259,178 240,554 262,611 297,239
Property and
equipment, net 87,720 92,904 86,695 88,500 104,144
Total assets 661,056 636,515 739,930 705,165 654,696
Long-term
debt and
capitalized
lease
obligations 105,470 133,213 135,324 123,024 144,564
Shareholders'
equity 231,636 249,727 233,863 288,988 313,387
Average Common
Shares
Outstanding 17,591 17,555 17,270 17,132 17,070
</TABLE>
All data presented reflects the fiscal year ended on the Saturday nearest
to January 31.
19
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
Thousands, except number of shares February 3, 1996 January 28, 1995
---------------- ----------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 35,058 $ 18,922
Receivables, net of allowance of
$11,267 in 1995 and $11,664 in 1994 86,417 98,079
Inventories, net of adjustment
to last-in, first-out cost of
$27,672 in 1995 and $37,286 in 1994 342,282 322,029
Deferred income taxes 26,734 23,350
Prepaid expenses and other
current assets 14,847 16,580
-------- --------
Total Current Assets 505,338 478,960
Other Assets
Prepaid pension costs 33,077 34,793
Other assets 34,921 29,858
Property and equipment, net 87,720 92,904
-------- --------
$661,056 $636,515
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Notes payable $112,000 $ 41,085
Trade accounts payable 106,113 85,045
Employee compensation and benefits 28,448 37,394
Other accrued expenses 43,043 54,837
Income taxes 4,335 (642)
Current maturities of long-term debt 2,000 2,063
-------- --------
Total Current Liabilities 295,939 219,782
OTHER LIABILITIES
Long-term debt, including
capitalized lease obligations 105,470 133,213
Deferred income taxes 10,806 12,734
Other liabilities 17,205 21,059
-------- --------
Total Other Liabilities 133,481 167,006
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;
17,930,977 and 17,969,892 shares
outstanding 67,242 67,388
Additional capital 46,015 46,957
Cumulative translation adjustment (4,913) (5,556)
Unamortized value of restricted stock (7,822) (10,878)
Retained earnings 131,114 151,816
-------- --------
Total Shareholders' Equity 231,636 249,727
-------- --------
$661,056 $636,515
======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
CONSOLIDATED EARNINGS
---------------------
<TABLE>
<CAPTION>
Thousands, except per share 1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Net Sales $1,455,896 $1,461,637 $1,361,039
Cost of goods sold 948,925 949,374 915,443
---------- ---------- ---------
Gross profit 506,971 512,263 445,596
---------- ---------- ---------
Selling and administrative expenses 494,098 448,827 422,248
Interest expense 15,969 15,785 17,334
Other expense (income) -- net 1,630 (12,320) 21,191
---------- ---------- ---------
Earnings (Loss) From Continuing
Operations Before Income Taxes and
Cumulative Effect of Accounting
Change (4,726) 59,971 (15,177)
Income tax (provision) benefit 5,423 (26,405) 5,881
---------- ---------- ---------
Earnings (Loss) From Continuing
Operations Before Cumulative
Effect of Accounting Change 697 33,566 (9,296)
Cumulative effect of change in
accounting for postemployment
benefits -- -- (2,214)
Discontinued operations:
Earnings from operations,
net of taxes -- 1,282 4,298
(Provision) credit for
disposal, net of taxes 2,600 4,550 (24,400)
---------- ---------- ---------
Net Earnings (Loss) $ 3,297 $ 39,398 $ (31,612)
========== ========== =========
Earnings (Loss) Per Common Share:
Continuing operations before
cumulative effect of accounting
change $ .04 $ 1.91 $ (.54)
Cumulative effect of change
in accounting for postemployment
benefits -- -- (.13)
Discontinued operations:
Earnings from operations -- .07 .25
(Provision) credit for disposal .15 .26 (1.41)
---------- ---------- ---------
Net Earnings (Loss) $ .19 $ 2.24 $ (1.83)
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
CONSOLIDATED CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Thousands 1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 3,297 $ 39,398 $(31,612)
Adjustments to reconcile net earnings
(loss) to net cash provided
(used) by continuing operating
activities:
Cumulative effect of change in
accounting for postemployment
benefits -- -- 2,214
Discontinued operations (2,600) (5,832) 20,102
Depreciation and amortization 23,827 22,095 19,852
Loss on disposal or impairment
of facilities and equipment 6,477 103 12,236
Provision for losses on
accounts receivable 5,101 6,442 5,043
Changes in operating
assets and liabilities:
Receivables 6,561 5,304 (826)
Inventories (20,253) (35,037) (33,406)
Prepaid expenses and
other current assets (3,051) 26,212 (30,880)
Trade accounts payable
and accrued expenses 2,672 (7,972) 27,082
Income taxes 4,977 (4,430) (1,285)
Other, net (8,548) (6,577) (1,397)
-------- --------- --------
Net Cash Provided (Used) by
Operating Activities of:
Continuing operations 18,460 39,706 (12,877)
Discontinued operations (2,755) 8,677 180
-------- --------- --------
Net Cash Provided (Used)
by Operating Activities 15,705 48,383 (12,697)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (26,939) (32,531) (27,207)
Proceeds from sales of fixed assets 5,408 4,226 1,407
Proceeds from sales of assets
of discontinued operations 2,444 118,532 --
-------- --------- --------
Net Cash Provided (Used) by
Investing Activities (19,087) 90,227 (25,800)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term
notes payable 45,915 (105,005) 134,445
Principal payments of long-term
debt and capitalized leases (2,812) (7,764) (97,102)
Additions to long-term debt -- -- 20,000
Proceeds from issuance of common
stock 564 5,901 4,400
Payments for purchases of
treasury stock (824) (1,102) --
Dividends paid (23,325) (28,610) (27,979)
-------- --------- --------
Net Cash Provided (Used)
by Financing Activities 19,518 (136,580) 33,764
-------- --------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 16,136 2,030 (4,733)
Cash and Cash Equivalents
at Beginning of Year 18,922 16,892 21,625
-------- --------- --------
Cash and Cash Equivalents
at End of Year $ 35,058 $ 18,922 $ 16,892
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
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
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
compensa-
tion 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
compensa-
tion under
restricted
stock plan 2,546
---------- ------- ------- ------- ------- --------
Balance
January
28, 1995 17,969,892 67,388 46,957 (5,556) (10,878) 151,816
Net earnings 3,297
Dividends
($1.30
per share) (23,325)
Stock issued
under
employee
benefit
plans 23,760 89 475
Purchase of
common
stock
for
treasury (25,800) (97) (53) (674)
Currency
translation
adjustment 643
Stock issued
under
restricted
stock plan,
net (36,875) (138) (1,364) 1,502
Amortization
of deferred
compensa-
tion under
restricted
stock plan 1,554
---------- ------- ------- ------- ------- --------
Balance
February
3, 1996 17,930,977 $67,242 $46,015 $(4,913) $(7,822) $131,114
========== ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
- ------------------------------
Organization
- ------------
The corporation operates in the Footwear industry. Current activities
include the operation of retail shoe stores and the importing, foreign
sourcing, and wholesaling of women's, men's and children's footwear. The
corporation's retail operations comprise 1,241 retail footwear stores in
the United States and Canada. Footwear is distributed by the corporation's
wholesaling operations to department stores, mass merchandisers, and
independent retailers in the United States, Canada, Europe, South America
and the Far East and to affiliates. Wholesale footwear sales carry
corporate brand names, brand names licensed by the corporation, and private
label footwear. Through the sourcing activities of its Pagoda organization,
the corporation sources a wide variety of footwear from a number of
independently owned and operated factories primarily in China and other Far
Eastern countries and to a lesser extent Brazil and Italy, for affiliates
and for outside customers, which primarily consist of large discount store
operations. See Note 6 for additional information regarding the
corporation's business segment and operations by geographic area.
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.
Accounting Period
- -----------------
The corporation's fiscal year is the 52 or 53-week period ending the
Saturday nearest to January 31. Fiscal years 1995, 1994 and 1993 ended on
February 3, 1996, January 28, 1995 and January 29, 1994, respectively.
Fiscal year 1995 included 53 weeks and fiscal years 1994 and 1993 each
included 52 weeks.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Inventories
- -----------
All inventories are valued at the lower of cost or market, with 86% 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 are 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.
Stock Based Compensation
- ------------------------
The corporation accounts for stock based compensation in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly recognizes compensation expense related to stock appreciation
units and restricted stock grants. No compensation expense is recorded for
stock options granted at market value.
Cash and Equivalents
- --------------------
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's policy is to use financial derivatives only to manage
exposure to fluctuations in interest and foreign currency exchange rates.
Gains and losses realized and premiums paid on interest rate hedges, are
deferred and amortized to interest expense over the life of the underlying
hedged instrument, or immediately if the underlying hedged instrument is
settled.
24
<PAGE> 27
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. Gains and losses on
contracts which hedge foreign currency assets or liabilities in highly
inflationary economies are recognized in income as incurred. Such amounts
effectively offset gains and losses on the assets or liabilities that are
hedged.
NOTE 2: RESTRUCTURING CHARGES
- -----------------------------
Included in results from continuing operations for fiscal 1995 is a pretax
charge of $14.1 million to provide for the cost of closing the
corporation's five remaining United States footwear manufacturing plants
and several related facilities. Approximately 2,400 factory positions were
eliminated and the corporation's headquarters support staff was reduced by
60 positions. The cost of termination benefits included in cost of sales is
$8.0 million and an additional $.5 million of termination benefits is
included in selling and administrative expense. Costs to liquidate raw
material inventories of $2.0 million also were included in cost of sales.
The estimated asset writeoffs of $3.6 million associated with the closings
are included in other expense. The total charge, net of the related tax
benefit, resulted in a reduction in earnings from continuing operations of
$9.2 million, or $.52 per share for fiscal 1995.
At February 3, 1996, $4.0 million remains from the manufacturing plant
closing charges recorded in fiscal 1995 and includes $2.6 million
redesignated from the 1993 restructuring reserve. The remaining liability
relates primarily to personnel severance and pension settlement costs. To
date, $12.7 million of the factory closing reserves have been utilized:
$2.2 million for asset writeoffs, $5.9 million for inventory liquidation
costs, and $4.6 million for personnel severance costs.
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 covered the closing of five shoe
factories, the closing of over 150 shoe stores, 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 February 3, 1996, no balance remains from restructuring charges recorded
in fiscal 1993 excluding environmental reserves discussed in Note 14. To
date, $40.4 million of the reserves which were established by the 1993
restructuring charges have been utilized: $12.2 million for asset
writeoffs, $11.6 million for lease termination costs, $6.9 million for
inventory liquidation costs, $7.1 million for personnel severance costs,
net of pension and postretirement gains of $3.6 million, and $2.6 million
was utilized in the closing of all remaining factories in 1995. The balance
of the 1993 restructuring reserve at January 28, 1995 was $10.7 million
excluding environmental reserves discussed in Note 14.
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. 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.
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 costs 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 and $4.0 million of the reserve was
reversed to income in the fourth quarter of 1994 and 1995, respectively.
Summarized results of these businesses are shown separately as Discontinued
Operations in the accompanying consolidated financial statements. Operating
results of these businesses are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales $148,980 $529,617
======== ========
Earnings before income taxes $ 1,650 $ 6,253
Income taxes 368 1,955
-------- --------
Earnings from operations $ 1,282 $ 4,298
======== ========
</TABLE>
NOTE 4: RETIREMENT AND OTHER BENEFIT PLANS
- ------------------------------------------
The corporation's pension 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.
25
<PAGE> 28
The following table sets forth the plan's funded status at the December 31,
1995 and 1994 measurement dates, and amounts recognized in the
corporation's Consolidated Balance Sheet at February 3, 1996 and January
28, 1995 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $109,461 $ 90,514
======== ========
Accumulated benefit obligation $110,646 $ 92,336
======== ========
Projected benefit obligation $118,635 $100,526
Plan assets at fair value 154,026 132,266
-------- --------
Excess of plan assets over projected
benefit obligation 35,391 31,740
Unrecognized net loss 905 2,540
Unrecognized prior service costs (782) 3,864
Unrecognized net transition asset (2,437) (3,351)
-------- --------
Prepaid pension cost recognized in
the balance sheet $ 33,077 $ 34,793
======== ========
</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>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 4,306 $ 5,828 $ 6,180
Interest cost 8,638 9,957 9,532
Actual return on plan assets (41,055) 20,269 (30,847)
Net amortization and deferral 28,207 (37,823) 12,864
Multiemployer plan 23 78 143
-------- -------- --------
Total pension (income)
expense $ 119 $ (1,691) $ (2,128)
======== ======== ========
Actuarial assumptions used were:
Discount rate 7.00% 8.75% 7.25%
Expected return on plan assets 9.50% 9.50% 9.50%
Compensation increase 4.50% 5.00% 5.00%
</TABLE>
In addition, the corporation recognized net curtailment/settlement gains
(losses) in fiscal 1995 and 1994 of ($1.8) million and $3.4 million,
respectively, related to employee terminations due to personnel reductions
as part of the corporation's restructuring, factory closures and
discontinued operations. These net gains (losses) affected restructuring,
factory closure and discontinued operations reserves originally established
in fiscal 1995 and 1993.
The corporation's defined contribution 401(k) plan covers salaried,
management and certain hourly employees who have at least one year of
service and who are at least 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 $2.3 million in 1995, $2.5 million in 1994 and $3.4 million
in 1993.
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 retirees' 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 Sheet at February 3, 1996
and January 28, 1995
(in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
Life Life
Health Insurance Health Insurance
Plans Plans Plans Plans
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Accumulated postretire-
ment benefit obligations:
Retirees $3,604 $5,071 $ 3,379 $4,850
Active participants 472 100 1,861 165
------ ------ ------- ------
4,076 5,171 5,240 5,015
Plan assets -- -- -- --
------ ------ ------- ------
Accumulated obligation in
excess of plan assets 4,076 5,171 5,240 5,015
Unrecognized net
gain (loss) 4,640 (211) 4,804 (23)
------ ------ ------- ------
Accrued postretirement
benefit cost $8,716 $4,960 $10,044 $4,992
====== ====== ======= ======
</TABLE>
26
<PAGE> 29
Net postretirement benefit cost for 1995, 1994, and 1993 included the
following components (in thousands):
<TABLE>
<CAPTION>
Life
Health Insurance
Plans Plans
-------- ---------
<S> <C> <C>
1995
Service cost $ 162 $ 5
Interest cost 407 385
Net amortization cost (878) --
------- ----
Postretirement benefit cost (income) $ (309) $390
======= ====
1994
Service cost $ 266 $ 15
Interest cost 443 397
Net amortization cost (845) 7
------- ----
Postretirement benefit cost (income) $ (136) $419
======= ====
1993
Service cost $ 534 $ 25
Interest cost 667 387
Net amortization cost (2,088) --
------- ----
Postretirement benefit cost (income) $ (887) $412
======= ====
</TABLE>
In addition to the net postretirement benefit expense, the corporation
recognized net curtailment gains in fiscal 1995 and 1994 of $.7 million and
$.6 million, respectively, related to employee terminations due to
personnel reductions as part of the corporation's restructuring, plant
closures and discontinued operations. These net gains increased the
restructuring, factory closure and discontinued operations reserves
originally established in fiscal 1995 and 1993.
In the fourth quarter of 1993, the corporation terminated postretirement
health care 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>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Projected health care
cost trend rate (A) 7.50% 8.75% 9.00%
Ultimate trend rate (A) 5.00% 5.75% 5.00%
Year ultimate trend rate
is achieved 2001 2001 2001
Effect of a 1% point increase in the
health care cost trend rate on the
postretirement benefit obligation $ 132 $ 193 $ 309
Effect of a 1% point increase in the
health care cost trend rate on the
aggregate of service and
interest cost $ 26 $ 34 $ 84
Discount rate 7.00% 8.75% 7.25%
</TABLE>
(A) The health care cost trend rate assumption has a significant effect
on the amounts reported. Rates listed above represent assumed increases in
per capita cost of covered health care benefits for 1995, 1994 and 1993,
respectively. For future years the rate was assumed to decrease gradually
and remain at the ultimate trend rate thereafter.
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 ($18.6) million, $46.5 million, and ($29.1) million
in 1995, 1994, and 1993, respectively, and Foreign earnings before taxes of
$13.9 million, $13.5 million, and $13.9 million in 1995, 1994, and 1993,
respectively.
The components of income tax (income) expense are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Federal
Currently payable $(7,220) $(8,389) $ 2,777
Deferred (2,485) 29,732 (14,215)
------- ------- --------
(9,705) 21,343 (11,438)
State (399) 355 3,390
Foreign 4,681 4,707 2,167
------- ------- --------
Total income tax expense (benefit)
on earnings (loss) from continuing
operations before cumulative
effect of accounting changes (5,423) 26,405 (5,881)
Tax benefit of cumulative effect
of accounting changes -- -- (1,192)
Tax expense (benefit) of
discontinued operations:
Results of operations -- 368 1,955
(Provision) credit for disposal 1,400 2,450 (10,454)
------- ------- --------
Total income tax
expense (benefit) $(4,023) $29,223 $(15,572)
======= ======= ========
</TABLE>
The corporation received income tax refunds, net of payments, of $9.8
million and $1.2 million in fiscal 1995 and 1994. Cash payments of income
taxes for fiscal 1993 were $12.9 million.
27
<PAGE> 30
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% are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income taxes at
statutory rate $(1,654) $20,990 $(5,312)
State income taxes, net
of federal tax benefit (259) 231 2,203
Foreign tax in excess of
(less than) domestic rate 337 55 (2,056)
Effect of revaluation of net
deferred tax assets due to 1993
increase in federal tax rate
from 34% to 35% -- -- (422)
Provision for (recovery of)
tax assessment (A) (5,837) 5,837 --
Valuation of temporary
differences 2,700 -- --
Other (710) (708) (294)
------- ------- -------
$(5,423) $26,405 $(5,881)
======= ======= =======
</TABLE>
(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, this judgment was reversed by an
Appeals Court ruling in fiscal 1995. The IRS has appealed the most recent
ruling, but the corporation believes it will prevail.
Significant components of the corporation's deferred income tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets
Employee benefits, compensation,
and insurance $ 8,667 $ 8,589
Allowance for doubtful accounts 3,818 3,484
Inventory capitalization and
inventory reserves 4,456 1,940
Discontinued operations, restructuring,
and store closing reserves 3,511 6,669
Postretirement and postemployment
benefit plans 5,581 5,991
Tax loss carryforward 14,037 8,631
Other 8,840 6,856
------- -------
Total deferred tax assets 48,910 42,160
</TABLE>
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax liabilities
Excess depreciation (7,347) (9,633)
Retirement plans (11,626) (11,481)
LIFO inventory valuation (7,753) (8,807)
Other (2,956) (1,623)
-------- --------
Total deferred tax liabilities (29,682) (31,544)
Valuation allowance (3,300) --
-------- --------
Net deferred income tax asset $ 15,928 $ 10,616
======== ========
</TABLE>
The corporation provided a deferred tax asset valuation allowance of $2.7
million in fiscal 1995, bringing the total valuation reserve balance to
$3.3 million. The valuation provision in fiscal 1995 was the result of
decreased domestic earnings of the corporation. Based on management's
assessment, it is more likely than not that all the net deferred tax assets
will be realized through future taxable earnings or alternative tax
strategies.
At February 3, 1996, the corporation has net operating loss carryforwards
for federal income tax purposes of $40.1 million which are available to
offset future federal taxable income through fiscal 2010.
As of February 3, 1996, there are approximately $37.0 million of
accumulated unremitted earnings from the corporation's Canadian subsidiary
and approximately $62.0 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 $21.0 million would be due.
NOTE 6: BUSINESS SEGMENT INFORMATION
- ------------------------------------
The corporation operates in the Footwear industry throughout the world.
Operations include the sourcing, wholesale distribution, and retailing of
women's, men's and children's foot-wear. In 1995, approximately 62% of the
corporation's sales were at retail, compared to 54% in 1994 and 52% in
1993.
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 (in thousands):
28
<PAGE> 31
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
United States $1,065,143 $1,030,315 $ 965,423
Far East 282,580 310,902 291,106
Canada 69,244 67,225 66,107
Latin America, Europe
and Other 78,697 90,417 71,082
Inter-Area Transfers (39,768) (37,222) (32,679)
---------- ---------- ----------
$1,455,896 $1,461,637 $1,361,039
========== ========== ==========
Operating Income
United States (A)(B) $ 8,741 $ 64,472 $ (1,283)
Far East 748 5,972 9,992
Canada 6,358 6,565 3,330
Latin America, Europe
and Other 8,251 1,621 1,516
Less corporate, interest
and other (expense) (28,824) (18,659) (28,732)
---------- ---------- ----------
$ (4,726) $ 59,971 $ (15,177)
========== ========== ==========
Identifiable Assets
United States $ 511,435 $ 504,026 $ 607,138
Far East 55,754 59,660 70,097
Canada 45,674 41,909 39,487
Latin America, Europe
and Other 48,193 30,920 23,208
---------- ---------- ----------
$ 661,056 $ 636,515 $ 739,930
========== ========== ==========
</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.
(A) 1995 includes a charge of $14.1 million for the costs of closing the
remaining five Brown Shoe Company domestic manufacturing plants, partially
offset by a LIFO recovery of $10.1 million from the liquidation of related
inventories.
(B) 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.
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>
February 3, January 28,
1996 1995
----------- -----------
<S> <C> <C>
Finished goods $329,184 $298,235
Work-in-progress 1,843 4,193
Raw materials and supplies 11,255 19,601
-------- --------
$342,282 $322,029
======== ========
</TABLE>
If the first-in, first-out (FIFO) cost method had been used, inventories
would have been $27.7 million and $37.3 million higher at February 3, 1996
and January 28, 1995, respectively.
During fiscal 1995 and 1994, certain inventories were reduced at Brown Shoe
Company and other 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 1995 and 1994 net income by $6.6 and $6.7 million, respectively.
NOTE 8: PROPERTY AND EQUIPMENT
- ------------------------------
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
----------- -----------
<S> <C> <C>
Land and buildings $ 29,721 $ 35,528
Leasehold improvements 41,903 35,829
Furniture, fixtures, and equipment 119,833 131,870
--------- ---------
191,457 203,227
Allowances for depreciation
and amortization (103,737) (110,323)
--------- ---------
$ 87,720 $ 92,904
========= =========
</TABLE>
In fiscal 1995, the corporation adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. An evaluation of the fair value of the
assets associated with the corporation's retail store operations resulted
in the determination that certain store assets were impaired. The impaired
assets were written down by $2.1 million. Fair value was based on estimated
future cash flows to be generated by these retail stores, discounted at a
market rate of interest. This writedown is included in the "Other Expense
(Income)" amount for fiscal 1995 on the Statement of Consolidated Earnings.
Due to the large number of new retail stores opened by the corporation in
the last several years, it is possible that the estimate of undiscounted
cash flows may change as these stores mature, potentially resulting in the
need to write-down those assets to fair value.
29
<PAGE> 32
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>
February 3, January 28,
1996 1995
----------- -----------
<S> <C> <C>
7.36% Sinking Fund Debentures,
payments of $10,000 due
annually beginning 1999 $ 50,000 $ --
8.45%-8.6% Debentures due 1999 15,000 15,000
7.07%-8.83% Debentures due 2002 19,990 19,988
7.125% Debentures due 2003 15,000 15,000
7.375% Sinking Fund Debentures,
payments of $2,000 due
annually to 1998 1,999 3,997
Capitalized lease obligations 3,481 3,479
Commercial paper -- 25,000
6.47% Senior notes due 1996 -- 50,000
Other -- 749
-------- --------
$105,470 $133,213
======== ========
</TABLE>
Maturities of long-term debt and capitalized lease obligations for 1996
through 2000 are: 1996--$2.0 million; 1997--$2.0 million; 1998--$0;
1999--$25.0 million; and 2000--$10.0 million.
In 1995, the corporation refinanced $50.0 million of 6.47% unsecured Senior
notes due in February 1996 with $50.0 million of 7.36% unsecured Senior
notes. The agreement requires annual payments of $10.0 million beginning in
1999.
Additionally in 1995, the corporation amended certain terms of its $200.0
million revolving bank Credit Agreement, which will now expire in December
1999. Interest on borrowings under this agreement is at varying rates and
at the corporation's option, based on one of the following: the Eurodollar
rate, the competitive bid rate, the First National Bank of Chicago's
corporate base rate or the Federal funds rate. A commitment fee of .25% is
payable on the unused portion of the agreement.
The Senior notes and Credit Agreement contain covenants which, among other
things, require the maintenance of certain financial ratios related to
fixed charge coverage and long-term debt-to-capital, establish minimum
levels of net worth and working capital, and limit the sale of assets and
the level of liens and certain investments.
The corporation maintains short-term lines of credit (including the
revolving bank Credit Agreement) which total approximately $207.8 million
at February 3, 1996. The maximum amount of short-term borrowings (under
these arrangements and in the form of commercial paper) at the end of any
month was $121.5 million in 1995 and $190.3 million in 1994. The average
short-term borrowings during the year were $92.4 million in 1995 and $130.5
million in 1994. The weighted average interest rates approximated 7.0% and
4.5% in 1995 and 1994, respectively.
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
81/8% on a notional amount of $75.0 million and is receiving a fixed rate
of 6.47% on a notional amount of $50.0 million and a floating rate based on
LIBOR on the remaining notional amount of $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, which
expires in April 1996.
Cash payments of interest for fiscal 1995, 1994, and 1993 were $16.0
million, $15.8 million, and $18.4 million, respectively.
NOTE 10: LEASES
- ---------------
The corporation leases substantially all of its retail locations and
certain other equipment and facilities. More than half 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>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Minimum payments $77,814 $67,199 $63,644
Contingent payments 3,303 2,871 2,194
------- ------- -------
$81,117 $70,070 $65,838
======= ======= =======
</TABLE>
Future minimum payments under noncancelable operating leases with an
initial term of one year or more were as follows at February 3, 1996 (in
thousands):
<TABLE>
<CAPTION>
Operating
Leases
- --------------------------------------------------------------------------
<S> <C>
1996 $ 83,091
1997 76,049
1998 63,707
1999 50,241
2000 35,598
Thereafter 116,120
--------
Total minimum lease payments $424,806
========
</TABLE>
The corporation is contingently liable for lease commitments of
approximately $77.9 million which primarily relate to the Cloth World and
Meis specialty retailing chains which were sold.
30
<PAGE> 33
NOTE 11: FINANCIAL INSTRUMENTS
- ------------------------------
The corporation utilizes derivative financial instruments only to reduce
its exposure to market risks from changes in interest rates and foreign
exchange rates. The instruments primarily used 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 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 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 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 through the use of non-deliverable foreign exchange contracts.
The United States dollar equivalent of contractual amounts of the
corporation's forward exchange contracts consist of the following (in
thousands):
<TABLE>
<CAPTION
February 3, January 28,
1996 1995
----------- -----------
<S> <C> <C>
Deliverable Contracts
Italian Lira $12,600 $10,500
French Francs 8,600 2,000
Canadian Dollars 4,400 2,600
Other Currencies 2,000 2,600
Non-Deliverable Contracts
New Taiwanese Dollars 6,900 --
Brazilian Real 4,900 --
Other Currencies 1,500 --
------- -------
$40,900 $17,700
======= =======
</TABLE>
The unrealized gains related to these contracts, based on dealer-quoted
prices, were $535,000 at February 3, 1996 and $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.
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 entitled 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 exceeds 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, was not material. Amounts received under these options
are recognized as adjustments to interest expense over the life of the
related debt. At February 3, 1996, the corporation held no interest rate
futures or options.
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 interest cost of $75 million of long-term debt.
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The carrying amounts and fair values of the company's financial instruments
at February 3, 1996 and January 28, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Liabilities
Long-Term Debt $107,470 $109,626 $135,276 $132,374
Interest Rate Swap 202 635 1,272 1,491
</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> 34
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 valuations 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
department stores, mass merchandisers, and independent retailers across the
United States, Canada, and throughout the world. Receivables arising from
these sales are not collateralized, however, a portion are covered by
documentary letters of credit. 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. The corporation has completed remediation
efforts at its closed New York tannery and two associated landfills. As
such, in September 1995, state environmental authorities reclassified the
status of the site to one that has been properly closed and that requires
only continued maintenance and monitoring. This change in status has
allowed the corporation to reliably estimate the future liability for
monitoring and maintenance, which is required over the next 28 years, based
on a specific site plan. Accordingly, in the third quarter of 1995, the
estimated liability of $5.3 million related to this site was discounted,
using a 6.4% rate, resulting in a $2.0 million reduction in the previously
recorded liability of $4.7 million. This increase in earnings was included
in "Other Expense (Income)" on the Consolidated Statements of Earnings.
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 expected payments for the next five years are approximately $.2 million
per year with the balance due thereafter.
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 began in 1995. In addition,
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. The expected remaining costs related to the
owned, but leased, factory and the various landfills total $.8 - $1.0
million. At February 3, 1996, the total accrued environmental liabilities
for all sites, including the above discounted liability, total $3.1
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 February 3, 1996 and January 28,
1995, there were 17,930,977 shares and 17,969,892 shares, net of 4,074,920
shares and 4,036,005 shares held in treasury, outstanding, respectively.
The stock is listed and traded on the New York and Chicago Stock Exchanges
(symbol BG). There were approximately 6,000 shareholders of record at March
1, 1996.
In March 1996, the corporation replaced its previous Shareholder Rights
Plan, which had expired, with a comparable plan. Under the plan, each
outstanding share of the corporation's common stock carries one Common
Stock Purchase Right. The rights may only become exercisable under certain
circumstances involving acquisition of the corporation's common stock by a
person or group of persons without the prior written consent of the
corporation. Depending on the circumstances, if the rights become
exercisable, the holder may be entitled to purchase shares of the
corporation's common stock or shares of common stock of the acquiring
person at discounted prices. The rights will expire on March 18, 2006
unless they are earlier exercised, redeemed or exchanged.
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> 35
Options for 427,797 and 575,560 shares were exercisable as of February 3,
1996 and January 28, 1995, respectively, at prices ranging from $23 to $39.
Under the plan 42,950 and 484,500 additional shares of common stock were
available to be granted in the form of options or restricted stock as of
February 3, 1996 and January 28, 1995, respectively.
The following summary sets forth the activity for the three years ended
February 3, 1996:
<TABLE>
<CAPTION>
Number of
------------------------
Option Appreciation Grant
Shares Units Prices
------ ------------ ------
<S> <C> <C> <C>
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
Granted 413,000 30,158 14 to 24
Exercised (18,225) -- 23 to 26
Terminated (154,663) (3,059) 23 to 39
--------- -------
Outstanding
February 3, 1996 873,422 67,696 $14 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 forfeited exceeded net grants by 36,875 shares in 1995.
Net shares granted in 1994 and 1993 were 168,000 and 132,500, respectively.
NOTE 17: SUPPLEMENTARY INFORMATION
- ----------------------------------
Balance Sheet
- -------------
Cash equivalents of $22.3 million and $17.4 million at February 3, 1996 and
January 28, 1995, respectively, are stated at cost which approximates fair
value.
Statement of Consolidated Earnings
- ----------------------------------
Advertising costs totaled $51.8 million, $44.2 million, and $42.6 million
in 1995, 1994, and 1993, respectively.
Other expense (income) consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Interest income $(1,762) $ (1,521) $(1,499)
Restructuring charges 3,600 -- 21,400
Royalty income (2,996) (3,003) (2,711)
Countervailing duty -- (9,819) --
Other, net 2,788 2,023 4,001
------- -------- -------
Total $ 1,630 $(12,320) $21,191
======= ======== =======
</TABLE>
33
<PAGE> 36
- -------------------------------
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. 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 of ensuring open communication
within the corporation; potential conflicts of interest; compliance with
all domestic and foreign laws, including those relating to financial
disclosure; and the confidentiality of proprietary information. The
corporation maintains a systematic program to assess compliance with these
policies. The results of this compliance program are discussed with the
Audit Committee.
/s/ B. A. Bridgewater, Jr. /s/ Harry E. Rich
- -------------------------- -----------------
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 February 3, 1996 and January 28, 1995, and the related
statements of consolidated earnings, shareholders' equity, and cash flows
for each of the three years in the period ended February 3, 1996. 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 February 3, 1996 and January 28, 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended February 3, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 8 to the consolidated financial statements, in 1995
the company changed its method of accounting for the impairment of
long-lived assets and in 1993, as discussed in Note 4, changed its method
of accounting for postemployment benefits.
/s/ Ernst & Young, LLP
- ----------------------
St. Louis, Missouri
March 6, 1996
34
<PAGE> 37
- -----------------------------------
SUPPLEMENTARY FINANCIAL INFORMATION
- -----------------------------------
Selected Quarterly Information (unaudited)
- ------------------------------
Following is a summary of selected quarterly information (in thousands,
except per share) for fiscal years ended February 3, 1996, and January 28,
1995.
<TABLE>
<CAPTION>
Quarters
----------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
(13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks)
<S> <C> <C> <C> <C>
1995
Net Sales $357,442 $342,861 $406,921 $348,672
Gross Profit 120,195 116,509 144,009 126,258
Earnings (Loss) From:
Continuing Operations (4,411) (8,381) 9,715 3,774
Discontinued Operations -- -- -- 2,600
Net Earnings (Loss) (4,411) (8,381) 9,715 6,374
Per Share of Common Stock:
Earnings (Loss) From
Continuing Operations $ (.25) $ (.48) $ .55 $ .21
Net Earnings (Loss) (.25) (.48) .55 .36
Dividends Paid .40 .40 .25 .25
Market Value:
High 33 1/4 26 7/8 25 1/4 15 5/8
Low 27 3/4 21 3/4 13 3/4 12 3/4
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
1994
Net Sales $369,488 $353,000 $406,934 $332,215
Gross Profit 127,460 123,801 139,512 121,490
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
</TABLE>
Note 1: 1995 results from continuing operations include a net aftertax
charge of $2.6 million for factory closings partially offset by a LIFO
credit related to the liquidation of manufacturing inventories. The net
effect on the quarterly results of fiscal 1995 is an aftertax charge of
$7.2 million in the second quarter and aftertax credits of $3.2 million and
$1.4 million in the third and fourth quarters, respectively.
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, 1995, the corporation renewed,
for a one-year term, policies of directors' and officers' liability
insurance from Federal Insurance Company, a member of the Chubb Insurance
Group, and National Union Fire Insurance Company of Pittsburgh,
Pennsylvania. These policies cover 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 $158,200. To date, no
claims have been paid under any policy of directors' and officers'
liability insurance.
35
<PAGE> 38
- -------------------------------------------
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 Peters MacCarthy
Retired Chairman of the Board and Chief Executive Officer, Boatmen's Trust
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
Ronald N. Durchfort
President, Pagoda International
Ronald A. Fromm
Executive Vice President, Famous Footwear
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
David H. Schwartz
President, Pagoda Trading
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> 39
- --------------------
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
Internet Address
- ----------------
http://www.browngroup.com
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 23, 1996
Brown Group, Inc.
Corporate Headquarters
8300 Maryland Avenue
St. Louis, Missouri
News releases
- -------------
As a service to our shareholders and prospective investors, copies of Brown
Group, Inc.'s recent news releases can be transmitted at no charge via fax
by calling "Company News On Call" at 1-800-758-5804 ext. 109435. This
electronic, menu-driven system, a service of PR Newswire, allows callers to
receive specific Brown Group, Inc. financial news releases within minutes
of request.
Stock Listed
- ------------
Brown Group stock is listed on the New York Stock Exchange and the 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
- -------------------
11,000
Brown Group, Inc. is an equal opportunity employer.
Printed on recycled paper with soy inks.
37
<PAGE> 40
Brown Group Inc.
8300 Maryland Avenue
Post Office Box 29
St. Louis, Missouri 63166-0029
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
BROWN GROUP, INC.
FEBRUARY 3, 1996
State or Country
Name of Incorporation
---- ----------------
Brown California, Inc. California
Brown Cayman Ltd. Cayman Islands
Brown Group Dublin Limited Ireland
Brown Group International Calcados, Ltda. Brazil
Brown Group International, Inc. Delaware
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
LCS International B.V. Netherlands
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 Leather Limited Hong Kong
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>
Exhibit 21
Subsidiaries of the Registrant (Continued)
Naturalizer Retail does business under the following names:
Naturalizer
Naturalizer Outlet
Naturalizer Plus
Famous Footwear does business under the following names:
Air Step/Buster Brown
Brown Shoe Company Outlet
Factory Brand Shoes
Famous Footwear
Fashion Footwear
Jack Somers
Supermarket of Shoes
Brown Group, Inc. does business under the following names:
Brown Shoe Company
Scholze Tannery<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 6, 1996, included in
the 1995 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; (c) Registration Statement Form S-8 Number 33-58751 dated April
21, 1995 pertaining to the Employee Stock Option and Restricted Stock Plan
of 1994; and (d) Registration Statement Form S-3 Number 33-21477 dated
April 26, 1988 and related Prospectus of our report dated March 6, 1996,
with respect to the consolidated financial statements of Brown Group, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year
ended February 3, 1996.
St. Louis, Missouri Ernst & Young LLP /s/
April 18, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000014707
<NAME> BROWN GROUP, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 35,058
<SECURITIES> 0
<RECEIVABLES> 97,684
<ALLOWANCES> (11,267)
<INVENTORY> 342,282
<CURRENT-ASSETS> 505,338
<PP&E> 191,457
<DEPRECIATION> (103,737)
<TOTAL-ASSETS> 661,056
<CURRENT-LIABILITIES> 295,939
<BONDS> 105,470
0
0
<COMMON> 67,242
<OTHER-SE> 164,394
<TOTAL-LIABILITY-AND-EQUITY> 661,056
<SALES> 1,455,896
<TOTAL-REVENUES> 1,455,896
<CGS> 948,925
<TOTAL-COSTS> 1,443,023
<OTHER-EXPENSES> 1,630
<LOSS-PROVISION> 5,101
<INTEREST-EXPENSE> 15,969
<INCOME-PRETAX> (4,726)
<INCOME-TAX> 5,423
<INCOME-CONTINUING> 697
<DISCONTINUED> 2,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,297
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
