UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended May 2, 1998
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
____________
Commission file number 1-2191
____________
BROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 43-0197190
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8300 Maryland Avenue
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
As of May 30, 1998, 18,049,727 shares of the registrant's common stock were
outstanding.
<PAGE>
BROWN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
(Unaudited)
--------------------
May 2, May 3, January 31,
1998 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 36,602 $ 28,168 $ 50,136
Receivables, net of allowances of
$10,505 at May 2, 1998,
$10,107 at May 3, 1997, and
$9,925 at January 31, 1998 71,259 87,312 77,355
Inventories, net of adjustment to
last-in, first-out cost of
$15,199 at May 2, 1998,
$17,578 at May 3, 1997, and
$15,617 at January 31, 1998 370,438 401,123 380,177
Other Current Assets 30,300 39,257 30,862
--------- --------- ---------
Total Current Assets 508,599 555,860 538,530
Property and Equipment 213,452 205,886 212,330
Less allowances for depreciation
and amortization (133,086) (121,660) (129,586)
--------- --------- ---------
80,366 84,226 82,744
Other Assets 74,574 71,784 73,714
--------- --------- ---------
$ 663,539 $ 711,870 $ 694,988
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 30,000 $ 53,000 $ 54,000
Accounts Payable 118,155 122,431 118,907
Accrued Expenses 82,232 74,417 93,191
Income Taxes 13,603 5,891 11,995
Current Maturities of Long-Term Debt 15,000 2,000 -
--------- --------- ---------
Total Current Liabilities 258,990 257,739 278,093
Long-Term Debt and Capitalized
Lease Obligations 182,028 197,025 197,027
Other Liabilities 20,388 24,490 20,678
Shareholders' Equity
Common Stock 67,685 67,612 67,685
Additional Capital 46,945 47,047 47,036
Cumulative Translation Adjustment (8,024) (6,514) (8,427)
Unamortized Value of Restricted Stock (3,799) (6,037) (4,358)
Retained Earnings 99,326 130,508 97,254
--------- --------- ---------
202,133 232,616 199,190
$ 663,539 $ 711,870 $ 694,988
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------
May 2, May 3,
1998 1997
-------- --------
<S> <C> <C>
Net Sales $402,309 $391,815
Cost of Goods Sold 246,985 245,982
-------- --------
Gross Profit 155,324 145,833
-------- --------
Selling and Administrative Expenses 142,782 138,007
Interest Expense 5,632 5,765
Other Income (48) (436)
-------- --------
Earnings Before Income Taxes 6,958 2,497
Income Tax Provision 3,087 955
-------- --------
NET EARNINGS $ 3,871 $ 1,542
======== ========
BASIC EARNINGS PER COMMON SHARE $ .22 $ .09
======== ========
DILUTED EARNINGS PER COMMON SHARE $ .22 $ .09
======== ========
DIVIDENDS PER COMMON SHARE $ .10 $ .25
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
BROWN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
May 2, May 3,
1998 1997
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 15,772 $ 7,066
Investing Activities:
Capital expenditures (3,502) (4,395)
Other - 318
--------- ---------
Net Cash Used by Investing Activities (3,502) (4,077)
Financing Activities:
Decrease in short-term notes payable (24,000) (9,000)
Dividends paid (1,804) (4,507)
--------- ---------
Net Cash Used by Financing Activities (25,804) (13,507)
--------- ---------
Decrease in Cash and Cash Equivalents (13,534) (10,518)
Cash and Cash Equivalents at Beginning of Period 50,136 38,686
--------- ---------
Cash and Cash Equivalents at End of Period $ 36,602 $ 28,168
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
BROWN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
------------------------------
The accompanying condensed consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and reflect all adjustments
which management believes necessary (which include only normal recurring
accruals and the effect on LIFO inventory valuation of estimated annual
inflationary cost increases and year-end inventory levels) to present fairly
the results of operations. These statements, however, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flow in conformity with generally
accepted accounting principles.
The Company's business is subject to seasonal influences, and interim results
may not necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole.
For further information refer to the consolidated financial statements and
footnotes included in the Company's Annual Report and Form 10-K for the period
ended January 31, 1998.
Note B - Earnings Per Share
---------------------------
The following table sets forth the computation of basic and diluted earnings
per share for the thirteen weeks ended (000's, except per share data):
May 2, May 3,
1998 1997
--------- ---------
Numerator:
Net earnings - Basic and Diluted $ 3,871 $ 1,542
========= =========
Denominator:
Weighted average shares outstanding-Basic 17,625 17,566
Effect of potentially dilutive securities 261 211
--------- ---------
Weighted average shares outstanding-Diluted 17,886 17,777
========= =========
Basic earnings per share $ .22 $ .09
========= =========
Diluted earnings per share $ .22 $ .09
========= =========
<PAGE>
Note C - Comprehensive Income
-----------------------------
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
which established standards for the reporting and display of comprehensive
income and its components. Comprehensive Income represents the change in
Shareholders' Equity during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity except
those resulting from investments by owners and distributions to owners.
Comprehensive income (loss) totaled $4,274,000 and $(539,000) for the thirteen
week periods ended May 2, 1998 and May 3, 1997, respectively. The foreign
currency translation adjustment for the applicable periods, which represents
the only difference between net income and comprehensive income for the
Company, amounted to a gain of $403,000 in the first quarter of 1998 and a loss
of $(2,081,000) in the first quarter of 1997.
Note D - Computer Software Costs
--------------------------------
Effective February 1, 1998, the Company elected to adopt AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1), which requires the capitalization of
certain costs, including internal payroll costs, incurred in connection with
the development or acquisition of software for internal use. The adoption of
this standard resulted in an increase in net earnings of $360,000 or $0.02 per
diluted share for the thirteen weeks ended May 2, 1998. No restatement of
prior year results was allowed or required.
Note E - Pagoda International Restructuring Reserve
---------------------------------------------------
In the first quarter of fiscal 1998, the Company utilized approximately $1.8
million of the $31.0 million initial restructuring reserve primarily to cover
inventory markdowns as inventory continues to be liquidated. It is expected
that the remaining reserve of $27.6 million will be utilized primarily in
fiscal 1998.
Note F - Condensed Consolidated Financial Information
-----------------------------------------------------
Certain of the Company's debt is unconditionally and jointly and severally
guaranteed by certain wholly-owned domestic subsidiaries of the Company.
Accordingly, condensed consolidating balance sheets as of May 2, 1998 and May
3, 1997, and the related condensed consolidating statements of earnings and
cash flows for the quarters ended May 2, 1998 and May 3, 1997, are provided.
These condensed consolidating financial statements have been prepared using the
equity method of accounting in accordance with the requirements for
presentation of such information. Management believes that this information,
presented in lieu of complete financial statements for each of the guarantor
subsidiaries, provides meaningful information to allow investors to determine
the nature of the assets held by, and the operations and cash flows of, each
of the consolidating groups.
<PAGE>
Condensed Consolidating Balance Sheet
As of May 2, 1998
(Thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
- ------
Current Assets
Cash and cash equivalents . . $ 1,075 $ 9,580 $ 30,947 $ (5,000) $ 36,602
Receivables, net. . . . . . . 28,440 12,696 30,123 - 71,259
Inventory, net. . . . . . . . 49,212 307,778 26,815 (13,367) 370,438
Other current assets. . . . . (424) 16,179 9,867 4,678 30,300
--------- --------- --------- --------- ---------
Total Current Assets . . . . 78,303 346,233 97,752 (13,689) 508,599
Property and Equipment, net. . . 16,659 56,515 7,192 - 80,366
Other Assets . . . . . . . . . . 45,812 16,698 12,176 (112) 74,574
Investment in Subsidiaries . . . 237,428 32,711 3,811 (273,950) -
--------- --------- --------- --------- ---------
Total Assets . . . . . . . . $ 378,202 $ 452,157 $ 120,931 $(287,751) $ 663,539
========= ========= ========= ========= =========
Liabilities & Shareholders' Equity
- ----------------------------------
Current Liabilities
Notes payable . . . . . . . . $ 30,000 $ - $ - $ - $ 30,000
Accounts payable. . . . . . . 7,252 90,614 20,289 - 118,155
Accrued expenses. . . . . . . 19,897 46,394 18,755 (2,814) 82,232
Income taxes. . . . . . . . . 1,125 16,426 (4,489) 541 13,603
Current maturities of
long-term debt . . . . . . . 15,000 - - - 15,000
--------- --------- --------- --------- ---------
Total Current Liabilities 73,274 153,434 34,555 (2,273) 258,990
Long-Term Debt and Capitalized
Lease Obligations. . . . . . 182,028 - 39 (39) 182,028
Other Liabilities. . . . . . . . 19,923 125 409 (69) 20,388
Intercompany Payable (Receivable) (99,156) 81,959 23,481 (6,284) -
Shareholders' Equity . . . . . . 202,133 216,639 62,447 (279,086) 202,133
--------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity . $ 378,202 $ 452,157 $ 120,931 $(287,751) $ 663,539
========= ========= ========= ========= =========
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTEEN WEEKS ENDED MAY 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales. . . . . . . . . . . . $ 71,847 $ 305,727 $ 97,370 $ (72,635) $ 402,309
Cost of goods sold . . . . . . . 52,056 187,471 80,093 (72,635) 246,985
--------- --------- --------- --------- ---------
Gross profit. . . . . . . . . 19,791 118,256 17,277 - 155,324
Selling and administrative
expenses. . . . . . . . . . . 20,273 108,061 14,921 (473) 142,782
Interest expense . . . . . . . . 5,571 5 56 - 5,632
Intercompany interest
(income) expense. . . . . . . (3,830) 3,806 24 - -
Other (income) expense . . . . . (1,549) 7 1,021 473 (48)
Equity in (earnings)
of subsidiaries . . . . . . . (3,969) (305) - 4,274 -
--------- --------- --------- --------- ---------
Earnings (Loss) Before
Income Taxes . . . . . . . . 3,295 6,682 1,255 (4,274) 6,958
Income tax provision (benefit) . (576) 2,713 950 - 3,087
--------- --------- --------- --------- ---------
Net Earnings (Loss) . . . . . $ 3,871 $ 3,969 $ 305 $ (4,274) $ 3,871
========= ========= ========= ======== =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTEEN WEEKS ENDED MAY 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by
Operating Activities . . . . $ 13,436 $ 15,704 $ (11,418) $ (1,950) $ 15,772
Investing Activities:
Capital expenditures . . . . (143) (2,513) (846) - (3,502)
Other . . . . . . . . . . . . - - - - -
--------- --------- --------- --------- ---------
Net Cash Used by
Investing Activities. . . . . (143) (2,513) (846) - (3,502)
Financing Activities:
Decrease in short-term
notes payable. . . . . . . (24,000) - - - (24,000)
Dividends paid. . . . . . . . (1,804) - - - (1,804)
Intercompany financing. . . . 12,138 (10,454) 1,326 (3,010) -
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by
Financing Activities. . . . . (13,666) (10,454) 1,326 (3,010) (25,804)
Increase (Decrease) in Cash and
Cash Equivalents. . . . . . . (373) 2,737 (10,938) (4,960) (13,534)
Cash and Cash Equivalents at
Beginning of Period . . . . . 1,448 6,843 41,885 (40) 50,136
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at
End of Period . . . . . . . . $ 1,075 $ 9,580 $ 30,947 $ (5,000) $ 36,602
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Condensed Consolidating Balance Sheet
As of May 3, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
- ------
Current Assets
Cash and cash equivalents . . $ 54 $ 4,330 $ 23,784 $ - $ 28,168
Receivables, net. . . . . . . 30,612 13,542 43,158 - 87,312
Inventory, net. . . . . . . . 61,367 306,179 47,495 (13,918) 401,123
Other current assets. . . . . 9,160 16,820 7,997 5,280 39,257
--------- --------- --------- --------- ---------
Total Current Assets . . . . 101,193 340,871 122,434 (8,638) 555,860
Property and Equipment, net. . . 17,617 58,789 7,820 - 84,226
Other Assets . . . . . . . . . . 42,557 16,307 13,167 (247) 71,784
Investment in Subsidiaries . . . 261,715 57,624 3,811 (323,150) -
--------- --------- --------- --------- ---------
Total Assets . . . . . . . . $ 423,082 $ 473,591 $ 147,232 $(332,035) $ 711,870
========= ========= ========= ========= =========
Liabilities & Shareholders' Equity
- ----------------------------------
Current Liabilities
Notes payable . . . . . . . . $ 53,000 $ - $ - $ - $ 53,000
Accounts payable. . . . . . . 5,906 88,195 28,330 - 122,431
Accrued expenses. . . . . . . 22,171 38,210 14,249 (213) 74,417
Income taxes. . . . . . . . . 1,159 4,539 280 (87) 5,891
Current maturities of
long-term debt . . . . . . . 2,000 - - - 2,000
--------- --------- --------- --------- ---------
Total Current Liabilities 84,236 130,944 42,859 (300) 257,739
Long-Term Debt and Capitalized
Lease Obligations. . . . . . 197,025 - 75 (75) 197,025
Other Liabilities. . . . . . . . 21,756 2,244 594 (104) 24,490
Intercompany Payable
(Receivable) . . . . . . . . . (112,551) 100,982 14,836 (3,267) -
Shareholders' Equity . . . . . . 232,616 239,421 88,868 (328,289) 232,616
--------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity . $ 423,082 $ 473,591 $ 147,232 $ (332,035) $ 711,870
========= ========= ========= ========== =========
</TABLE>
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTEEN WEEKS ENDED MAY 3, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales. . . . . . . . . . . . $ 65,425 $ 289,541 $ 102,597 $ (65,748) $ 391,815
Cost of goods sold . . . . . . . 48,286 180,478 83,004 (65,786) 245,982
--------- --------- --------- --------- ---------
Gross profit. . . . . . . . . 17,139 109,063 19,593 38 145,833
Selling and
administrative expenses . . . 20,075 100,402 17,902 (372) 138,007
Interest expense . . . . . . . . 5,709 - 56 - 5,765
Intercompany interest
(income) expense. . . . . . . (3,934) 3,933 1 - -
Other (income) expense . . . . . (977) 16 115 410 (436)
Equity in (earnings)
of subsidiaries . . . . . . . (4,133) (1,522) - 5,655 -
--------- --------- --------- --------- ---------
Earnings (Loss) Before
Income Taxes . . . . . . . . 399 6,234 1,519 (5,655) 2,497
Income tax provision (benefit) . (1,143) 2,101 (3) - 955
--------- --------- --------- --------- ---------
Net Earnings (Loss) . . . . . $ 1,542 $ 4,133 $ 1,522 $ (5,655) $ 1,542
========= ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTEEN WEEKS ENDED MAY 3, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by
Operating Activities. . . . . $ 9,423 $ 4,312 $ (13,541) $ 6,872 $ 7,066
Investing Activities:
Capital expenditures . . . . . (514) (3,372) (509) - (4,395)
Other. . . . . . . . . . . . . 318 - - - 318
--------- --------- --------- --------- ---------
Net Cash Used by
Investing Activities . . . . . (196) (3,372) (509) - (4,077)
Financing Activities:
Decrease in
short-term notes payable . . (9,000) - - - (9,000)
Dividends paid . . . . . . . . (4,507) - - - (4,507)
Intercompany financing . . . . 4,464 (2,920) 7,527 (9,071) -
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by
Financing Activities . . . . . (9,043) (2,920) 7,527 (9,071) (13,507)
Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . 184 (1,980) (6,523) (2,199) (10,518)
Cash and Cash Equivalents at
Beginning of Period. . . . . . (130) 6,310 30,307 2,199 38,686
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at
End of Period . . . . . . . . $ 54 $ 4,330 $ 23,784 $ - $ 28,168
========= ========= ========= ========= =========
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------
Results of Operations
---------------------
Quarter ended May 2, 1998 compared to the Quarter ended May 3, 1997
-------------------------------------------------------------------
Consolidated net sales for the fiscal quarter ended May 2, 1998 were $402.3
million compared to $391.8 million in the quarter ended May 3, 1997. Net
earnings of $3.9 million for the first quarter of 1998 compares to net earnings
of $1.5 million in the first quarter of 1997 as a result of higher sales and
gross profit margins.
First quarter 1998 sales from the footwear retailing operations increased 6.9%
from the first quarter of 1997. Famous Footwear's total sales of $212.3
million increased 6.2% from last year representing a same-store sales increase
of 3.8% and 9 more stores, reflecting a total of 812 stores in operation. The
Naturalizer Retail division's total sales increased 10.4% in the 1998 first
quarter to $34.2 million, reflecting an increase of 7.6% on a same-store basis
and 9 less stores in operation. The Canadian retailing operation's sales
increased 9.5%, which resulted from a same-store sales increase of 8.4% and 5
more stores in operation than in the first quarter of 1997.
Sales from footwear wholesaling businesses decreased 4.0% to $144.0 million
compared to $150.1 million in the first quarter of 1997. The sales decline
primarily relates to lower sales from the Pagoda International marketing
division as the Company continues to reduce its investment in that business.
However, Brown Shoe Company's wholesale divisions - Brown Branded Marketing and
Pagoda USA - achieved combined sales of $127.3 million, reflecting a 5.8%
increase from last year. The increase in sales was derived from the Women's
division of Pagoda USA, as well as sales gains in the NaturalSport and Life
Stride brands.
Gross profit as a percent of sales increased to 38.6% from 37.2% for the same
period last year. This increase was primarily due to higher margins at Famous
Footwear and a higher mix of retail sales, which historically earn higher
margins than wholesale sales.
Selling and administrative expenses as a percent of sales increased to 35.5%
from 35.2% for the same period last year. This increase was due to a higher
mix of retail sales versus wholesale sales.
The consolidated tax rate was 44.4% of consolidated pre-tax income for the
first quarter of 1998 compared to 38.2% in last year's quarter resulting from
no tax benefit being provided on higher operating losses at the Pagoda
International marketing division.
<PAGE>
Financial Condition
-------------------
A summary of key financial data and ratios at the dates indicated is as
follows:
May 2, May 3, January 31,
1998 1997 1998
------- ------ -----------
Working Capital (millions) $249.6 $298.1 $260.4
Current Ratio 2.0:1 2.2:1 1.9:1
Total Debt as a Percentage of
Total Capitalization 52.9% 52.0% 55.8%
Net Debt (Total Debt less Cash and
Cash Equivalents) as a Percentage
of Total Capitalization 48.5% 49.0% 50.2%
Cash flow from operating activities for the first quarter of fiscal 1998 was
a net generation of $15.8 million versus $7.1 million last year. In 1998's
first quarter, cash flow improved primarily as a result of lower accounts
receivable and continued improvement in inventory management.
The decline in the current ratio at May 2, 1998, compared to May 3, 1997, is
due primarily to the impact of the Pagoda International restructuring charges
and operating losses recorded in late fiscal 1997.
The decrease in the ratio of total debt as a percentage of total capitalization
at May 2, 1998, compared to the end of fiscal 1997, is due primarily to the
Company's lower level of short-term notes payable. At May 2, 1998, $30.0
million was borrowed and $12.5 million of letters of credit were outstanding
under the Company's $155 million revolving bank Credit Agreement.
Forward-Looking Statements
--------------------------
The preceding Management's Discussion and Analysis contains certain forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially. In Exhibit 99 to
the Company's fiscal 1997 Annual Report on Form 10-K, detailed factors that
could cause variations in results to occur are listed and discussed. Such
Exhibit is incorporated herein by reference.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings
--------------------------
There have been no material developments during the quarter ended May 2,
1998, in the legal proceedings described in the Corporation's Form 10-K for
the period ended January 31, 1998.
Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
At the Annual Meeting of Shareholders held on May 28, 1998, two proposals
described in the Notice of Annual Meeting of Shareholders dated April 24,
1998, were voted upon.
1. The shareholders elected three directors, Mrs. Julie C. Esrey, Mr.
Richard A. Liddy, and Mr. John Peters MacCarthy for terms of three
years each and Mr. B. A. Bridgewater, Jr. for a term of one year. The
voting for each director was as follows:
Directors For Withheld
----------------------- ---------- --------
B. A. Bridgewater, Jr. 15,040,768 482,342
Julie C. Esrey 15,093,605 429,505
Richard A. Liddy 15,096,246 426,864
John Peters MacCarthy 15,025,444 497,666
2. The proposal to ratify and approve the prior adoption by the Board of
Directors of the Brown Group, Inc. Stock Option and Restricted Stock
Plan of 1998 and the allocation of 750,000 of the Corporation's shares
thereto was approved by a vote of 13,640,169 in favor to 1,587,307
against, with 295,634 abstaining.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Listing of Exhibits
(3) (i) (a) Certificate of Incorporation of the
Corporation as amended through
February 16, 1984, incorporated
herein by reference to Exhibit 3 to
the Company's Report on Form 10-K for
the fiscal year ended November 1,
1986.
(i) (b) Amendment of Certificate of
Incorporation of the Corporation
filed February 20, 1987, incorporated
herein by reference to Exhibit 3 to
the Company's Report on Form 10-K for
the fiscal year ended January 30,
1988.
(ii) Bylaws of the Corporation as amended
through March 5, 1998, incorporated
herein by reference to Exhibit 3 to
the Company's Report on Form 10-K for
the fiscal year ended January 31,
1998.
(10) (d) Stock Option and Restricted Stock
Plan of 1998, incorporated herein by
reference to Exhibit 3 to the
Company's definitive proxy statement
dated April 24, 1998.
(10) (e) Employment Agreement, dated May 14,
1998, between the Company and Ronald
A. Fromm, filed herewith.
(27) Financial Data Schedule (Page 15)
(99.1) Discussion of Certain Risk Factors
That Could Affect the Company's
Operating Results as incorporated
herein by reference to the Company's
Report on Form 10-K for the fiscal
year ended January 31, 1998.
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K dated
February 5, 1998, which announced divisional retail sales
results for the four-week period, fourth quarter, and
fiscal year ended January 31, 1998. Brown Group, Inc.
also announced additional losses at its Pagoda
International division as well as disclosed the sale of
Famous Footwear's fixture manufacturing facilities and
the contract completion for sale of its Brazilian
Subsidiary's inventory.
The Company filed a current report on Form 8-K dated
March 5, 1998, which announced operating results for the
fiscal year ended January 31, 1998. Brown Group, Inc.
also announced additional losses at its Pagoda
International division which offset favorable results
from core operations.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROWN GROUP, INC.
Date: June 11, 1998 /s/ Harry E. Rich
--------------------------
Executive Vice President
and Chief Financial Officer and
On Behalf of the Corporation as
the Principal Financial Officer
<PAGE>
EXHIBIT 27
Exhibit 10.(e)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of
the 14th day of May, 1998, by and between BROWN GROUP, INC. ("Brown"), a New
York corporation, and RONALD A. FROMM (" Fromm").
WITNESSETH THAT:
WHEREAS, Fromm has been an employee of a subsidiary of Brown and served as
Executive Vice President, Famous Footwear;
WHEREAS, effective March 6, 1998, Fromm was appointed President of Brown
Shoe Company, a division of Brown, and elected as a Vice President of Brown;
WHEREAS, Fromm desires to continue to be employed by Brown and to serve as
President of Brown Shoe Company and as a Vice President of Brown;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, Brown and Fromm covenant and
agree as follows:
1. Employment. Fromm shall continue his current employment with Brown
and agrees to serve as President of Brown Shoe Company, a division of Brown,
and as a Vice President of Brown.
2. Compensation. Subject to the terms of this Agreement, in
consideration of Fromm's agreements contained herein, for the period beginning
May 1, 1998 and ending April 30, 2001, Fromm shall be paid base compensation at
an annual rate of no less than Four Hundred Fifty Thousand Dollars ($450,000).
Compensation shall be paid in approximately equal installments no less
frequently than monthly. If Fromm's employment with Brown is terminated by
Brown other than for Cause (as set forth in Section 7 below) prior to April 30,
2001, Fromm shall be paid by Brown, within 30 days of such termination, the
greater of (1) Thirty-seven Thousand Five Hundred Dollars ($37,500) multiplied
by the number of the full months remaining from the last day of the month
preceding the date of termination until May 1, 2001, less the amount, if any,
of any base compensation paid to Fromm for the month of termination prior to
the date of such termination, or (2) severance benefits payable at such time
under Brown's standard severance policy.
3. Incentive Payment. While serving as President of Brown Shoe Company,
Fromm shall be eligible to receive annually an incentive payment in accordance
with the annual incentive plan of Brown. A payment of no less than $180,000
for Brown's fiscal year ending January 30, 1999 shall be paid to Fromm in all
events, within sixty days after the end of such year if Fromm is employed by
Brown at the end of such year or, if not so employed, if Fromm's employment
has been terminated by Brown other than for Cause prior to the end of such year.
4. Stock Options. Brown shall grant to Fromm on May 28, 1998 an option to
acquire a substantial number of shares of the common stock of Brown under the
Brown Group, Inc. Stock Option and Restricted Stock Plan of 1998, if such Plan
is adopted by the shareholders of Brown on May 28, 1998.
5. Relocation Expenses. Fromm is relocating his residence from Windsor,
Wisconsin to St. Louis County, Missouri ("MO"). In accordance with the
corporate relocation policy as set forth in the Brown Policy and Control Manual
(01200) or as otherwise agreed between Brown and Fromm, within 30 days of the
date of submission by Fromm of the claim for reimbursement, Brown shall
reimburse Fromm for all reasonable expenses incurred by him in moving himself,
his wife and children to MO, including, but not limited to, (1) expenses
incurred for movement of all household goods and automobiles, (2) the cost of
transportation for Fromm, his wife and children to MO, (3) temporary living
expenses until Fromm moves his family to MO, and (4) $18,750 (one-half month's
base compensation). In addition, Brown shall purchase Fromm's home at 6665
Highland Drive, Windsor, Wisconsin and pay to Fromm for such home, no later
than July 1, 1998, the sum of $465,000 (Fromm's cost).
6. Other Benefits. If Fromm's employment with Brown is terminated by
Brown, other than for Cause, before April 30, 2001, Fromm shall continue, until
such date, to be entitled to all rights and benefits currently enjoyed by Fromm
as an employee of Brown, with such upward adjustments as are appropriate to
take into account his position of increased responsibility.
7. Termination for Cause. "Cause" shall mean conviction of Fromm of a
crime involving (1) moral turpitude, (2) fraud or (3) material dishonesty with
respect to the business of Brown.
8. Nonwaiver of Rights. The failure to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement,
or any part hereof, or the right of either party thereafter to enforce each
and every provision in accordance with the terms of this Agreement.
9. Invalidity of Provisions. In the event that any provision of this
Agreement is adjudicated to be invalid or unenforceable under applicable law,
the validity and enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Agreement is adjudicated to be
invalid or unenforceable because it is overbroad, that provision shall not be
void but rather shall be limited only to the extent required by applicable law
and enforced to the maximum extent allowed under such law.
10. Right to Terminate Employment. Brown, in accordance with its customary
practices, may terminate the employment of Fromm at any time provided, however,
Brown shall remain liable for payments of such amounts as are otherwise
provided for pursuant to this Agreement.
11. Assignment. This Agreement shall be freely assignable by Brown to any
person, firm, corporation or other entity which shall succeed, in whole or in
part, to the business presently operated by Brown and shall inure to the
benefit of, and be binding upon, Brown, its successors and assigns; but, being
a contract for personal services, neither this Agreement nor any rights
hereunder shall be assigned by Fromm.
12. Governing Law and Choice of Forum. This Agreement shall be interpreted
in accordance with and governed by the laws of the State of Missouri. Any
actions or proceedings arising out of or relating, directly or indirectly, to
this Agreement shall be filed and litigated exclusively in any state or federal
court located in the City or County of St. Louis.
13. Amendments. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless agreed to in writing by
the parties hereto.
14. Notices. Any notice to be given by either party hereunder shall be in
writing and shall be deemed to have been duly given if delivered or mailed,
certified or registered mail, postage prepaid, as follows:
To Brown: Brown Group, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63105
Attention: Vice President and General Counsel
To Fromm: Ronald A. Fromm
6665 Highland Drive
Windsor, Wisconsin 53598
or to such other address as may have been furnished to the other party by
written notice.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 14th day of May, 1998 in the County of St. Louis, State
of Missouri.
BROWN GROUP, INC.
By /s/ B. A. Bridgewater, Jr.
---------------------------------------
Chairman and Chief Executive Officer
RONALD A. FROMM
/s/ Ronald A. Fromm
------------------------------------------
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] JAN-30-1999
[PERIOD-END] MAY-02-1998
[CASH] 36,602
[SECURITIES] 0
[RECEIVABLES] 81,764
[ALLOWANCES] (10,505)
[INVENTORY] 370,438
[CURRENT-ASSETS] 508,599
[PP&E] 213,452
[DEPRECIATION] 133,086
[TOTAL-ASSETS] 663,539
[CURRENT-LIABILITIES] 258,990
[BONDS] 182,028
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 67,685
[OTHER-SE] 134,448
[TOTAL-LIABILITY-AND-EQUITY] 663,539
[SALES] 402,309
[TOTAL-REVENUES] 402,309
[CGS] 246,985
[TOTAL-COSTS] 389,767
[OTHER-EXPENSES] (48)
[LOSS-PROVISION] 674
[INTEREST-EXPENSE] 5,632
[INCOME-PRETAX] 6,958
[INCOME-TAX] 3,087
[INCOME-CONTINUING] 3,871
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,871
[EPS-PRIMARY] .22
[EPS-DILUTED] .22
</TABLE>
