UNITED STATES
SECURITIES 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 1, 1999
[ ] 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 SHOE COMPANY, 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)
BROWN GROUP, INC.
(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 29, 1999, 18,241,340 shares of the registrant's common
stock were outstanding.
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
(Unaudited)
------------------
May 1, May 2, January 30,
1999 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 26,926 $ 36,602 $ 45,532
Receivables, net of allowances of
$10,243 at May 1, 1999,
$10,505 at May 2, 1998, and
$9,820 at January 30, 1999 76,852 71,259 67,815
Inventories, net of adjustment to
last-in, first-out cost of
$13,097 at May 1, 1999,
$15,199 at May 2, 1998, and
$13,424 at January 30, 1999 389,181 370,438 362,274
Other Current Assets 21,936 30,300 21,762
--------- --------- ---------
Total Current Assets 514,895 508,599 497,383
Other Assets 77,229 74,574 75,671
Property and Equipment 224,810 213,452 217,054
Less allowances for depreciation
and amortization (140,048) (133,086) (134,876)
--------- --------- ---------
84,762 80,366 82,178
--------- --------- ---------
$ 676,886 $ 663,539 $ 655,232
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 28,000 $ 30,000 $ -
Accounts Payable 131,805 118,155 124,921
Accrued Expenses 82,501 82,232 90,081
Income Taxes 8,387 13,603 6,442
Current Maturities of Long-Term Debt 10,000 15,000 25,000
--------- --------- ---------
Total Current Liabilities 260,693 258,990 246,444
Long-Term Debt and Capitalized
Lease Obligations 172,031 182,028 172,031
Other Liabilities 20,354 20,388 19,583
Shareholders' Equity
Common Stock 68,266 67,685 68,131
Additional Capital 48,636 46,945 48,243
Unamortized Value of Restricted Stock (4,253) (3,799) (4,058)
Accumulated Other Comprehensive Loss (7,036) (8,024) (8,842)
Retained Earnings 118,195 99,326 113,700
--------- --------- ---------
223,808 202,133 217,174
--------- --------- ---------
$ 676,886 $ 663,539 $ 655,232
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
Net Sales $396,826 $402,309
Cost of Goods Sold 239,019 246,985
-------- --------
Gross Profit 157,807 155,324
-------- --------
Selling and Administrative Expenses 141,649 142,782
Interest Expense 4,683 5,632
Other (Income) Expense, Net 1,295 (48)
-------- --------
Earnings Before Income Taxes 10,180 6,958
Income Tax Provision 3,864 3,087
-------- --------
NET EARNINGS $ 6,316 $ 3,871
======== ========
BASIC EARNINGS PER COMMON SHARE $ .36 $ .22
======== ========
DILUTED EARNINGS PER COMMON SHARE $ .35 $ .22
======== ========
DIVIDENDS PER COMMON SHARE $ .10 $ .10
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
---------- ---------
<S> <C> <C>
Net Cash (Used) Provided by Operating Activities $ (21,708) $ 15,772
Investing Activities:
Capital expenditures (8,078) (3,502)
--------- ---------
Net Cash Used by Investing Activities (8,078) (3,502)
Financing Activities:
Increase (decrease) in short-term notes payable 28,000 (24,000)
Principal payments of long-term debt (15,000) -
Dividends paid (1,820) (1,804)
--------- ---------
Net Cash Provided (Used) by Financing Activities 11,180 (25,804)
--------- ---------
Decrease in Cash and Cash Equivalents (18,606) (13,534)
--------- ---------
Cash and Cash Equivalents at Beginning of Period 45,532 50,136
--------- ---------
Cash and Cash Equivalents at End of Period $ 26,926 $ 36,602
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
BROWN SHOE COMPANY, 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 30, 1999.
Note B - Change of Company Name
- -------------------------------
On May 27, 1999, the shareholders of the Company approved a
change in the company's name to Brown Shoe Company, Inc. The
Company's shares began trading under the "BWS" symbol on the
New York and Chicago Stock Exchanges on Friday, May 28, 1999.
Note C - Earnings Per Share
- ---------------------------
The following table sets forth the computation of basic and
diluted earnings per share for the periods ended May 1, 1999
and May 2, 1998 (000's, except per share data):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
------- ------
<S> <C> <C>
Numerator:
Net earnings - Basic and Diluted $ 6,316 $ 3,871
Denominator:
Weighted average shares outstanding-Basic 17,765 17,625
Effect of potentially dilutive securities 211 261
------- -------
Weighted average shares outstanding-Diluted 17,976 17,886
======= ======
Basic earnings per share $ .36 $ .22
======= =======
Diluted earnings per share $ .35 $ .22
======= ======
</TABLE>
Note D - Comprehensive Income
- -----------------------------
Comprehensive Income represents the change in Shareholders' Equity
during a period from transactions and other events and
circumstances from nonowner sources and accordingly excludes
investments by and distributions to owners.
The following table sets forth the reconciliation from Net
Earnings to Comprehensive Income for the periods ended May 1, 1999
and May 2, 1998 (000's):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
------- ------
<S> <C> <C>
Net Earnings $6,316 $3,871
Currency Translation Adjustment 1,806 403
------ ------
Comprehensive Income $8,122 $4,274
====== ======
</TABLE>
Note E - Pagoda International Restructuring Reserve
- ---------------------------------------------------
In the first quarter of fiscal 1999, the Company utilized
approximately $1.1 million of the $10.7 million restructuring
reserve remaining at the end of fiscal 1998. The reserve was
primarily used to cover inventory markdowns and severance. It is
expected that substantially all of the remaining reserve of $9.6
million will be utilized by the end of fiscal 1999.
Note F - Business Segment Information
- -------------------------------------
Applicable business segment information is as follows for the
periods ended May 1, 1999 and May 2, 1998 (000's):
<TABLE>
<CAPTION>
Famous Wholesale Naturalizer Pagoda
Footwear Operations Retail International Other Totals
-------- ---------- ----------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Thirteen Weeks Ended May 1, 1999
- --------------------------------
External sales $223,613 $126,306 $44,130 $ 234 $ 2,543 $396,826
Intersegment sales - 49,141 - - - 49,141
Operating profit (loss) 11,373 9,885 (1,188) (470) (3,291) 16,309
Thirteen Weeks Ended May 2, 1998
- --------------------------------
External sales $212,264 $131,809 $46,028 $10,089 $ 2,119 $402,309
Intersegment sales - 56,933 - - - 56,933
Operating profit (loss) 10,423 7,895 (212) (2,946) (2,468) 12,692
</TABLE>
Reconciliation of operating profit to consolidated earnings before
income taxes:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------
May 1, 1999 May 2, 1998
----------- -----------
<S> <C> <C>
Total operating profit $16,309 $12,692
Interest expense (4,683) (5,632)
Non-operating other expense (1,446) (102)
------- -------
Total consolidated earnings before income taxes $10,180 $ 6,958
======= =======
</TABLE>
The "Other" segment includes the Scholze Tannery business and
Corporate general and administrative expenses, which are not
allocated to the operating units. Operating profit represents
gross profit less general and administrative expenses and other
operating income or expense.
In fiscal 1999, the Company revised its method of determining the
level of profit to be earned on intersegment sales from the
Wholesale Operations to Naturalizer Retail. The change resulted in
an increase to operating profit of $0.4 million in the first
quarter of 1999 for Naturalizer Retail and a corresponding
decrease to operating profit for the Wholesale Operations.
Note G - 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 1, 1999 and May 2, 1998, and the related
condensed consolidating statements of earnings and cash flows for
the quarters ended May 1, 1999 and May 2, 1998, 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.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 1, 1999
(Thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
Assets ------ ------------ ------------ ------------ ------------
- ------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and
cash equivalents $ (285) $ 9,692 $ 17,519 $ - $ 26,926
Receivables, net 29,485 15,828 31,539 - 76,852
Inventory, net 42,747 337,451 21,585 (12,602) 389,181
Other current assets (4,192) 17,916 3,802 4,410 21,936
-------- --------- --------- --------- ---------
Total Current Assets 67,755 380,887 74,445 (8,192) 514,895
Other Assets 45,983 19,259 12,101 (114) 77,229
Property and
Equipment, net 15,177 62,402 7,183 - 84,762
Investment in
Subsidiaries 239,295 43,227 3,811 (286,333) -
-------- --------- --------- --------- ---------
Total Assets $368,210 $ 505,775 $ 97,540 $(294,639) $ 676,886
======== ========= ========= ========= =========
Liabilities & Shareholders' Equity
- ----------------------------------
Current Liabilities
Notes payable $ 28,000 $ - $ - $ - $ 28,000
Accounts payable 5,673 105,109 21,023 - 131,805
Accrued expenses 21,414 46,456 12,045 2,586 82,501
Income taxes (691) 7,377 1,285 416 8,387
Current maturities of
long-term debt 10,000 - - - 10,000
-------- --------- --------- --------- ---------
Total Current
Liabilities 64,396 158,942 34,353 3,002 260,693
Long-Term Debt
and Capitalized
Lease Obligations 172,031 - 41 (41) 172,031
Other Liabilities 21,002 (811) 232 (69) 20,354
Intercompany Payable
(Receivable) (113,027) 102,182 16,929 (6,084) -
Shareholders' Equity 223,808 245,462 45,985 (291,447) 223,808
-------- --------- --------- --------- ---------
Total Liabilities
and Shareholders'
Equity $368,210 $ 505,775 $ 97,540 $(294,639) $ 676,886
======== ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTEEN WEEKS ENDED MAY 1, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 68,357 $ 310,842 $ 84,195 $ (66,568) $ 396,826
Cost of goods sold 49,207 188,490 67,890 (66,568) 239,019
-------- --------- --------- --------- ---------
Gross profit 19,150 122,352 16,305 - 157,807
Selling and
administrative
expenses 18,502 113,595 10,034 (482) 141,649
Interest expense 4,669 - 14 - 4,683
Intercompany interest
(income) expense (3,358) 3,358 - - -
Other (income) expense 868 159 (214) 482 1,295
Equity in (earnings)
of subsidiaries (7,592) (4,841) - 12,433 -
-------- --------- --------- --------- ---------
Earnings (Loss) Before
Income Taxes 6,061 10,081 6,471 (12,433) 10,180
Income tax
provision (benefit) (255) 2,489 1,630 - 3,864
-------- --------- --------- --------- ---------
Net Earnings (Loss) $ 6,316 $ 7,592 $ 4,841 $ (12,433) $ 6,316
======== ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTEEN WEEKS ENDED MAY 1, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Totals
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided
(Used) by
Operating Activities $ 12,925 $ (31,907) $ (9,387) $ 6,661 $ (21,708)
Investing Activities:
Capital expenditures (131) (7,292) (655) - (8,078)
-------- --------- --------- --------- ---------
Net Cash Used by
Investing Activities (131) (7,292) (655) - (8,078)
Financing Activities:
Increase in short-term
notes payable 28,000 - - - 28,000
Principal payments of
long-term debt (15,000) - - - (15,000)
Dividends paid (1,820) - - - (1,820)
Intercompany financing (36,445) 44,153 (1,047) (6,661) -
-------- -------- --------- --------- ---------
Net Cash Provided
(Used) by
Financing Activities (25,265) 44,153 (1,047) (6,661) 11,180
Increase (Decrease)
in Cash and Cash
Equivalents (12,471) 4,954 (11,089) - (18,606)
Cash and Cash
Equivalents at
Beginning of Period 12,186 4,738 28,608 - 45,532
-------- -------- --------- --------- ---------
Cash and Cash
Equivalents at
End of Period $ (285) $ 9,692 $ 17,519 $ - $ 26,926
======== ======== ========= ========= =========
</TABLE>
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
Other Assets 45,812 16,698 12,176 (112) 74,574
Property and
Equipment, net 16,659 56,515 7,192 - 80,366
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>
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)
-------- --------- --------- --------- ---------
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>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------
Results of Operations
- ---------------------
Quarter ended May 1, 1999 compared to the Quarter ended May 2, 1998
- --------------------------------------------------------------------
Consolidated net sales for the fiscal quarter ended May 1, 1999
were $396.8 million compared to $402.3 million in the quarter
ended May 2, 1998. Net earnings of $6.3 million for the first
quarter of 1999 compares to net earnings of $3.9 million in the
first quarter of 1998.
Famous Footwear achieved first quarter record sales and
operating earnings. Sales of $223.6 million increased 5.3% from
last year representing a same-store sales increase of 1.7% and
22 more stores, reflecting a total of 834 stores in operation.
Sales per square foot increased 3.1% in the first quarter of
1999 reflecting improved store productivity from the new stores
opened versus those stores closed in the past year. Operating
earnings for the first quarter of 1999 increased 9.1% to $11.4
million as a result of higher sales and good expense
leveraging.
The Company's wholesale operations - the Brown Branded, Brown
Pagoda and Brown Canada divisions - had a net sales decrease of
4.2% during the first quarter of 1999 to $126.3 million.
However, operating earnings of $9.9 million increased 25.2%
from last year resulting from improved margins and lower
marketing expenses.
In the Company's Naturalizer Retail operations which includes
both the United States and Canadian stores, net sales decreased
4.1% to $44.1 million in the first quarter of 1999. Same-store
sales in the first quarter of 1999 decreased 6.7% in the United
States and were flat in Canada. Domestically, the Company had
9 less stores in operation in 1999; Canada had 10 more stores
in operation. At the end of the first quarter of 1999, 464
stores were in operation including 328 stores in the United
States and 136 stores in Canada. Total Naturalizer retail
operations incurred an operating loss of $1.2 million in 1999
compared to $.2 million in 1998. The higher operating loss
resulted from lower sales.
Operating losses at the Pagoda International division were $.5
million in the first quarter of 1999 compared to $2.9 million
last year reflecting a significantly reduced level of
operations.
Consolidated gross profit as a percent of sales increased to
39.8% from 38.6% for the same period last year. This increase
was primarily due to higher margins at the Company's wholesale
operations and a higher mix of retail sales, which historically
earn higher margins than wholesale.
Selling and administrative expenses as a percent of sales
increased to 35.7% from 35.5% for the same period last year.
This increase was primarily due to a higher mix of retail
sales, which carry a higher expense rate.
Other expense in the first quarter of 1999 primarily represents
additional provisions for environmental remediation costs
associated with an owned facility in Colorado.
The consolidated tax rate was 38.0% of consolidated pre-tax
income for the first quarter of 1999 compared to 44.4% for last
year. The higher effective tax rate for last year reflects
higher operating losses at the Pagoda International marketing
division, on which tax benefits could not be realized.
Financial Condition
A summary of key financial data and ratios at the dates
indicated is as follows:
May 1, May 2, January 30,
1999 1998 1999
------- ------ ------------
Working Capital (millions) $254.2 $249.6 $250.9
Current Ratio 2.0:1 2.0:1 2.0:1
Total Debt as a Percentage of
Total Capitalization 48.4% 52.9% 47.6%
Cash flow from operating activities for the first quarter of
fiscal 1999 was a net usage of $21.7 million versus a net
generation of $15.8 million last year. In the first quarter of
1999, cash flow decreased primarily as a result of higher
inventory and receivable levels.
The current ratio at May 1, 1999 remained consistent with the
ratio for May 2, 1998, primarily due to the combination of
higher accounts receivable and inventory corresponding to an
increase in current maturities of long-term debt.
The increase in the ratio of total debt as a percentage of
total capitalization at May 1, 1999, compared to the end of
fiscal 1998, is due to the cash usage in the first quarter. In
addition, the Company did not have any notes payable
outstanding at the end of fiscal 1998. At May 1, 1999, $28.0
million was borrowed and $12.7 million of letters of credit
were outstanding under the Company's $155.0 million revolving
bank Credit Agreement.
Year 2000 Compliance
- --------------------
The "Year 2000" issue arises because many computer hardware
and software systems, including the Company's, use only two
digits to represent the year. As a result, these systems and
programs may not accurately calculate dates beyond 1999, which
could cause system failures or miscalculations. The Company has
established a company-wide Steering Committee, consisting of
the Chief Financial Officer, Vice Presidents of the Information
Services (IS) functions, internal auditors, executive financial
and legal management and other employees, to oversee and manage
the Company's Year 2000 project.
The Company has completed a thorough assessment of all of its
existing information systems and has developed a comprehensive
plan to modify or replace all hardware and software information
systems that are not Year 2000 compliant. The Company will test
all systems to ensure that they will operate properly with
respect to dates in the next century. The Company has also
assessed the operating systems and equipment used in its
distribution centers, offices and other facilities that may
contain embedded chips, and that may be Year 2000 sensitive,
and will make modifications where necessary. The plan also
includes communicating with significant business partners to
determine their state of readiness for the Year 2000.
With respect to its internal information systems, as of May 1,
1999, the Company has substantially completed the modification
or replacement and testing of the information and operating
systems used in its footwear wholesaling, Naturalizer retailing
and sourcing operations, and its financial systems. The Famous
Footwear retail division has completed the modification of its
ongoing systems, and is replacing its in-store systems. The
Company expects that testing of the modified systems and
installation of the new in-store systems will be substantially
completed by the end of the Company's second quarter. All of
the Company's divisions will use the balance of 1999 for
additional testing and correction of any problems that may
arise.
The Company relies on independent business partners to provide
various products and services. One of the most significant
groups of partners is the independently owned and operated
factories, primarily in China and Brazil, from which the
Company purchases footwear for its wholesale and retail
operations. Based on communications with representatives of and
on-site visits to these factories, the Company has determined
that the use of date-sensitive technology in their production
processes is relatively low. Nevertheless, the Company is
continuing to review the assessment, remediation, and test
plans of these factories to determine whether they can be
relied on as suppliers going forward. In addition, the Company
has been in contact with footwear companies that provide Famous
Footwear with the majority of its products, as well as banks
and other key business partners and providers. Communications
with these partners are continuing in order to obtain as much
assurance as possible that they will be compliant. However,
there can be no assurance that these partners' Year 2000
remediation efforts will be successful. Nor can there be
assurance that third parties not contacted will not have
problems that could materially adversely affect the Company's
business, operations and financial condition.
The Company believes that the most reasonably likely Year 2000
worst case scenario is that its suppliers of footwear, for both
its wholesale and retail businesses, would not be able to
provide an uninterrupted flow of products due to their own or
their suppliers' systems failures or as a result of disruptions
in utility or other government services. By mid-1999 the
Company expects to develop detailed contingency plans which
will include determining which suppliers appear to be at risk
of noncompliance, and will attempt to arrange for alternative
sources of footwear from its large and diverse group of
suppliers, if necessary. The Company may also consider
accelerating purchases of inventory to reduce this risk. The
Company believes that there is adequate footwear producing
capacity available to allow for the use of alternate sources or
accelerated purchases. The Company also believes that if there
is a disruption in the flow of footwear it will be short-term
in nature. Nevertheless, there can be no assurance that the
Company can accurately and fully anticipate the level of
disruption that may occur.
The Company's wholesale division customers are department
stores, mass-merchants and numerous other footwear retailers.
The Company is communicating with its significant retail
customers through which it processes transactions
electronically using Electronic Data Interchange (EDI)
technology to attempt to determine their ability to continue to
conduct business in this manner. The Company has adopted the
Year 2000 compliant version of EDI, and plans to convert to the
new version and perform tests directly with its applicable
retail customers throughout 1999. As a contingency plan, if a
customer is unable to continue to process transactions through
EDI, it is expected that manual procedures could be
implemented. The Company intends to continue to monitor and
assess the EDI and the general state of Year 2000 readiness of
its major retail customers. A Year 2000 failure by a major
retail customer could have a materially adverse effect on the
Company.
Management estimates that the non-incremental internal IS staff
and outside consultant costs of the Company's Year 2000 efforts
will total approximately $1.6 million. Through May 1, 1999,
approximately $1.5 million of this total has been incurred. In
addition, the cost for new purchased or leased hardware and
software that will both upgrade the functionality and operating
efficiency of store and financial systems, and result in Year
2000 compliance, is expected to be approximately $15 million.
All expenditures related to the Company's Year 2000 project are
expected to be funded through operating cash flows. The costs
of new purchased and leased systems will be expensed over the
next several years. All costs related to modifying systems are
being expensed as incurred.
The costs and anticipated completion dates for Year 2000
modifications and the risks associated with the Year 2000
issues are based on management's best estimates utilizing
numerous assumptions of future events. There can be no
guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Factors
that may cause such material differences include, but are not
limited to, the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant
computer code and systems, the cooperation and remediation
success of the Company's suppliers (and their suppliers), and
the ability to correctly anticipate risks and implement
suitable contingency plans in the event of systems failures at
the Company or its suppliers and customers (and their suppliers
and customers).
Forward-Looking Statements
- --------------------------
This Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995. Actual results could differ materially. In Item 1 of
the Company's fiscal 1998 Annual Report on Form 10-K, detailed
risk factors that could cause variations in results to occur
are listed and further discussed. Such filing is incorporated
herein by reference.
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings
- --------------------------
There have been no material developments during the quarter
ended May 1, 1999, in the legal proceedings described in the
Company's Annual Report on Form 10-K for the period ended
January 30, 1999.
Item 3 - Quantitative and Qualitative Disclosure about Market Risks
- ---------------------------------------------------------------------
No material changes have taken place in the quantitative and
qualitative information about market risk since the end of
the most recent fiscal year.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At the Annual Meeting of Shareholders held on May 27, 1999,
three proposals described in the Notice of Annual Meeting of
Shareholders dated April 26, 1999, were voted upon.
1. The shareholders elected two directors, Mr. Ronald A.
Fromm and Ms. Patricia G. McGinnis for terms of three years
each. The voting for each director was as follows:
Directors For Withheld
--------- ---------- --------
Mr. Ronald A. Fromm 16,121,195 93,465
Ms. Patricia G. McGinnis 16,084,757 129,903
2. The proposal to amend the Certificate of Incorporation of
the Company to change its name to Brown Shoe Company, Inc. was
approved by a vote of 15,777,685 in favor to 76,934 against,
with 44,791 abstaining.
3. The proposal to ratify and approve the prior adoption by
the Board of Directors of the Brown Group, Inc. Incentive and
Stock Compensation Plan of 1999 and the allocation of 900,000
of the Corporation's shares thereto was approved by a vote of
13,086,956 in favor to 2,664,098 against, with 148,356
abstaining.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Listing of Exhibits
(3) (a) Certificate of Incorporation
of the Company 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.
(a)(i) Amendment of Certificate of
Incorporation of the Company
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.
(a)(ii) Amendment of Certificate of
Incorporation of the Company
filed May 27, 1999, filed
herewith.
(b) Bylaws of the Company as
amended through April 20,
1999, incorporated herein by
reference to Exhibit 3 to the
Company's Report on Form 10-K
for the fiscal year ended
January 30, 1999.
(10) (k) Incentive and Stock Compensation
Plan of 1999, incorporated
herein by reference, to Exhibit
2 to the Company's definitive
proxy statement dated April 26,
1999.
(27) Financial Data Schedule (Page 20)
(b) Reports on Form 8-K:
The Company filed a current report on
Form 8-K dated May 27, 1999 which reported
the approval by the Company's shareholders
to change the name of the company to Brown
Shoe Company, Inc.
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 SHOE COMPANY, INC.
Date: June 9, 1999 /s/ Harry E. Rich
- ------------------ -------------------------------
Harry E. Rich
Executive Vice President
and Chief Financial Officer and
O Behalf of the Corporation as
the Principal Financial Officer
EXHIBIT (3)(a)(ii)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BROWN GROUP, INC.
Under Section 805 of the Business Corporation Law
We, the undersigned, RONALD A. FROMM and ROBERT D.
PICKLE, respectively, the President and the Secretary of
Brown Group, Inc. (hereinafter sometimes called the
"Company"), do hereby certify and set forth:
1. The name of the Company is Brown Group, Inc. The
name under which the Company was formed is Brown Shoe
Company, Inc.
2. The Certificate of Incorporation of the Company
was filed by the New York Department of State on the 2nd day
of January, 1913.
3. (a) The certificate of incorporation is amended
to change the name of the company from Brown Group, Inc. to
its original name, Brown Shoe Company, Inc.
(b) To effect the foregoing change, Article First
of the Certificate of Incorporation of the Company is
amended to read in its entirety as follows:
FIRST: The name of the Company shall be
Brown Shoe Company, Inc. (hereinafter termed "Company").
4. The amendment to the Certificate of Incorporation
of the Company was authorized, first by the Board of
Directors pursuant to Section 805(a) of the Business
Corporation Law, and then by the affirmative vote of the
holders of a majority of all issued and outstanding shares
of Common Stock of the Company entitled to vote at the
Annual Meeting of Stockholders of the Company held on May
27, 1999.
IN WITNESS WHEREOF, we have signed this Certificate of
Amendment on the 27th day of May, 1999, and we affirm the
statements contained therein as true under penalties of
perjury.
/s/ Ronald A. Fromm
-------------------------------
RONALD A. FROMM, President
/s/ Robert D. Pickle
-------------------------------
ROBERT D. PICKLE, Secretary
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