<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
1999 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended January 29, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
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)
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
9-1/2% Senior Notes due October 15, 2006 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ x ]
As of April 1, 2000, 18,270,190 common shares were outstanding, and the
aggregate market value of the common shares held by non-affiliates of
the registrant was approximately $219 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended January
29, 2000, are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders
to be held May 25, 2000, are incorporated by reference into Part III.
<PAGE 2>
PART I
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ITEM 1 - BUSINESS
- -----------------
The Company, founded in 1878 and incorporated in 1913,
operates in the Footwear industry. In 1999, the shareholders of
the Company approved a change in the Company's name to Brown Shoe
Company, Inc. from Brown Group, Inc. Current activities include
the operation of retail shoe stores and the sourcing and
marketing of footwear for women, men and children. During 1999,
categories of footwear sales were approximately 58% women's
footwear, 26% men's footwear and 16% children's footwear. This
composition has remained relatively constant over the past few
years. Approximately 70% of 1999 footwear sales were made at
retail compared to 68% in 1998 and 66% in 1997. See Note 6 of
Notes to Consolidated Financial Statements on page 67 of the
Annual Report to Shareholders for the year ended January 29,
2000, which is incorporated herein by reference, for additional
information regarding the Company's business segments.
The Company's business is seasonal in nature due to consumer
spending patterns with higher back-to-school, Easter and
Christmas holiday season sales. Traditionally, the third fiscal
quarter accounts for a substantial portion of the Company's
operating earnings for the year.
The Company has approximately 11,500 full and part-time
employees. Approximately 100 employees engaged in the
warehousing of footwear in the United States are employed under a
union contract, which will expire in September, 2002. In Canada,
approximately 300 factory and warehouse employees are employed
under union contracts, which expire in October, 2000 and October,
2001.
Retail Operations
- -----------------
The Company's retail operations at January 29, 2000 include
1,353 retail shoe stores in the United States and Canada under
the Famous Footwear, Factory Brand Shoes, Supermarket of Shoes,
Naturalizer and F.X. LaSalle names. A portion of the retail
sales includes Company-owned and licensed brand names.
In retail sales of footwear, the Company 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. Quality, customer service,
store location, merchandise selection, advertising and pricing
are important components of retail competition.
Famous Footwear
Famous Footwear with 867 stores at the end of fiscal 1999 is
America's largest chain selling branded footwear for the entire
family. Founded over 30 years ago, Famous Footwear was purchased
by the Company in 1981 as a 32 store chain. Famous Footwear
stores feature a wide selection of "brand name shoes for less for
the entire family" including athletic, casual and dress shoes for
women, men and children typically priced at below manufacturers'
suggested retail prices. Famous Footwear stores average
approximately 5,600 square feet in size and are primarily located
in strip centers and regional and outlet malls in the United
States. Famous Footwear's branded product offering at discounted
prices is designed to appeal to the needs of its target
customers, value oriented families. Footwear brands include Nike,
adidas, Skechers, Reebok, Rockport, New Balance, Naturalizer,
What's What, Keds and TX Traction.
<PAGE 3>
ITEM 1 - BUSINESS (Continued)
- -----------------
Famous Footwear has developed store model stocks which
reflect consumer demand, historical brand preferences, styles and
sizes. These inventory models are adjusted based upon store
location and promotional opportunities. Product and promotional
mix are managed to control gross margins. In fiscal 1999, the
Company completed the replacement of all existing store
information systems. The new systems will improve inventory
controls, training and communication between headquarters and the
stores as well as reduce store technology costs.
With two distribution centers located in Madison, Wisconsin
and Lebanon, Tennessee, Famous Footwear's distribution systems
allow for merchandise to be delivered to each store typically no
less than each week. In addition to the delivery of new styles
and current promotional items, these systems provide item
replenishment of the prior week's sales and redistribution of
product to stores demonstrating the greatest item sell-through
from stores with lower item sell-through. These systems of
replenishment and distribution are designed to ensure the right
product is at the right place at the right time, and to control
markdowns and maximize gross margins.
Famous Footwear's marketing program includes radio,
television and newspaper advertising, in-store signage and
database marketing, all of which are designed to further develop
and reinforce the Famous Footwear concept with the target
customer. Marketing and advertising programs are tailored on a
region-by-region basis to reach the target consumers. In
addition, the timing of certain advertising campaigns is set to
correspond to regional differences such as the important back-to-
school season, which begins at various times throughout the
country. In 1999, management invested over $29 million to
communicate Famous Footwear's philosophy: delivering the customer
the best value and service on quality, branded footwear.
Naturalizer
The Company's Naturalizer stores are showcases for the
Company's flagship brand of women's shoes. The Company owns and
operates 347 Naturalizer stores located in the United States and
123 stores in Canada. Naturalizer specialty stores located in
regional malls average approximately 1,300 square feet in size,
and outlet stores located in outlet malls average approximately
2,600 square feet in size. These stores are designed and
merchandised to appeal to the Naturalizer customer who is a style
and comfort conscious woman between 40-60 years old, who seeks
quality and value in her footwear selections. In addition, the
Company has repositioned its styles to focus on a younger, active
woman aged between 35-54 years old. The Naturalizer stores offer
a selection of women's footwear styles, including dress, casual
and athletic shoes, primarily under the Naturalizer brand, but
also under the Naturalsport brand of casual shoes. The
Naturalizer brand is one of North America's leading women's
footwear brands, providing stylish, comfortable and quality
footwear in a variety of patterns and sizes. Retail price points
are typically between $50 and $60 per pair.
In fiscal 1999, the Naturalizer Retail division launched the
Naturalizer consumer site, www.naturalizeronline.com. The site
allows consumers to browse product selection by style or size as
well as to order directly from the Company.
<PAGE 4>
ITEM 1 - BUSINESS (Continued)
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Marketing programs for the Naturalizer stores have
complemented the Company's Naturalizer brand advertising,
building on the brand's consumer recognition and reinforcing the
brand's added focus on style and quality. The Company continues
to invest in Naturalizer sales force training commensurate with
the brand image of style, quality and comfort, and utilizes a
database marketing program, which targets and rewards frequent
customers. Over the past two years, the Company installed
updated point-of-sale cash registers and new merchandising
reporting systems. These systems will enhance management
information and capture consumer preferences as well as improve
efficiency at store level.
The Company also operates 16 F.X. LaSalle retail stores,
primarily in the Montreal, Canada market, which sell better-grade
men's and women's branded and private label footwear. This
footwear, primarily imported from Italy, retails at price points
ranging from $100 to $250. These stores average approximately
2,200 square feet.
A summary of retail footwear stores operated by the Company
at each of the prior three fiscal year-ends follows:
Company-Owned Retail Footwear Stores
1999 1998 1997
---- ---- ----
Famous Footwear
Family footwear stores which feature "brand names
for less"; located in shopping centers and outlet
and regional malls in the U.S. 867 827 815
Naturalizer
Stores selling the Naturalizer and Naturalsport
brands of women's footwear; located in major
malls, shopping centers and outlet malls
in the U.S. and Canada. 470 446 448
F. X. LaSalle
Stores selling men's and women's better-grade
branded footwear in major malls in Canada. 16 16 16
----- ----- -----
Total 1,353 1,289 1,279
===== ===== =====
Wholesale Operations
- --------------------
Footwear is distributed by the Company's Brown Branded, Brown
Pagoda and Canada Wholesale divisions to approximately 2,500
retailers including department stores, mass merchandisers and
independent retailers in the United States, Canada and to
affiliates. These divisions import substantially all of their
footwear through the Brown Sourcing division, except for the
Canadian Wholesale division which also produces footwear in two
Company-owned manufacturing facilities. Most of the Company's
wholesale customers also sell shoes bought from competing
footwear suppliers.
Wholesale orders for shoes are solicited by the Company's
sales force throughout the year. 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
Company 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 Company
obtains title to footwear from its overseas suppliers and
maintains title until the footwear is inside the United States
borders. After importing, the footwear may be sold directly to
customers and certain high volume styles are inventoried to allow
prompt shipment on reorders.
<PAGE 5>
ITEM 1 - BUSINESS (Continued)
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At April 1, 2000, the Company's wholesale operations had a
backlog of unfilled orders of approximately $120 million compared
to $145 million on April 2, 1999. Most orders are for delivery
within the next 90-120 days, and although orders are subject to
cancellation, the Company has not experienced significant
cancellations in the past. The backlog at a particular time is
affected by a number of factors, including seasonality, the
continuing trend among customers to reduce the lead time on their
orders and the timing of licensed product releases such as movies
or sporting events. Accordingly, a comparison of backlog from
period to period is not necessarily meaningful and may not be
indicative of eventual actual shipments.
In the past, the Company also distributed footwear through
its Pagoda International division. This division marketed the
Company's branded and licensed athletic, casual and dress
footwear for men, women and children, typically at moderate price
points primarily to better specialty retailers in Europe, Latin
America and the Far East. In 1997, the Company made a decision
to withdraw from the Pagoda International division as a result of
excessive inventories and declining performance. The Company
completed the withdrawal from this business in 1999. See Note 4
of Notes to Consolidated Financial Statements on page 66 of the
Annual Report to Shareholders for the year ended January 29,
2000, which is incorporated herein by reference, for additional
information regarding the restructuring of the Pagoda
International division.
Brown Branded Division
The Brown Branded division is one of the nation's leading
marketers of women's footwear. This division designs and markets
the Company's Naturalizer, Naturalsport, LifeStride, LS Studio,
and NightLife brands. Each of the Company's brands is targeted
to a specific customer segment representing different footwear
styles and taste levels at different price points. The keystone
of the Company's brand portfolio is the Naturalizer brand, which
has a tradition of combining style and comfort. Introduced in
1927, Naturalizer is one of the nation's leading women's footwear
brands.
Naturalizer and Naturalsport products emphasize style,
comfort, quality and value. These brands provide a wide range of
casual and dress footwear products, which combine comfort and fit
with classic, relevant and up-to-date styling. LifeStride, and
its brand extension, LS Studio, is a leading entry-level price
point, women's brand in department stores, offering fashion-right
styling. The NightLife brand is the Company's line of women's
shoes for special occasions.
The division's brands are sold in department stores, multi-
line shoe stores and branded specialty stores. Currently the
Company sells footwear products to substantially all the nation's
major department store companies, including Dayton-Hudson,
Dillard's, Federated, The May Company and Sak's.
The Brown Branded division maintains an independent sales
force to market its Naturalizer, Naturalsport, LifeStride, LS
Studio and NightLife brands primarily to department and specialty
footwear stores domestically. The sales force is responsible for
managing the Company's relationships with its wholesale
customers. The Brown Branded division also has marketing teams
responsible for the development and implementation of marketing
programs for each brand, both for the Company and its retail
customers.
<PAGE 6>
ITEM 1 - BUSINESS (Continued)
- -----------------
The Company developed an e-commerce strategy in 1999 to assist
in the marketing of their brands. The Company launched an
internet site, www.brownshoeonline.com, that allows retail
customers to check inventory, place orders and track arrivals.
Over 600 retailers are using the system to place orders and
reorders. "E-direct", also launched in 1999, allows retailers to
collect payment for out-of-stock shoes with the Company directly
shipping the shoes to the customer's home. The division is also
partnered with Nordstrom.com to offer a Naturalizer boutique on
its web site.
The Company continues to build on and take advantage of the
heritage and consumer recognition of its traditional brands, and
it also is clearly defining the independent brand images of
certain other brands. The Company launched a Naturalizer brand
image campaign in 1999 that illustrated the brand's new fashion
appeal and footwear design. In fiscal 1999, the division
invested approximately $15 million in advertising and marketing
in support of its brands. The Company continues to focus on these
marketing efforts by augmenting its market research, product
development and marketing communications.
Brown Pagoda Division
The Brown Pagoda division designs and markets branded,
licensed and private label athletic, casual and dress footwear
products for men, women and children at a variety of price points
via mass merchandisers, mid-tier retailers, chains and department
stores in the United States and Canada. The division is a
resource for many of the nation's larger retailers, including
Famous Footwear, Federated, Kmart, Nordstrom, Payless ShoeSource,
Sears, Talbots, Target and Wal-Mart, providing its wholesale
customers with over 48 million pairs of shoes in 1999.
Major brand names owned by the Brown Pagoda division include
Airstep, Brown Shoe, Buster Brown, Connie, Larry Stuart and
Wildcats. The Brown Pagoda division also seeks opportunities to
develop additional brands through selective acquisitions or
licenses. Products sold under license agreements, which are
generally for an initial term of two to three years and subject
to renewal, were responsible for approximately 8%, 8% and 11% of
consolidated sales in 1999, 1998, and 1997, respectively. The
Brown Pagoda division has a long-term licensing agreement, which
is renewable through 2014, to market the Dr. Scholl's brand of
affordable, casual and work shoes for men and women both in the
United States and in Canada. The division's other significant
license agreements include Barbie, Digimon, NASCAR Racers, Sammy
Sosa and Star Wars. No single licensor represented greater than 5
percent of consolidated net sales for 1999.
Canada Wholesale Division
The Canada Wholesale division markets branded and licensed
footwear products to women and children at a variety of price
points to department stores, specialty stores and mass
merchandisers.
Similar to the Brown Branded division, the Canada Wholesale
division markets the Company's Naturalizer and Naturalsport
brands in Canada. The division manufactures in two Company-owned
facilities a significant portion of the Naturalizer and
Naturalsport brands sold by them. In addition, the division
provides all Naturalizer related product for the Naturalizer
stores located in Canada. Other brands and licensed footwear
sold by the division include Airstep, Barbie, Buster Brown,
Connie and Star Wars.
<PAGE 7>
ITEM 1 - BUSINESS (Continued)
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Brown Sourcing Division
The Brown Sourcing Division sources essentially all of the
footwear globally for the Brown Branded division, the Naturalizer
Retail division, the Brown Pagoda division, and a portion of the
footwear sold by Famous Footwear. The division, which in 1999
sourced 63.3 million pairs of shoes, has developed a global
sourcing capability through its relationships with approximately
100 third-party independent footwear manufacturers. Management
attributes its ability to achieve consistent quality, competitive
prices and on-time delivery to the breadth of its established
relationships.
The Company currently maintains sourcing offices in Brazil,
China, Hong Kong, Indonesia, Italy, Mexico and Taiwan. This
structure enables the Company to source footwear at various price
levels from significant shoe manufacturing regions of the world.
In 1999, approximately three-fourths of the footwear sourced by
Brown Shoe Sourcing was from manufacturing facilities in China.
The Company has the ability to shift sourcing to alternative
countries, over time, based upon trade conditions, economic
advantages, production capabilities and other factors, if
conditions warrant. The following table provides an overview of
the Company's foreign sourcing in 1999:
Country Millions of Pairs
------- -----------------
China 47.5
Brazil 9.4
Indonesia 4.4
Taiwan 0.4
All Other 1.6
----
Total 63.3
====
The Company monitors the quality of the components of its
footwear products prior to production and inspects prototypes of
each footwear product before production runs are commenced. The
Company also performs random in-line quality control checks
during production and before footwear leaves the manufacturing
facility.
The Company maintains separate design teams for each of its
brands and the Company maintains a staff of footwear designers
who are responsible for the creation and development of new
product styles. The Company's designers monitor trends in
apparel and footwear fashion and work closely with retailers to
identify consumer footwear preferences. When a new style is
created, the Company's designers work closely with independent
footwear manufacturers to translate their designs into new
footwear styles.
In 1999, the Company reengineered its shoe styling process to
better anticipate shoe fashion trends and quicken the time to
market. From a design center in Florence, Italy, the Company
captures European influences like heel shapes and fabrics before
appearing at retail. The design center is electronically linked
to the Company's line builders in the United States who blend
them with latest U.S. fashion trends. This change in the process
will assist in shortening the product design cycle.
<PAGE 8>
ITEM 1 - BUSINESS (Continued)
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Risk Factors
- ------------
Certain statements herein and in the documents incorporated
herein by reference as well as statements made by the Company
from time to time contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially. The considerations
listed below represent certain important factors the Company
believes could cause such results to differ. These
considerations are not intended to represent a complete list of
the general or specific risks that may affect the Company. It
should be recognized that other risks may be significant,
presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
Competition; Changes in Consumer Preferences
Competition is intense in the footwear industry. Certain of
the Company's competitors are larger and have substantially
greater resources than the Company. The Company's success depends
upon its ability to remain competitive in the areas of style,
price and quality, among others, and in part on its ability to
anticipate and respond to changing merchandise trends and
consumer preferences and demands in a timely manner.
Furthermore, consumer preferences and purchasing patterns
may be influenced by consumers' disposable income. Consequently,
the success of the Company's operations may depend to a
significant extent upon a number of factors affecting disposable
income, including economic conditions and factors such as
employment, business conditions, interest rates and taxation.
Reliance on Foreign Sources of Production
The Company relies entirely on broad-based foreign sourcing
for its footwear products. The Company sources footwear products
from independent third-party manufacturing facilities located in
China, Brazil, Indonesia, and to a lesser extent from Italy,
Mexico, Taiwan and two Company-owned manufacturing facilities in
Canada. Typically, the Company is a major customer of these
third-party manufacturing facilities. The Company believes its
relationships with such third-party manufacturing facilities
provide it with a competitive advantage; thus the Company's
future results will partly depend on maintaining its close
working relationships with its principal manufacturers.
The Company relies heavily on independent third-party
manufacturing facilities, primarily located in China.
Historically, the trade relationship between the United States
and China has not had a material adverse effect on the Company's
business, financial condition or results of operations. There
have been, however, and may in the future be, threats to the
trade relationships between the United States and China,
including past and future threats by the United States to deny
Normal Trading Relations status to China. There can be no
assurance the trade relationship between the United States and
China will not worsen, and if it does worsen, there can be no
assurance the Company's business, financial condition or results
of operations will not be materially adversely affected thereby.
Further, the Company cannot predict the effect that changes in
the economic and political conditions in China could have on the
economics of doing business with Chinese manufacturers. Although
the Company believes it could find alternative manufacturing
sources for those products it currently sources from China
through its existing relationships with independent third-party
manufacturing facilities in other countries, the loss of a
substantial portion of its Chinese manufacturing capacity could
have a material adverse effect on the Company.
<PAGE 9>
ITEM 1 - BUSINESS (Continued)
- -----------------
As is common in the industry, the Company does not have any
long-term contracts with its independent third-party foreign
manufacturers. There can be no assurance the Company will not
experience difficulties with such manufacturers, including
reduction in the availability of production capacity, failure to
meet production deadlines, or increases in manufacturing costs.
Foreign manufacturing is subject to a number of risks, including
work stoppages, transportation delays and interruptions,
political instability, expropriation, nationalization, foreign
currency fluctuations, changing economic conditions, the
imposition of tariffs, import and export controls and other non-
tariff barriers and changes in governmental policies. Although
the Company purchases products from certain foreign manufacturers
in United States dollars and otherwise engages in foreign
currency hedging transactions, there can be no assurance the
Company will not experience foreign currency losses. The Company
cannot predict whether additional United States or foreign
customs quotas, duties, taxes or other changes or restrictions
will be imposed upon the importation of non-domestically produced
products in the future or what effect such actions could have on
its business, financial condition or results of operations.
Customer Concentration
The customers of the Company's wholesaling business include
department stores and mass merchandisers. Several of the
Company's customers control more than one department store and/or
mass merchandiser chain. While the Company believes purchasing
decisions in many cases are made independently by each department
store or mass merchandiser chain under such common ownership, a
decision by the controlling owner of a group of department stores
and/or mass merchandisers, or any other significant customer, to
decrease the amount of footwear products purchased from the
Company could have a material adverse effect on the Company's
business, financial condition or results of operations.
In addition, the retail industry has periodically
experienced consolidation and other ownership changes, and in the
future the Company's wholesale customers may consolidate,
restructure, reorganize or realign, any of which could decrease
the number of stores that carry the Company's products.
Dependence on Licenses
The success of the Company's Brown Pagoda division has to
date been due, in part, to the Company's ability to attract
licensors which have strong, well-recognized characters and
trademarks. The Company's license agreements are generally for
an initial term of two to three years, subject to renewal, but
even where the Company has longer term licenses or has an option
to renew a license, such license is dependent upon the Company's
achieving certain results in marketing the licensed material.
While the Company believes its relationships with its existing
licensors are good and it believes it will be able to renew its
existing licenses and obtain new licenses in the future, there
can be no assurance the Company will be able to renew its current
licenses or obtain new licenses to replace lost licenses. In
addition, certain of the Company's license agreements are not
exclusive and new or existing competitors may obtain similar
licenses.
Dependence on Major Branded Suppliers
The Company's Famous Footwear retail business purchases a
substantial portion of its footwear products from major branded
suppliers. While the Company believes its relationship with its
existing suppliers is good, the loss of any of its major
suppliers could have a material adverse effect on the Company's
business, financial condition or results of operations. As is
common in the industry, the Company does not have any long-term
contracts with its suppliers. In addition, the Company's
financial performance is in part dependent on the ability of
Famous Footwear to obtain product from its suppliers on a timely
basis and on acceptable terms.
<PAGE 10>
ITEM 2 - PROPERTIES
- -------------------
The principal executive, sales and administrative offices of
the Company are located in Clayton (St. Louis), Missouri, and
consist of an owned office building.
The Company's wholesale footwear operations are carried out
at two distribution centers located in Missouri and two
manufacturing facilities and one distribution facility located in
Ontario, Canada. All of the facilities are owned. A leased
sales office and showroom is maintained in New York City.
The Company's retail footwear operations are conducted
throughout the United States and Canada and involve the operation
of 1,353 shoe stores, including 139 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.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Company is involved in legal proceedings and litigation
arising in the ordinary course of business. In the opinion of
management, after consulting with legal counsel, the outcome of
such proceedings and litigation currently pending will not have a
materially adverse effect on the Company's results of operations
or financial position.
The Company is involved in environmental remediation and
ongoing compliance activities at several sites. The Company is
remediating a residential area adjacent to owned property in
Colorado, under the oversight of Colorado authorities. This
residential area has been affected by types of solvents
previously used at the facility. Monitoring of the residential
area continues. The Company also began remediation on the owned
property. During 1999, the Company incurred charges of $1.8
million related to this site. In early 2000, a state court
class-action lawsuit was filed agianst the Company related to
this property. The Company does not believe that the ultimate
outcome of this lawsuit will have a materially adverse effect on
its results of operations or financial position.
At its closed New York tannery and two associated landfills,
the Company has completed its remediation efforts, and in 1995,
state environmental authorities reclassified the status of the
site to one that has been properly closed and requires only
continued maintenance and monitoring over the next 24 years. In
addition, various federal and state authorities have identified
the Company as a potentially responsible party for remediation at
certain landfills from the sale or disposal of solvents and other
by-products from the closed tannery and shoe manufacturing
facilities.
Based on information currently available, the Company is
carrying an accrued liability of $3.9 million, as of January 29,
2000, to complete the clean up at all sites. The ultimate cost
may vary.
While the Company currently operates no domestic
manufacturing facilities, prior operations included numerous
manufacturing and other facilities for which the Company may have
responsibility under various environmental laws for the
remediation of conditions that may be identified in the future.
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 1999.
<PAGE 11>
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, 2000.
Name Age Current Position
- ---- --- ----------------
Ronald A. Fromm 49 Chairman of the Board, President,
Chief Executive Officer, Brown Shoe
Company, Inc. and President, Brown
Shoe Company
Theodore L. Anderson 51 Senior Vice President, Retail Sales
and Operations, Famous Footwear
Brian C. Cook 60 Executive Vice President, Brown Shoe
Company, Inc. and President, Famous Footwear
William A. Dandy 42 Senior Vice President, Marketing,
Famous Footwear
Charles C. Gillman 38 Senior Vice President and Director, Far East
Operations, Brown Sourcing
J. Martin Lang 43 Senior Vice President and Chief Financial
Officer, Famous Footwear
Byron D. Norfleet 38 Senior Vice President and General Manager,
Naturalizer Retail
Gary M. Rich 49 President, Brown Pagoda
James M. Roe 54 Senior Vice President, Real Estate,
Famous Footwear
Andrew M. Rosen 49 Chief Financial Officer and Treasurer
Richard C. Schumacher 52 Vice President and Controller
David H. Schwartz 54 President, Brown Sourcing
Robert E. Stadler, Jr. 51 Vice President, Administration, Brown Shoe
Company and Senior Vice President, Finance
and Administration, Brown Branded
Gregory J. Van Gasse 49 President, Brown Branded
George J. Zelinsky 51 Senior Vice President and General Merchandise
Manager, Famous Footwear
<PAGE 12>
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- ------------------------------------
The period of service of each officer in the positions listed
and other business experience are set forth below.
Ronald A. Fromm, Chairman of the Board, President and Chief
Executive Officer of the registrant since January 1999;
President, Brown Shoe Company since March 1998. Vice President
of the registrant from April 1998 to January 1999. Executive Vice
President, Famous Footwear from September 1992 to March 1998.
Vice President and Chief Financial Officer of Famous Footwear
from 1988 to 1992.
Theodore L. Anderson, Senior Vice President, Retail Sales and
Operations, Famous Footwear since October 1997. Senior Vice
President of Stores for Thom McAn, a division of Melville
Corporation, from 1992 to October 1997.
Brian C. Cook, Executive Vice President of the registrant since
January 1999; Vice President of the registrant from March 1992 to
January 1999; President of Famous Footwear since 1981.
William A. Dandy, Senior Vice President, Marketing, Famous
Footwear since February 1997. Vice President of Marketing and
Advertising for Michael's Arts and Crafts Stores from July 1993
to February 1997.
Charles C. Gillman, Senior Vice President and Director, Far East
Operations, Brown Sourcing since February 1997. Senior Vice
President, Far East Operations, Brown Sourcing from 1995 to 1997.
Senior Vice President, Women's Division - Far East, Pagoda from
1992 to 1995.
J. Martin Lang, Senior Vice President and Chief Financial
Officer, Famous Footwear since March 1998. Vice President and
Chief Financial Officer, Famous Footwear from 1995 through March
1998. From 1991 to 1995, served United States Shoe Corporation
as Vice President of Finance - Footwear Group from 1993 to 1995
and as Vice President and Chief Financial Officer - Footwear
Retailing Group from 1991 to 1993.
Byron D. Norfleet, Senior Vice President and General Manager,
Naturalizer Retail since July 1998. Series of management
positions with Genesco, Inc. since 1984, most recently as Vice
President - Jarman Lease.
Gary M. Rich, President of Brown Pagoda 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.
James M. Roe, Senior Vice President, Real Estate, Famous Footwear
since August 1997. Senior Vice President, Sales and Operations,
Famous Footwear from December 1994 to August 1997. 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, Chief Financial Officer and Treasurer of the
registrant since October 1999. Senior Vice President and
Treasurer of the registrant from March 1999 to October 1999.
Vice President and Treasurer of the registrant from January 1992
to March 1999. 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.
<PAGE 13>
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- ------------------------------------
David H. Schwartz, President, Brown Sourcing 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.
Robert E. Stadler, Jr., Vice President, Administration, Brown
Shoe Company and Senior Vice President, Finance and
Administration, Brown Branded since October 1999. Vice
President, Finance and Operations, Brown Branded division of
Brown Shoe Company from March 1999 to October 1999. Series of
positions with the registrant and its divisions since 1972, most
recently prior to March 1999 as Vice President, Finance, Brown
Branded division of Brown Shoe Company.
Gregory J. Van Gasse, President, Brown Branded since September
1998. Senior Vice President - Marketing and Sales for Florsheim
Group, Inc. from 1990 to September 1998.
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 14>
PART II
-------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
- --------------------------------------------------------------
Common Stock market prices and dividends on page 80 of the
Annual Report to Shareholders and the number of shareholders of
record on page 82 of the Annual Report to Shareholders for the
year ended January 29, 2000, are incorporated herein by
reference.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
Selected Financial Data on page 58 of the Annual Report to
Shareholders for the year ended January 29, 2000, is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND
FINANCIAL CONDITION
- ---------------------------------------------------------------
Management's Discussion and Analysis of Operations and
Financial Condition on pages 54 through 57 of the Annual Report
to Shareholders for the year ended January 29, 2000, is
incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Information appearing under the caption "Financial
Instruments" on pages 56 through 57 of the Annual Report for
Shareholders to the year ended January 29, 2000, is incorporated
herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements of the Company and its
subsidiaries on pages 59 through 79, and the supplementary
financial information on page 80 of the Annual Report to
Shareholders for the year ended January 29, 2000, are
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------
None.
<PAGE 15>
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding Directors of the Company on pages 4
through 8 of the Proxy Statement for the Annual Meeting of
Shareholders to be held May 25, 2000, is incorporated herein
by reference. Information regarding Executive Officers of the
Company is included in Part I of this Form 10-K following Item 4.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
Information regarding Executive Compensation on pages 9
through 21 of the Proxy Statement for the Annual Meeting of
Shareholders to be held May 25, 2000, is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
- ---------------------------------------------------------
Security Holdings of Directors and Management on page 3 of
the Proxy Statement for the Annual Meeting of Shareholders to be
held May 25, 2000, is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
None.
<PAGE 16>
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. (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, incorporated
herein by reference to Exhibit 3 to the
Company's report on Form 10-Q for the quarter
ended May 1, 1999.
(b) Bylaws of the Company as amended through
March 2, 2000, filed herewith.
4. (a) Rights Agreement dated as of March 7, 1996
between the Company and First Chicago Trust
Company of New York, which includes as
Exhibit A the form of Rights Certificate
evidencing the Company's Common Stock
Purchase Rights, incorporated herein by
reference to the Company's Form 8-K dated
March 8, 1996.
(a) (i) Amendment to Rights Agreement between Brown
Shoe Company, Inc. and First Chicago Trust
Company of New York, dated as of July 8,
1997, effective August 11, 1997, incorporated
herein by reference to the Company's Form 8-K
dated August 8, 1997.
(b) Credit Agreement dated as of January 9, 1997,
between the Company and the Lenders named
therein, The Boatmen's National Bank of St.
Louis, as Agent, and First Chicago Capital
Markets, Inc., as Syndication Agent,
incorporated herein by reference to the
Company's Form 8-K dated January 9, 1997.
<PAGE 17>
(b) (i) Amendment No. 1, dated October 8, 1997, to
the Credit Agreement between the Company and
the Lenders named therein, NationsBank, N.A.,
as Agent, and First Chicago Capital Markets,
Inc., as Syndication Agent, incorporated
herein by reference to the Company's Form
10-Q dated November 1, 1997.
(b) (ii) Amendment No. 2, dated January 7, 1999, to
the Credit Agreement between the Company and
the Lenders named therein NationsBank, N.A.,
as Agent, and First Chicago Capital Markets,
Inc., as Syndication Agent, incorporated
herein by reference to the Company's Form
10-K dated January 30, 1999.
(c) Indenture dated as of October 1, 1996,
between the Company and State Street Bank and
Trust Company, as Trustee, incorporated
herein by reference to the Company's Form 8-K
dated October 7, 1996.
(c) (i) First Supplemental Indenture dated as of
January 9, 1997, between the Company and
State Street Bank and Trust Company, as
Trustee, incorporated herein by reference to
the Company's Form 8-K dated January 9, 1997.
(c) (ii) Second Supplemental Indenture dated as of
January 23, 1998, between the Company and
State Street Bank and Trust Company, as
Trustee, incorporated herein by reference to
the Company's Form 10-K dated January 31, 1998.
(d) Senior Note Agreement, dated as of October 24,
1995, between the Company and Prudential
Insurance Company of America, as amended,
incorporated herein by reference to the
Company's Form 10-K dated February 1, 1997.
(d) (i) Amendment No. 2, dated October 7, 1997, to
the Senior Note Agreement between the Company
and Prudential Insurance Company of America,
as amended, incorporated herein by reference
to the Company's Form 10-Q dated November 1,
1997.
(d) (ii) Amendment No. 3, dated January 7, 1999, to
the Senior Note Agreement between the Company
and Prudential Insurance Company of America,
as amended, incorporated herein by reference to
the Company's Form 10-K dated January 30, 1999.
<PAGE 18>
(e) Certain instruments with respect to the long-
term debt of the Company 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 Company and
its subsidiaries on a consolidated basis. The
Company hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10. (a)* Fourth Amendment to the Brown Group, Inc.
Executive Retirement Plan, amended and restated
as of January 1, 1998, filed herewith.
(a) (i)* Fifth Amendment to the Brown Group, Inc.
Executive Retirement Plan, dated January 7,
2000, filed herewith.
(b)* Stock Option and Restricted Stock Plan of
1987, as amended, incorporated herein by
reference to Exhibit 3 to the Company's
definitive proxy statement dated April 26, 1988.
(c)* Stock Option and Restricted Stock Plan of 1994,
as amended, incorporated herein by reference
to Exhibit 3 to the Company's definitive proxy
statement dated April 17, 1996.
(d)* Stock Option and Restricted Stock Plan of 1998,
incorporated herein by reference to Exhibit 2
to the Company's definitive proxy statement
dated April 24, 1998.
(e)* 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.
(e) (i)* Amendment to Incentive and Stock Compensation
Plan of 1999, dated May 27, 1999, filed
herewith.
(e) (ii)* First Amendment to the Incentive and Stock
Compensation Plan of 1999, dated January 7,
2000, filed herewith.
(f)* Employment Agreement, dated May 14, 1998
between the Company and Ronald A. Fromm,
incorporated herein by reference to the
Company's Form 10-Q dated May 2, 1998.
(f) (i)* First Amendment to the Employment Agreement,
dated July 27, 1998 between the Company and
Ronald A. Fromm, filed herewith.
<PAGE 19>
(g)* Severance Agreement, dated July 27, 1998
between the Company and Brian C. Cook,
incorporated herein by reference to the
Company's Form 10-Q dated August 1, 1998.
(h)* Severance Agreement, dated July 27, 1998
between the Company and Ronald A. Fromm,
incorporated herein by reference to the
Company's Form 10-Q dated August 1, 1998.
(i)* Severance Agreement, dated July 27, 1998
between the Company and Gary M. Rich,
incorporated herein by reference to the
Company's Form 10-Q dated August 1, 1998.
(j)* Severance Agreement, dated July 27, 1998
between the Company and David H. Schwartz,
incorporated herein by reference to the
Company's Form 10-Q dated August 1, 1998.
(k)* Severance Agreement, dated December 1, 1999,
between the Company and Charles C. Gillman,
filed herewith.
(l)* Early Retirement Agreement, dated October 26,
1999 between the Company and Harry E. Rich,
filed herewith.
(m)* Brown Shoe Company, Inc. Deferred Compensation
Plan for Non-Employee Directors, filed herewith.
13. Annual Report to Shareholders of Brown Shoe
Company, Inc. for the fiscal year ended
January 29, 2000. Such report, except for
portions specifically 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 for fiscal 1999.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the
quarter ended January 29, 2000.
<PAGE 20>
(c) Exhibits:
Exhibits begin on page 27 of this Form 10-K.
On request copies of any exhibit will be
furnished to shareholders upon payment of the
Company's reasonable expenses incurred in
furnishing such exhibits.
*Denotes management contract or compensatory plan arrangements.
<PAGE 21>
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, 2000 BROWN SHOE COMPANY, INC.
- -------------------- ---------------------------------
(Registrant)
By /s/ Andrew M. Rosen
---------------------------------
Andrew M. Rosen
On behalf of the Company as
Principal Financial Officer
Know all men by these presents, that each person whose
signature appears below constitutes and appoints Andrew M. Rosen
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, 2000, by
the following persons on behalf of the Registrant and in the
capacities indicated.
Signatures Title
---------- -----
/s/ Ronald A. Fromm Chairman of the Board of Directors
- ---------------------------- President and Chief Executive
Ronald A. Fromm Officer and on behalf of the Company
as Principal Executive Officer
/s/ Andrew M. Rosen Chief Financial Officer
- ----------------------------
Andrew M. Rosen
/s/ Richard C. Schumacher Vice President and Controller and
- ---------------------------- on behalf of the Company as
Richard C. Schumacher Principal Accounting Officer
<PAGE 22>
Signature Title
--------- -----
- ------------------------------ Director
Joseph L. Bower
/s/ Julie C. Esrey Director
- ------------------------------
Julie C. Esrey
/s/ Richard A. Liddy Director
- ------------------------------
Richard A. Liddy
/s/ John Peters MacCarthy Director
- ------------------------------
John Peters MacCarthy
/s/ Patricia G. McGinnis Director
- ------------------------------
Patricia G. McGinnis
- ------------------------------ Director
W. Patrick McGinnis
- ------------------------------ Director
Jerry E. Ritter
<PAGE 23>
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED JANUARY 29, 2000
BROWN SHOE COMPANY, INC.
ST. LOUIS, MISSOURI
<PAGE 24>
FORM 10-K - ITEM 14 (a) (1) and (2)
BROWN SHOE COMPANY, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Brown Shoe
Company, Inc. and subsidiaries included in the annual report of
the registrant to shareholders for the year ended January 29,
2000, are incorporated by reference in Item 8:
Consolidated Balance Sheets - January 29, 2000, and January
30, 1999.
Consolidated Earnings - Years ended January 29, 2000,
January 30, 1999, and January 31, 1998.
Consolidated Cash Flows - Years ended January 29, 2000,
January 30, 1999, and January 31, 1998.
Consolidated Shareholders' Equity - Years ended January 29,
2000, January 30, 1999, and January 31, 1998.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
The following consolidated financial statement schedule of
Brown Shoe Company, Inc. and subsidiaries is included in Item
14(a):
Schedule II - 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 25>
SCHEDULE II
-----------
VALUATION AND QUALIFYING ACCOUNTS
BROWN SHOE COMPANY, INC.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
COL. A. COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------
ADDITIONS
(1) (2)
-----------------------
Balance Charged to
at Charged to Other Balance
Beginning Costs and Accounts- Deductions- at End
of Period Expenses Describe Describe of Period
- -------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 29, 2000
- ---------------------------
Deducted from assets:
For doubtful accounts
and discounts $ 9,820 $2,234 - $3,966-A $ 8,088
YEAR ENDED JANUARY 30, 1999
- ---------------------------
Deducted from assets:
For doubtful accounts
and discounts $ 9,925 $2,772 - $2,877-A $ 9,820
YEAR ENDED JANUARY 31, 1998
- ---------------------------
Deducted from assets:
For doubtful accounts
and discounts $10,203 $5,145 - $5,423-A $ 9,925
</TABLE>
A. Accounts written off, net of recoveries
and discounts taken.
<PAGE 26>
BROWN SHOE COMPANY, INC.
ANNUAL REPORT TO SHAREHOLDERS ON FORM 10-K
INDEX TO EXHIBITS
Exhibit
-------
3. (b) Bylaws as amended through March 2, 2000.
10. (a) Fourth Amendment to the Brown Group, Inc.
Executive Retirement Plan, amended and
restated as of January 1, 1998.
10. (a) (i) Fifth Amendment to the Brown Group, Inc.
Executive Retirement Plan, dated
January 7, 2000.
10. (e) (i) Amendment to Incentive and Stock
Compensation Plan of 1999, dated
May 27, 1999.
10. (e) (ii) First Amendment to the Incentive and Stock
Compensation Plan of 1999, dated
January 7, 2000.
10. (f) (i) First Amendment to the Employment Agreement,
dated July 27, 1998 between the
Company and Ronald A. Fromm.
10. (k) Severance Agreement, dated December 1,
1999, between the Company and Charles
C. Gillman.
10. (l) Early Retirement Agreement, dated
October 26, 1999 between the Company
and Harry E. Rich.
10. (m) Brown Shoe Company, Inc. Deferred
Compensation Plan for Non-Employee
Directors.
13. 1999 Annual Report to Shareholders of
Brown Shoe Company, Inc.
21. Subsidiaries of the registrant
23. Consent of Independent Auditors
24. Power of Attorney (see signature page)
27. Financial Data Schedule - fiscal 1999
EXHIBIT 3.(b)
BROWN SHOE COMPANY, INC.
A NEW YORK CORPORATION
BYLAWS
ADOPTED BY THE STOCKHOLDERS
JANUARY 11, 1946
AMENDED THROUGH MARCH 2, 2000
BYLAWS
OF
BROWN SHOE COMPANY, 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. A
proxy may be appointed either by instrument in writing
executed by such holder or by his duly authorized
attorney, or by such other means, including the
transmission of a telegram, cablegram or other means of
electronic transmission, such as telephone and
Internet, as may be authorized under the laws of the
State of New York. No proxy shall be valid after the
expiration of eleven months from the date of its
execution or transmission unless the stockholder
executing or transmitting 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 stockholders 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 eight. Such
directors shall be classified in respect of the time
for which they shall severally hold office, by dividing
them into two classes consisting of three directors
each and one class consisting of two directors. At
each annual election, the successors of the directors
of the class whose term shall expire in that year shall
be elected to hold office for the term of three years
so that the term of office of one class of directors
shall expire in each year. The Board of Directors
shall not choose as a director to fill a temporary
vacancy any person over the age of seventy years, and
shall not recommend to the stockholders any person for
election as a director for a term extending beyond the
Annual Meeting of Stockholders following the end of the
calendar year during which he attains his seventieth
birthday, provided, however, that this shall not
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.
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.
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.
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.
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.
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.
Exhibit 10.(a)
FOURTH AMENDMENT TO THE
BROWN GROUP, INC. EXECUTIVE
RETIREMENT PLAN
---------------
WHEREAS, Brown Group, Inc. ("Company") and its
Affiliates have adopted the Brown Group, Inc. Executive
Retirement Plan (the "Plan") for the benefit of eligible
employees of the Company and its affiliates; and
WHEREAS, the Company retained the right to amend the
Plan pursuant to Section V.G thereof; and
WHEREAS, the Company desires to amend and restate the
Plan effective as of January 1, 1998;
NOW, THEREFORE, effective as of January 1, 1998, the
Plan is amended and restated to read as follows:
SECTION I
---------
DEFINITIONS
-----------
A. "Affiliate" means any corporation which, with the
consent of the Board of Directors of the Company, adopts the
Plan.
B. "Change of Control" means a change of control of
the Company which shall be deemed to occur if:
1. any person other than the Company shall
acquire more than 25% of the Company's common stock through
a tender offer, exchange offer or otherwise; or
2. the Company shall be liquidated or dissolved
following a sale of all or substantially all of its assets;
or
3. the Company shall not be the surviving parent
corporation resulting from any merger or consolidation to
which it is a party.
C. "Code" means the Internal Revenue Code of 1986, as
amended.
D. "Committee" means the committee appointed pursuant
to Section IV.
E. "Company" means Brown Group, Inc., a New York
corporation.
F. "Early Retirement Benefit" means the early
retirement benefit payable to a Participant under Section
III.A.2. of the Plan on his Early Retirement Date under the
Retirement Plan.
G. "Effective Date" means January 1, 1983.
H. "Employee" means a person employed by the
Employer.
I. "Employer" means the Company or an Affiliate.
J. "Normal Retirement Benefit" means the benefit
payable to a Participant under Section III.A.1. of the Plan on
his Normal Retirement Date under the Retirement Plan.
K. "Participant" means an Employee who has satisfied
the eligibility requirements of Section II.
L. "Plan" means this Brown Group, Inc. Executive
Retirement Plan.
M. "Pre-Retirement Death Benefit" means the death
benefit payable under Section III.A.3. of the Plan.
N. "Retirement Plan" means the Brown Group, Inc.
Retirement Plan.
SECTION II
----------
ELIGIBILITY
-----------
On and after the Effective Date, the Committee may, in
its sole discretion, by notice in writing, designate any highly
paid key Employee who is a participant in the Retirement Plan, a
Participant in this Plan.
SECTION III
-----------
BENEFITS
--------
A. Subject to B., below, benefits shall be payable
under the Plan only to those Participants who are receiving a
Benefit under the Retirement Plan or to the surviving beneficiary
of a Participant entitled to a death benefit under the Retirement
Plan.
1. The Normal Retirement Benefit payable under
the Plan shall equal (a) minus (b) below, where:
(a) equals the Normal Retirement
Benefit calculated under the Retirement Plan without
regard to the limitations imposed by Sections 415 and
401(a)(17) of the Code but adjusted by substituting
1.465% where 1.425% appears in Section I.A. of the
Retirement Plan, and
(b) equals the Normal Retirement
Benefit payable under the Retirement Plan.
2. The Early Retirement Benefit payable under the
Plan shall equal (a) minus (b), below, where:
(a) equals the Normal Retirement
Benefit calculated under the Retirement Plan without
regard to the limitations imposed by Sections 415 and
401(a)(17) of the Code but adjusted by substituting
1.465% where 1.425% appears in Section I.A. of the
Retirement Plan, and by reducing such benefit to the
retiree by .8333% for each full month between his Early
Retirement Date under the Retirement Plan and the first
of the month coincident with or next following the
month in which the retiree attains age 60; and
(b) equals the Early Retirement Benefit
payable under the Retirement Plan.
3. The deferred vested benefit payable at Normal
Retirement Date under the Plan shall equal (a) minus (b)
below, where:
(a) equals the deferred vested benefit
calculated under Section VII of the Retirement Plan
without regard to the limitations imposed by
Sections 415 and 401(a)(17) of the Code, but adjusted
by substituting 1.465% where 1.425% appears in
Section I.A. of the Retirement Plan; and
(b) equals the deferred vested benefit
payable under Section VII of the Retirement Plan.
If benefits begin on or after attainment
of age 55 and completion of at least ten years of
Credited Service, the Early Retirement reduction
factors specified in Section III.A.2(a) of this Plan
shall be applied to the deferred vested benefit
described above.
4. The Pre-Retirement Death Benefit payable
under the Plan shall equal (a) minus (b) below, where:
(a) equals the Pre-Retirement Death
Benefit calculated under the Retirement Plan without
regard to the limitations imposed by Sections 415 and
401(a)(17) of the Code, but adjusted (1) by
substituting 1.465% where 1.425% appears in Section
I.A. of the Retirement Plan, (2) by substituting the
Early Retirement reduction factors specified in
Section III.A.2(a) of this Plan for those specified in
the Retirement Plan, and (3) by substituting for "fifty
percent (50%)" in VI(A)(5)(a) of the Retirement Plan
the following:
(i) "seventy-five percent
(75%)" if the Participant had not attained age 55
at his death and
(ii) "one-hundred percent
(100%)" if the Participant had attained age 55 at
his death; and
(b) equals the Pre-Retirement Death
Benefit payable under the Retirement Plan.
5. Notwithstanding anything in this Plan to the
contrary, for purposes of calculating the benefits of Brian
C. Cook or Harry E. Rich under A.1, A.2, A.3 or A.4, an
additional ten (10) years of Credited Service shall be
credited to Brian C. Cook's and Harry E. Rich's actual or
deemed Credited Service.
6. The additional retirement benefits payable by
the Company to B. A. Bridgewater, Jr. in accordance with the
terms of a letter from the Company to Mr. Bridgewater dated
June 2, 1988, as well as any additional benefits provided
under written contractual commitments to any other
Participant, shall be payable from the Plan.
B. Notwithstanding anything else contained in the
Plan, in the event of a Change of Control, the Company shall
determine the lump sum actuarial equivalent of the benefits
payable under Section III.A as if the Participant retired under
the Retirement Plan as of the effective date of the Change of
Control (using the same actuarial assumptions which are used in
calculating benefits under the Retirement Plan at the time of the
Change of Control and assuming that any accrued benefits under
the Retirement Plan were fully vested) and shall pay such amount
to the Participant within 30 days after such date in full
discharge of its obligations under the Plan. Following such
payment the Plan shall terminate.
C. The benefit payable under A.1, A.2, A.3 or A.4,
above, and such portion of the benefit payable under A.5 or A.6
above, the form of payment of which is not otherwise specifically
provided for in the letters referred to therein, will be paid in
monthly installments for the life of the Participant (or the
Participant's beneficiary, in the case of the benefit payable
under A.4); provided however, that the Participant (or the
Participant's beneficiary, in the case of the benefit payable
under A.4) may, with the consent of the Committee, elect to
receive such benefit in a lump sum or in any of the optional
forms of payments available under the Retirement Plan, such lump
sum and optional forms to be of equivalent actuarial value to the
benefits payable for life using the same actuarial assumptions
which are used in calculating benefits under the Retirement Plan;
provided further, that a Participant entitled to payments under
Section A.3 shall not be entitled to receive benefits in the form
of an annuity unless he has either attained age 65 or has both
attained age 55 and completed 10 years of Credited Service. Such
election shall be made pursuant to such rules as the Committee
shall, from time to time, adopt; provided, however, that if a
Participant's benefits under the Retirement Plan are limited by
the operation of Code Section 415, then such Participant's
benefit under this Plan may not commence any earlier than such
Participant's benefits commence under the Retirement Plan.
D. Except as provided in Sections A.5 and A.6, the
benefit calculated under A.1(a), A.2(a), A.3(a) and A.4(a) and
the offsets calculated under A.1(b), A.2(b), A.3(b) and A.4(b)
shall be calculated based only on Credited Service under the
Retirement Plan earned up to the earlier of the date upon which
the Participant terminates employment with the Company and its
Affiliates or the date as of which the Committee determines that
a Participant is no longer a Participant in the Plan.
E. If the optional form of benefit received from the
Retirement Plan is not actuarially equivalent to the life only
annuity due to the operation of the limitations under Code
Section 415, then the benefit payable from this Plan shall be
adjusted so that the actuarial value of the total benefit from
both this Plan and the Retirement Plan shall not exceed the
actuarial value of the benefit specified in A.1(a), A.2(a),
A.3(a) or A.4(a), whichever applies.
SECTION IV
----------
ADMINISTRATION AND CLAIMS PROCEDURE
-----------------------------------
A. The Board of Directors of the Company shall
appoint a Committee of not less than three persons, who shall
serve without compensation at the pleasure of the Board of
Directors. Upon death, resignation or inability of a member of
the Committee to continue, the Board of Directors shall appoint a
successor. The Chief Financial Officer of the Company shall not
serve as a member of the Committee.
B. The Committee shall construe, interpret and
administer all provisions of the Plan and a decision of a
majority of the members of the Committee shall govern.
C. A decision of the Committee may be made by a
written document signed by a majority of the members of the
Committee or by a meeting of the Committee. The Committee may
authorize any of its members to sign documents or papers on its
behalf.
D. The Committee shall appoint a Chairman from among
its members, and a Secretary who need not be a member of the
Committee. The Secretary shall keep all records of meetings and
of any action by the Committee and any and all other records
desired by the Committee. The Committee may appoint such agents,
who need not be members of the Committee, as it may deem
necessary for the effective exercise of its duties, and may, to
the extent not inconsistent herewith, delegate to such agents any
powers and duties, both ministerial and discretionary, as the
Committee may deem expedient and appropriate.
E. No member of the Committee shall make any decision
or take any action covering exclusively his own benefits under
the Plan, but all such matters shall be decided by a majority of
the remaining members of the Committee or, in the event of
inability to obtain a majority, by the Board of Directors of the
Company.
F. A Participant who believes that he is being denied
a benefit to which he is entitled (hereinafter referred to as
'Claimant') may file a written request for such benefit with the
Committee setting forth his claim. The request must be addressed
to: Committee, Brown Group, Inc. Executive Retirement Plan, 8400
Maryland Avenue, St. Louis, Missouri 63105.
G. Upon receipt of a claim the Committee shall advise
the Claimant that a reply will be forthcoming within 90 days and
shall in fact deliver such reply in writing within such period.
The Committee may, however, extend the reply period for an
additional 90 days for reasonable cause. If the claim is denied
in whole or in part, the Committee will adopt a written opinion
using language calculated to be understood by the Claimant
setting forth:
1. the specific reason or reasons for
denial,
2. the specific references to pertinent
Plan provisions on which the denial is based,
3. a description of any additional material
or information necessary for the Claimant to perfect
the claim and an explanation why such material or such
information is necessary,
4. appropriate information as to the steps
to be taken if the Claimant wishes to submit the claim
for review, and
5. the time limits for requesting a review
under Subsection H and for the review under Subsection I.
H. Within sixty days after the receipt by the
Claimant of the writtenopinion described above, the Claimant may
request in writing that the Chief Financial Officer of the
Company review the determination of the Committee. Such request
must be addressed to: Chief Financial Officer, Brown Group, Inc.
8400 Maryland Avenue, St. Louis, Missouri 63105. The Claimant or
his duly authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing for
consideration by the Chief Financial Officer. If the Claimant
does not request a review of the Committee's determination by the
Chief Financial Officer within such sixty-day period, he shall be
barred and estopped from challenging the Committee's
determination.
I. Within sixty days after the Chief Financial
Officer's receipt of a request for review, he will review the
Committee's determination. After considering all materials
presented by the Claimant, the Chief Financial Officer will
render a written opinion, written in a manner calculated to be
understood by the Claimant, setting forth the specific reasons
for the decision and containing specific references to the
pertinent Plan provisions on which the decision is based. If
special circumstances require that the sixty-day time period be
extended, the Chief Financial Officer will so notify the Claimant
and will render the decision as soon as possible but not later
than 120 days after receipt of the request for review.
SECTION V
---------
MISCELLANEOUS
-------------
A. Plan Year. The Plan Year shall be the calendar
year.
B. Spendthrift. No Participant or beneficiary shall
have the right to assign, transfer, encumber or otherwise subject
to lien any of the benefits payable or to be payable under this
Plan.
C. Incapacity. If, in the opinion of the Committee,
a person to whom a benefit is payable is unable to care for his
affairs because of illness, accident or any other reason, any
payment due the person, unless prior claim therefor shall have
been made by a duly qualified guardian or other duly appointed
and qualified representative of such person, may be paid to some
member of the person's family, or to some party who, in the
opinion of the Committee, has incurred expense for such person.
Any such payment shall be a payment for the account of such
person and shall be a complete discharge of any liability.
D. Employee Rights. The Employer, in adopting this
Plan, shall not be held to create or vest in any Employee or any
other person any benefits other than the benefits specifically
provided herein, or to confer upon any Employee the right to
remain in the service of the Employer.
E. Service of Process and Plan Administrator.
1. The Treasurer of the Company shall be
the agent for service of legal process.
2. The Company shall constitute the Plan
Administrator.
F. Unfunded Plan. The Plan shall be unfunded until
after a Change of Control. All payments to a Participant under
the Plan shall be made from the general assets of the Employer.
The rights of any Participant to payment shall be those of an
unsecured general creditor of the Employer.
G. Company Rights. The Company reserves the right to
amend or terminate the Plan. Each Employer may terminate its
participation in the Plan at any time.
H. Reemployment. If a Participant is receiving
benefits under the Plan and is re-employed by an Employer,
benefits shall cease until he is no longer employed by an
Employer.
I. Governing Law. The Plan shall be governed and
construed according to the laws of the State of Missouri.
IN WITNESS WHEREOF, Brown Group, Inc. has caused this
Amendment to be executed by its duly authorized officers this
3rd day of December, 1998.
BROWN GROUP, INC.
By /s/ Andrew M. Rosen
---------------------------
ATTEST: /s/ Robert D. Pickle.
---------------------------
Exhibit 10.(a)(i)
FIFTH AMENDMENT TO THE
BROWN GROUP, INC.
EXECUTIVE RETIREMENT PLAN
-------------------------
WHEREAS, Brown Shoe Company, Inc. ("Company") and its
Affiliates have adopted the Brown Group, Inc. Executive
Retirement Plan ("Plan") for the benefit of eligible employees of
the Company and its Affiliates; and
WHEREAS, the Company retained the right to amend the
Plan pursuant to Section V.G thereof; and
WHEREAS, the Company desires to amend the Plan
effective as of January 1, 2000;
NOW, THEREFORE, effective as of January 1, 2000, the
Plan is amended by deleting Section III.B thereof and replacing
it with the following:
B. Notwithstanding anything else contained in the
Plan, in the event of a Change of Control, the Company shall
determine the lump sum actuarial equivalent of the benefits
payable under Section III.A.1 if the Participant has reached his
Normal Retirement Date under the Retirement Plan, or under
Section III.A.2 if the Participant has not reached his Normal
Retirement Date under the Retirement Plan, as if the Participant
retired as of the effective date of the Change of Control (using
the same actuarial assumptions which are used in calculating
benefits under the Retirement Plan at the time of the Change of
Control and assuming that any accrued benefits under the
Retirement Plan were fully vested) and shall pay such amount to
the Participant within 30 days after such date. In the event the
Participant has not attained age 60 as of the effective date of
the Change of Control, such lump sum shall be determined based on
the benefit that would be payable under Section III.A.2
commencing at age 60 actuarially reduced to reflect the
Participant's age on the date of the Change in Control. In the
event a Participant had previously retired and is receiving a
monthly benefit as of the effective date of the Change of
Control, such lump sum shall be based on the payment form and
amount being received by the Participant. In the event that,
subsequent to the Change of Control, a Participant becomes
entitled to any additional benefits pursuant to the terms of a
written contractual commitment as described in Section III.A.6
above, such additional benefits shall be paid as soon as
practicable after they have become due in a single lump sum in
accordance with the principles outlined in the preceding
sentences. After all payments described in the preceding
sentences of this Section III.B have been made, the Plan shall
terminate.
IN WITNESS WHEREOF, Brown Shoe Company, Inc. has
adopted this Amendment this 7th day of January, 2000.
/s/ Ronald A. Fromm
----------------------------------
Exhibit 10.(e)(i)
AMENDMENT TO INCENTIVE AND
STOCK COMPENSATION PLAN OF 1999
WHEREAS, Brown Group, Inc. (the
"Company") previously adopted the
Brown Group, Inc. Incentive and
Stock Option Plan (the "Plan");
WHEREAS, the Board of Directors of
the Company may amend the Plan at
any time pursuant to Section 14.1
thereof; and
WHEREAS, the Board of Directors of
the Company desires to amend the
Plan, effective May 27, 1999;
NOW, THEREFORE, effective May 27,
1999, the Plan is amended by adding
the following Section 6.10:
"6.10 Prohibition Against
Repricing. Notwith-standing any
other provision of the Plan (other
than Section 4.2, which, in all
cases, shall control) no Option
granted hereunder shall be
repriced, replaced or regranted
through cancellation, or by
lowering the Option exercise of a
previous Award, without approval of
the Company's stockholders of an
amendment to this Section 6.10."
I, ROBERT D. PICKLE, Vice President, General Counsel
and Corporate Secretary of Brown Group, Inc. (the
"Corporation"), do hereby certify that the above is a true
and correct excerpt from the minutes of the meeting of the
Board of Directors of the Corporation, duly called and held
on Thursday, May 27, 1999, at which meeting a quorum of the
said Board of Directors was present and voting throughout,
and that the resolutions set forth in said excerpt have not
been modified, amended or rescinded and are still in full
force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed the corporate seal of the Corporation this 27th day
of May, 1999.
/s/ Robert D. Pickle
--------------------------
Robert D. Pickle
Vice President, General
Counsel and Corporate
Secretary of BROWN
GROUP, INC.
(SEAL)
Exhibit 10.(e)(ii)
FIRST AMENDMENT TO THE
INCENTIVE AND STOCK COMPENSATION PLAN OF 1999
---------------------------------------------
WHEREAS, Brown Shoe Company, Inc., a New York
corporation ("Company"), previously established the Brown Group,
Inc. Incentive and Stock Compensation Plan of 1999 ("Plan"); and
WHEREAS, pursuant to Article 14 of the Plan, the Board
of Directors of the Company reserved the right to amend the Plan;
and
WHEREAS, the Board of Directors desires to amend the
Plan effective retroactively to its effective date of May 27,
1999;
NOW, THEREFORE, BE IT RESOLVED, that the Plan is
amended effective May 27, 1999 by deleting Section 13.1 and
replacing it with the following:
13.1 Treatment of Outstanding Awards. Upon the
occurrence of a Change in Control, unless otherwise specifically
prohibited under applicable laws, or by the rules and regulations
of any governing governmental agencies or national securities
exchanges:
(a) Any and all Options granted hereunder shall
become immediately exerciseable;
(b) Any restriction periods and restrictions
imposed on Restricted Shares which are not performance-based, as
set forth in the Restricted Stock Award Agreement, shall lapse;
and
(c) The target payout opportunities attainable
under all outstanding Awards of Restricted Stock, Performance
Units, Performance Shares and Cash-Based Awards shall be deemed
to have been fully earned for the entire Performance Period(s) as
of the effective date of the Change in Control, and all such
Awards shall be deemed to be fully vested.
As of the effective date of the Change in Control, (a)
each Participant holding Options shall be paid in cash, in full
satisfaction thereof, an amount equal to the excess, if any, of
(i) the aggregate value of the Shares subject to such Options
(based on the consideration per Share paid by the acquirer in
connection with the Change in Control) over (ii) the aggregate
exercise price of such Options, and (b) each Participant awarded
Performance Shares shall be paid in cash, in full satisfaction
thereof, an amount equal to (i) the value of one Share (based on
the consideration per Share paid by the acquirer in connection
with the Change in Control) multiplied by (ii) the number of
Performance Shares awarded to such Participant.
IN WITNESS WHEREOF, the Company has adopted this
Amendment this 7th day of January, 2000 effective as of May 27,
1999.
/s/ Ronald A. Fromm
-----------------------------
Exhibit 10.(f)(i)
FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT
-------------------------------------------
WHEREAS, Brown Group, Inc. (the "Company") and Ronald
A. Fromm (the "Employee") previously executed the Employment
Agreement dated May 14, 1998 (the "Agreement"); and
WHEREAS, the Agreement provides in Section 13 that the
Agreement may be modified by a written agreement executed by the
Company and the Employee; and
WHEREAS, the Company and the Employee desire to amend
the Agreement effective July 27, 1998;
NOW, THEREFORE, effective, July 27, 1998, the Agreement
is hereby amended as follows:
1. Section 2 is deleted in its entirety and replaced by
the following:
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 the
Company is terminated by the Company other than for Cause (as
defined in the Severance Agreement, which is incorporated into
this agreement pursuant to Section 15 and which is attached
hereto as Exhibit 1) prior to April 30, 2001, Fromm may elect to
receive from the Company either (a) Thirty-Seven Thousand Five
Hundred Dollars ($37,500) multiplied by the number of 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, plus, if Fromm is
terminated prior to January 30, 1999, an incentive payment of
$180,000 or (b) if the Severance Agreement has not previously
terminated, severance benefits payable in according with the
Severance Agreement.
2. Section 3 is deleted in its entirety and replaced by
the following:
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 the Company. A payment of no less than $180,000 for the
Company's fiscal year ending January 30, 1999, shall be paid to
Fromm in all events within 60 days after the end of such year, if
Fromm is employed by the Company at the end of such year.
3. Section 6 is deleted in its entirety and replaced by
the following:
6. Other Benefits. If Fromm's employment with the
Company is terminated before April 30, 2001 other than for Cause
and Fromm, in accordance with his election under Section 2,
receives the benefits described in Section 2(a), Fromm shall
continue, until April 30, 2001, to be entitled to all rights and
benefits currently enjoyed by Fromm as an employee of the
Company, with such upward adjustments as are appropriate to take
into account his position of increased responsibility. If
Fromm's employment with the Company is terminated other than as
described in the preceding sentence, all rights and benefits
currently enjoyed by Fromm as an employee of the Company shall
terminate, unless provided otherwise in the Severance Agreement.
4. Section 7 is deleted in its entirety and replaced by
the following:
7. Termination for Cause. "Cause" shall have the
meaning set forth in the Severance Agreement.
5. A new Section 15 shall be added to the Agreement as
follows:
15. Severance Agreement. The terms of the Severance Agreement,
attached hereto as Exhibit 1, shall be part of this Agreement,
except that if Fromm elects to receive the benefits described in
Section 2(a), (a) he shall not receive the benefits described in
the Severance Agreement, but (b) all other provisions of the
Severance Agreement shall apply.
IN WITNESS WHEREOF, the Company and the Employee have
caused this amendment to be executed this 27th day of July, 1998.
BROWN GROUP, INC.
By: /s/ B. A. Bridgewater, Jr.
--------------------------------------------
Its: Chairman of the Board of Directors,
President and Chief Executive Officer.
EMPLOYEE
By: /s/ Ronald A. Fromm
--------------------------------------------
Attest: Ronald A. Fromm
/s/ James E. Preuss
- -----------------------------
Exhibit 10.(k)
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT (the "Agreement") dated December 1,
1999 ("Effective Date") between Charles C. Gillman
("Employee") and Brown Shoe Company, Inc., a New York
corporation (as further defined in Section 13, the
"Company").
WHEREAS, in order to accomplish its objectives, the
Company believes it is essential that members of its
Operating Committee, such as Employee, be encouraged to
remain with the Company during management transition and
thereafter and in the event there is any change in corporate
structure which results in a Change in Control.
WHEREAS, Employee wishes to have the protection
provided for in this Agreement and, in exchange for such
protection, is willing to give to the Company, under certain
circumstances, his covenant not to compete.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
a. "Cause" means (i) engaging by Employee in
willful misconduct which is materially injurious to the
Company; (ii) conviction of the Employee of a felony;
(iii) engaging by Employee in fraud, material
dishonesty or gross misconduct in connection with the
business of the Company; (iv) engaging by Employee in
any act of moral turpitude reasonably likely to
materially and adversely affect the Company or its
business; or (v) habitual use by Employee of narcotics
or alcohol.
b. "Change of Control" means (i) any person
other than the Company acquiring more than 25 percent
of the Company's Common Stock through a tender offer,
exchange offer or otherwise; (ii) the liquidation or
dissolution of the Company following the sale of all or
substantially all of its assets; or (iii) the Company
not being the surviving parent corporation resulting
from any merger or consolidation to which it has been a
party.
c. "Competitor" shall mean any person, firm,
corporation, partnership or other entity which in its
prior fiscal year had annual gross sales volume or
revenues of shoes of more than $20,000,000 or is
reasonably expected to have such sales or revenues in
either the current fiscal year or the next following
fiscal year.
d. "Confidential Information" shall have the
meaning set forth in Section 10.
e. "Customer" shall mean any wholesale customer
of the Company which either purchased from the Company
during the one (1) year immediately preceding the
Termination Date, or is reasonably expected by the
Company to purchase from the Company in the one (1)
period immediately following the Termination Date, more
than $1,000,000 in shoes.
f. "Good Reason," when used with reference to a
voluntary termination by Employee of his employment
with the Company, shall mean (i) a reduction in
Employee's base salary as in effect on the date hereof,
or as the same may be increased from time to time; or
(ii) a reduction in Employee's status, position,
responsibilities or duties.
g. "Term" means the period commencing on the
Effective Date and terminating three years after the
Effective Date; provided, however, that the Term shall
automatically be extended for successive additional one
year periods unless either party to this Agreement
provides the other party with notice of termination of
this Agreement at least six months prior to the
expiration of such one year periods.
h. "Termination Date" shall mean the effective
date as provided hereunder of the termination of
Employee's employment.
2. Termination During Term -- Change in Control
Severance Inapplicable.
a. Employee's employment may be terminated by
the Company for Cause at any time, effective upon the
giving to Employee of a written notice of termination
specifying in detail the particulars of the conduct of
Employee deemed by the Company to justify such
termination for Cause.
b. Employee's employment may be terminated by
the Company without Cause at any time, effective upon
the giving to Employee of a written notice of
termination specifying that such termination is without
Cause.
c. Employee may terminate his employment with
the Company at any time.
d. Upon a termination by the Company of
Employee's employment for Cause during the Term, but
prior to a Change in Control or more than 24 months
after a Change in Control, Employee shall be entitled
only to the payments specified in Section 3.a. below.
Upon a termination by the Company of Employee's
employment without Cause during the Term, but prior to
a Change in Control or more than 24 months after a
Change in Control, Employee shall be entitled to all of
the payments and benefits specified in Section 3 below.
e. If Employee voluntarily terminates his
employment during the Term, but prior to a Change in
Control or more than 24 months after a Change in
Control, he shall notify Employer in writing if he
believes the termination is for Good Reason. Employee
shall set forth in reasonable detail why Employee
believes there is Good Reason. If such termination is
for Good Reason, Employee shall be entitled to all of
the payments and benefits specified in Section 3 below.
If such voluntary termination is for other than Good
Reason, then Employee shall be entitled only to the
payments specified in Section 3.a. below.
3. Payments and Benefits Upon Termination During Term
- -- Change in Control Severance Inapplicable. To the extent
provided in Section 2 above, upon termination of his
employment during the Term, but prior to a Change in Control
or more than 24 months after a Change in Control, Employee
shall receive the following payments and benefits:
a. The Company shall pay to Employee on the
Termination Date (i) the full base salary earned by
employee through the Termination Date and unpaid at the
Termination Date, plus (ii) credit for any vacation
earned by Employee but not taken at the Termination
Date, plus (iii) all other amounts earned by Employee
and unpaid as of the Termination Date.
b. The Company shall continue to pay to Employee
his base monthly salary at the highest rate in effect
at any time during the twelve months immediately
preceding the Termination Date (including his targeted
bonus in the current year) for the eighteen months
succeeding his Termination Date. Such amounts shall be
paid in accordance with the Company's regular pay
period policy for its employees.
c. The Company, at its expense, shall provide to
Employee for a period of eighteen months after the
Termination Date medical and/or dental coverage under
the medical and dental plans maintained by the Company.
Upon Employee's re-employment during such period, to
the extent covered by the new Employer's Plan, coverage
under the Company's plan shall lapse. Additionally,
the Company shall make a cash lump sum payment in an
amount equal to the sum of (i) and (ii) below:
(i) The fair market value (determined
as of the Termination Date) of that number of
shares of non-vested restricted stock of the
Company held by the Employee which would have
vested within the eighteen month period following
the Employee's Termination Date had the Employee
remained employed with the Company; plus
(ii) With respect to each non-vested
option to purchase Company stock held by the
Employee which would have vested within the
eighteen month period following the Employee's
Termination Date had the Employee remained
employed with the Company, the excess, if any, of
the fair market value (determined as of the
Termination Date) of the Company stock subject to
such option over the exercise price of such
option.
Employee's participation in and/or coverage under all
other employee benefit plans, programs or arrangements
sponsored or maintained by the Company shall cease
effective as of the Termination Date.
d. The Company shall pay the reasonable costs of
outplacement services selected by the Company.
e. For purposes of determining Employee's
benefit under the Brown Group, Inc. Supplemental
Employment Retirement Plan, an additional 1.5 years of
Credited Service shall be credited to the Employee's
actual or deemed Credited Service.
4. Termination Within 24 Months After a Change in
Control Which Occurs During the Term.
a. Employee's employment may be terminated by
the Company for Cause at any time, effective upon the
giving to Employee of written notice of termination
specifying in detail the particulars of the conduct of
Employee deemed by the Company to justify such
termination for Cause.
b. Employee's employment may be terminated by
the Company without Cause at any time, effective upon
the giving to Employee of a written notice of
termination specifying that such termination is without
Cause.
c. Employee may terminate his employment with
the Company at any time.
d. Upon a termination by the Company of
Employee's employment for Cause within 24 months after
a Change in Control which occurs during the Term,
Employee shall be entitled only to the payments
specified in Section 5.a. below. Upon a termination by
the Company of Employee's employment without Cause
within 24 months after a Change in Control which occurs
during the Term, Employee shall be entitled to all of
the payments and benefits specified in Section 5 below.
e. If Employee voluntarily terminates his
employment within 24 months after a Change in Control
which occurs during the Term, he shall notify the
Company in writing if he believes the termination is
for Good Reason. Employee shall set forth in
reasonable detail why Employee believes there is Good
Reason. If such termination is for Good Reason,
Employee shall be entitled to all of the payments and
benefits specified in Section 5 below. If such
voluntary termination is for other than Good Reason,
then Employee shall be entitled only to the payments
specified in Section 5.a. below.
5. Payments and Benefits Upon Termination Within 24
Months after a Change in Control Which Occurs During Term.
To the extent provided in 4 above, upon termination of his
employment within 24 months after a Change in Control which
occurs during the Term, Employee shall receive the following
payments and benefits:
a. The Company shall pay to Employee on the
Termination Date (i) the full base salary earned by
employee through the Termination Date and unpaid at the
Termination Date, plus (ii) credit for any vacation
earned by Employee but not taken at the Termination
Date, plus (iii) all other amounts earned by Employee
and unpaid as of the Termination Date.
b. The Company shall pay to Employee in a lump
sum not later than 30 days after his Termination Date
an amount equal to 250 percent of the sum of (i) his
base annual salary at the highest rate in effect at any
time during the twelve months immediately preceding the
Termination Date, and (ii) his targeted bonus for the
current year. In addition, the Company shall pay to
Employee his targeted bonus payment for the year of
termination prorated to the Termination Date.
c. The Company, at its expense, shall provide to
Employee for a period of thirty months after the
Termination Date medical and/or dental coverage under
the medical and dental plans maintained by the Company.
Upon Employee's re-employment during such period, to
the extent covered by the new employer's plan, coverage
under the Company's plan shall lapse. Employee's
participation in and/or coverage under all other
employee benefit plans, programs or arrangements
sponsored or maintained by the Company shall cease
effective as of the Termination Date.
d. The Company shall pay the reasonable costs of
outplacement services selected by the Company.
e. For purposes of determining Employee's
benefit under the Brown Group, Inc. Supplemental
Employment Retirement Plan, an additional 2.5 years of
Credited Service shall be credited to the Employee's
actual or deemed Credited Service.
6. Mitigation or Reduction of Benefits. Employee
shall not be required to mitigate the amount of any payment
provided for in Section 3 or Section 5 by seeking other
employment or otherwise. Except as otherwise specifically
set forth herein, the amount of any payment or benefits
provided in Section 3 or Section 5 shall not be reduced by
any compensation or benefits or other amounts paid to or
earned by Employee as the result of employment by another
employer after the Termination Date or otherwise.
7. Employee Expenses After Change in Control. If
Employee's employment is terminated by the Company within 24
months after a Change in Control which occurs during the
Term and there is a dispute with respect to this Agreement,
then all Employee's costs and expenses (including reasonable
legal and accounting fees) incurred by Employee (a) to
defend the validity of this Agreement, (b) if Employee's
employment has been terminated for Cause, to contest such
termination, (c) to contest any determinations by the
Company concerning the amounts payable by the Company under
this Agreement, or (d) to otherwise obtain or enforce any
right or benefit provided to Employee by this Agreement,
shall be paid by the Company if Employee is the prevailing
party.
8. Release. Notwithstanding anything to the contrary
stated in this Agreement, no benefits will be paid pursuant
to Sections 3 and 5 except under Sections 3.a. and 5.a.
prior to execution by Employee of a release to the Company
in the form attached as Exhibit A.
9. Covenant Not to Compete. Benefits payable
pursuant to Sections 3.b, 3.c, and 3.e are subject to the
following restrictions.
a. Post-Termination Restrictions.
i. Employee acknowledges that (i) the
Company has spent substantial money, time and effort
over the years in developing and solidifying its
relationships with its customers throughout the world
and in developing its Confidential Information;
(ii) under this Agreement, the Company is agreeing to
provide Employee with certain benefits based upon
Employee's assurances and promises contained herein not
to divert the Company's customers' goodwill or to put
himself in a position following his employment with
Company in which the confidentiality of Company's
Confidential Information might somehow be compromised.
ii. Accordingly, Employee agrees that, for
eighteen (18) months after a Termination Date described
in the second sentence of Section 2.d, Employee will
not, directly or indirectly, on Employee's own behalf
or on behalf of any other person, firm, corporation or
entity (whether as owner, partner, consultant, employee
or otherwise):
A. provide any executive- or
managerial-level services in the shoe industry in
the United States in competition with the Company,
for any Competitor;
B. hold any executive- or
managerial-level position with any Competitor in
the United States;
C. engage in any research and
development activities or efforts for a
Competitor, whether as an employee, consultant,
independent contractor or otherwise, to assist the
Competitor in competing in the shoe industry in
the United States;
D. cause or attempt to cause any
Customer to divert, terminate, limit, modify or
fail to enter into any existing or potential
relationship with the Company;
E. cause or attempt to cause any shoe
supplier or manufacturer of the Company to divert,
terminate, limit, modify or fail to enter into any
existing or potential relationship with the
Company; and
F. solicit, entice, employ or seek to
employ, in the shoe industry, any executive- or
managerial-level employee of, or any consultant or
advisor to, the Company.
b. Acknowledgment Regarding Restrictions.
Employee recognizes and agrees that the restraints
contained in Section 9.a. (both separately and in
total) are reasonable and should be fully enforceable
in view of the high-level positions Employee has had
with the Company, the national and international nature
of both the Company's business and competition in the
shoe industry, and the Company's legitimate interests
in protecting its Confidential Information and its
customer goodwill and relationships. Employee
specifically hereby acknowledges and confirms that he
is willing and intends to, and will, abide fully by the
terms of Section 9.a. of this Agreement. Employee
further agrees that the Company would not have adequate
protection if Employee were permitted to work for its
competitors in violation of the terms of this Agreement
since the Company would be unable to verify whether
(i) its Confidential Information was being disclosed
and/or misused, and (ii) Employee was involved in
diverting or helping to divert the Company's customers
and/or its customer goodwill.
c. Company's Right to Injunctive Relief. In the
event of a breach or threatened breach of any of
Employee's duties and obligations under the terms and
provisions of Section 9.a. of this Agreement, the
Company shall be entitled, in addition to any other
legal or equitable remedies it may have in connection
therewith (including any right to damages that it may
suffer), to temporary, preliminary and permanent
injunctive relief restraining such breach or threatened
breach. Employee hereby expressly acknowledges that
the harm which might result to Company's business as a
result of noncompliance by Employee with any of the
provisions of Section 9.a. would be largely
irreparable. Employee specifically agrees that if
there is a question as to the enforceability of any of
the provisions of Section 9.a. hereof, Employee will
not engage in any conduct inconsistent with or contrary
to such Section until after the question has been
resolved by a final judgment of a court of competent
jurisdiction. Employee undertakes and agrees that if
Employee breaches or threatens to breach the Agreement,
Employee shall be liable for any attorneys' fees and
costs incurred by Company in enforcing its rights
hereunder.
d. Employee Agreement to Disclose this
Agreement. Employee agrees to disclose, during the
eighteen month period following a Termination Date
described in the second sentence of Section 2.d, the
terms of this Section 9 to any potential future
employer.
10. Confidential Information. The Employee
acknowledges and confirms that certain data and other
information (whether in human or machine readable form) that
comes into his possession or knowledge (whether before or
after the date of this Employment Agreement) and which was
obtained from the Company, or obtained by the Employee for
or on behalf of the Company, and which is identified herein
is the secret, confidential property of the Company (the
"Confidential Information"). This Confidential Information
includes, but is not limited to:
a. lists or other identification of customers or
prospective customers of the Company (and key
individuals employed or engaged by such parties);
b. lists or other identification of sources or
prospective sources of the Company's products or
components thereof (and key individuals employed or
engaged by such parties);
c. all compilations of information,
correspondence, designs, drawings, files, formulae,
lists, machines, maps, methods, models, notes or other
writings, plans, records, regulatory compliance
procedures, reports, specialized or technical data,
schematics, source code, object code, documentation,
and software used in connection with the development,
manufacture, fabrication, assembly, marketing and sale
of the Company's products;
d. financial, sales and marketing data relating
to the Company or to the industry or other areas
pertaining to the Company's activities and contemplated
activities (including, without limitation,
manufacturing, transportation, distribution and sales
costs and non-public pricing information);
e. equipment, materials, procedures, processes,
and techniques used in, or related to, the development,
manufacture, assembly, fabrication or other production
and quality control of the Company's products and
services;
f. the Company's relations with its customers,
prospective customers, suppliers and prospective
suppliers and the nature and type of products or
services rendered to such customers (or proposed to be
rendered to prospective customers);
g. the Company's relations with its employees
(including, without limitation, salaries, job
classifications and skill levels); and
h. any other information designated by the
Company to be confidential, secret and/or proprietary
(including without limitation, information provided by
customers or suppliers of the Company).
Notwithstanding the foregoing, the term "Confidential
Information" shall not consist of any data or other
information which has been made publicly available or
otherwise placed in the public domain other than by the
Employee in violation of this Employment Agreement.
11. Certain Additional Payments by the Company.
a. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the
event it shall be determined that any payment or
distribution by the Company to or for the benefit of
the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any
additional payments required under this Section) (a
"Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any interest or penalties
are incurred by the Employee with respect to such
excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any
interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of
this Section 11.a., if it shall be determined that the
Employee is entitled to a Gross-Up Payment, but that
the Payments do not exceed 110 percent of the greatest
amount (the "Reduced Amount") that could be paid to the
Employee such that the receipt of Payments would not
give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Employee, and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
b. Subject to the provisions of Section 11.c.,
all determinations required to be made under this
Section 11, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving
at such determination, shall be made by Ernst & Young
or such other certified public accounting firm as may
be designated by the Employee (the "Accounting Firm")
which shall provide detailed supporting calculations
both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is
requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of
Control, the Employee shall appoint another nationally
recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 11, shall be paid
by the Company to the Employee within five days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding
upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant
to Section 11.c. and the Employee thereafter is
required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to
or for the benefit of the Employee.
c. The Employee shall notify the Company in
writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than
ten business days after the Employee is informed in
writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such
claim is requested to be paid. The Employee shall not
pay such claim prior to the expiration of the 30-day
period following the date on which the Employee gives
such notice to the Company (or such shorter period
ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies
the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the
Employee shall:
i. give the Company any information
reasonably requested by the Company relating to
such claim,
ii. take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to time,
including, without limitation, accepting legal
representation with respect to such claim by an
attorney reasonably selected by the Company,
iii. cooperate with the Company in good faith
in order to effectively contest such claim, and
iv. permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional
interest and penalties) incurred in connection with
such contest and shall indemnify and hold the Employee
harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with
respect thereto) imposed as a result of such
representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this
Section 11.c., the Company shall control all
proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct
the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner,
and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine;
provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the
Employee, on an interest-free basis and shall indemnify
and hold Employee harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to
payment of taxes for the taxable year of the Employee
with respect to which such contested amount is claimed
to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Employee
shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
d. If, after the receipt by the Employee of an
amount advanced by the Company pursuant to
Section 11.c., the Employee becomes entitled to receive
any refund with respect to such claim, the Employee
shall (subject to the Company's complying with the
requirements of Section 11.c.) promptly pay to the
Company the amount of such refund (together with any
interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant
to Section 11.c., a determination is made that the
Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify
the Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be
paid.
12. Notice. All notices hereunder shall be in writing
and shall be deemed to have been duly given (a) when
delivered personally or by courier, or (b) on the third
business day following the mailing thereof by registered or
certified mail, postage prepaid, or (c) on the first
business day following the mailing thereof by overnight
delivery service, in each case addressed as set forth below:
a. If to the Company
Brown Shoe Company, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63166-0029
Attention: Chief Executive Officer
b. If to Employee:
Charles C. Gillman
9914 East 10th Street
Indianapolis, IN 46229
Any party may change the address to which notices are to be
addressed by giving the other party written notice in the
manner herein set forth.
13. Successors; Binding Agreement.
a. The Company will require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company, upon or
prior to such succession, to expressly assume and agree
to perform this Agreement in the same manner and to the
same extent that the Company would have been required
to perform it if no such succession had taken place. A
copy of such assumption and agreement shall be
delivered to Employee promptly after its execution by
the successor. Failure of the Company to obtain such
agreement upon or prior to the effectiveness of any
such succession shall be a breach of this Agreement and
shall entitle Employee to benefits from the Company in
the same amounts and on the same terms as Employee
would be entitled hereunder if Employee terminated his
employment for Good Reason. For purposes of the
preceding sentence, the date on which any such
succession becomes effective shall be deemed the
Termination Date. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for
in this Section 13.a. or which otherwise becomes bound
by the terms and provisions of this Agreement by
operation of law.
b. This Agreement is personal to Employee and
Employee may not assign or delegate any part of his
rights or duties hereunder to any other person, except
that this Agreement shall inure to the benefit of and
be enforceable by Employee's legal representatives,
executors, administrators, heirs and beneficiaries.
14. Severability. If any provision of this Agreement
or the application thereof to any person or circumstance
shall to any extent be held to be invalid or unenforceable,
the remainder of this Agreement and the application of such
provision to persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be
affected thereby, and each provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by
law.
15. Headings. The headings in this Agreement are
inserted for convenience of reference only and shall not in
any way affect the meaning or interpretation of this
Agreement.
16. Counterparts. This Agreement may be executed in
one or more identical counterparts, each of which shall be
deemed an original but all of which together shall
constitute one and the same instrument.
17. Waiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to
exercise any right, power or privilege hereunder or under
law shall constitute a waiver of such right, power or
privilege or of any other right, power or privilege or of
the same right, power or privilege in any other instance.
Without limiting the generality of the foregoing, Employee's
continued employment without objection shall not constitute
Employee's consent to, or a waiver of Employee's rights with
respect to, any circumstances constituting Good Reason. All
waivers by either party hereto must be contained in a
written instrument signed by the party to be charged
therewith, and, in the case of the Company, by its duly
authorized officer.
18. Entire Agreement. This instrument constitutes the
entire agreement of the parties in this matter and shall
supersede any other agreement between the parties, oral or
written, concerning the same subject matter, including (but
not limited to) the Severance Agreement dated December 31,
1998 between the Employee and the Company.
19. Amendment. This Agreement may be amended only by
a writing which makes express reference to this Agreement as
the subject of such amendment and which is signed by
Employee and by a duly authorized officer of the Company.
20. Governing Law. In light of Company's and
Employee's substantial contacts with the State of Missouri,
the facts that the Company is headquartered in Missouri and
Employee resides in and/or reports to Company management in
Missouri, the parties' interests in ensuring that disputes
regarding the interpretation, validity and enforceability of
this Agreement are resolved on a uniform basis, and
Company's execution of, and the making of, this Agreement in
Missouri, the parties agree that: (i) any litigation
involving any noncompliance with or breach of the Agreement,
or regarding the interpretation, validity and/or
enforceability of the Agreement, shall be filed and
conducted exclusively in the state or federal courts in St.
Louis City or County, Missouri; and (ii) the Agreement shall
be interpreted in accordance with and governed by the laws
of the State of Missouri, without regard for any conflict of
law principles.
IN WITNESS WHEREOF, Employee and the Company have
executed this Agreement as of the day and year first above
written.
BROWN SHOE COMPANY, INC.
By: /s/ Robert D. Pickle
--------------------------------
Vice President, General Counsel
and Corporate Secretary
EMPLOYEE
By: /s/ Charles C. Gillman
--------------------------------
Charles C. Gillman
Exhibit A
RELEASE
RELEASE (the "Release") dated _____________, ____ between
Charles C. Gillman ("Employee") and Brown Shoe Company, Inc., a
New York corporation (as further defined in Section 13 of the
Severance Agreement, the "Company").
WHEREAS, the Company and Employee are parties to a Severance
Agreement dated December 1, 1999 (the "Severance Agreement"),
which provides certain protection to Employee during management
transition and thereafter and in the event there is any change in
corporate structure which results in a change in control of the
Company.
WHEREAS, the execution of this Release is a condition
precedent to, and material inducement to, the Company's provision
of certain benefits under the Severance Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Mutual Promises. The Company undertakes the
obligations contained in the Severance Agreement, which are in
addition to any compensation to which Employee might otherwise be
entitled, in exchange for Employee's promises and obligations
contained herein. The Company's obligations are undertaken in
lieu of any other severance benefits.
2. Release of Claims; Agreement Not to File Suit.
a. Employee, for and on behalf of himself and his heirs,
beneficiaries, executors, administrators, successors,
assigns and anyone claiming through or under any of the
foregoing, agrees to, and does, remise, release and forever
discharge the Company and its subsidiaries and affiliates,
each of their shareholders, directors, officers, employees,
agents and representatives, and its successors and assigns
(collectively, the "Company Released Persons"), from any and
all matters, claims, demands, damages, causes of action,
debts, liabilities, controversies, judgments and suits of
every kind and nature whatsoever, foreseen or unforeseen,
known or unknown, which have arisen or could arise from
matters which occurred prior to the date of this Release,
which matters include without limitation: (i) the matters
covered by the Severance Agreement and this Release, (ii)
Employee's employment, and/or termination from employment
with the Company, and (iii) any claims which might otherwise
arise in the future as a result of arrangements or
agreements in effect as of the date of this Release or the
continuance of such arrangements and agreements.
b. Employee, for and on behalf of himself and his heirs,
beneficiaries, executors, administrators, successors,
assigns, and anyone claiming through or under any of the
foregoing, agrees that he will not file or otherwise submit
any charge, claim, complaint, or action to any agency,
court, organization, or judicial forum (nor will Employee
permit any person, group of persons, or organization to take
such action on his behalf) against any Company Released
Person arising out of any actions or non-actions on the part
of any Company Released Person arising before the date of
this Release or any action taken after the date of this
Release pursuant to the Severance Arrangement. Employee
further agrees that in the event that any person or entity
should bring such a charge, claim, complaint, or action on
his behalf, he hereby waives and forfeits any right to
recovery under said claim and will exercise every good faith
effort to have such claim dismissed.
c. The charges, claims, complaints, matters, demands,
damages, and causes of action referenced in Sections 2(a)
and 2(b) include, but are not limited to: (i) any breach of
an actual or implied contract of employment between Employee
and any Company Released Person, (ii) any claim of unjust,
wrongful, or tortuous discharge (including any claim of
fraud, negligence, retaliation for whistleblowing, or
intentional infliction of emotional distress), (iii) any
claim of defamation or other common law action, or (iv) any
claims of violations arising under the Civil Rights Act of
1964, as amended, 42 U.S.C. Sec. 2000e et seq., the Age
Discrimination in Employment Act, 29 U.S.C. Sec. 621 et seq.,
the Americans with Disabilities Act of 1990, 42 U.S.C.
Sec. 12101 et seq., the Fair Labor Standards Act of 1938, as
amended, 29 U.S.C. Sec. 201 et seq., the Rehabilitation Act of
1973, as amended, 29 U.S.C. Sec. 701 et seq., or of the Missouri
Human Rights Act, Sec. 213.000 R.S. Mo. et seq., the Missouri
Service Letter Statute, Sec. 209.140 R.S. Mo. or any other
relevant federal, state, or local statutes or ordinances, or
any claims for pay, vacation pay, insurance, or welfare
benefits or any other benefits of employment with any
Company Released Person arising from events occurring prior
to the date of this Release other than those payments and
benefits specifically provided herein.
d. This Release shall not affect Employee's right to any
governmental benefits payable under any Social Security or
Worker's Compensation law now or in the future.
3. Release of Benefit Claims. Employee, for and on behalf
of himself and his heirs, beneficiaries, executors,
administrators, successors, assigns and anyone claiming through
or under any of the foregoing, further releases and waives any
claims for pay, vacation pay, insurance or welfare benefits or
any other benefits of employment with any Company Released Person
arising from events occurring prior to the date of this Release
other than claims to the payments and benefits specifically
provided for in the Severance Agreement.
4. Revocation Period; Knowing and Voluntary Agreement.
a. Employee acknowledges that he was given a copy of this
Agreement when the Severance Agreement was executed and he,
therefore, has been given a period of at least forty-five
(45) days to consider whether or not to accept this
Agreement. Furthermore, Employee may revoke this Agreement
for seven (7) days following its execution.
b. Employee represents, declares and agrees that he
voluntarily accepts the payments described above for the
purposes of making a full and final compromise, adjustment
and settlement of all potential claims hereinabove
described. Employee hereby acknowledges that he has been
advised of the opportunity to consult an attorney and that
he understands the Release and the effect of signing the
Release.
5. Severability. If any provision of this Release or the
application thereof to any person or circumstance shall to any
extent be held to be invalid or unenforceable, the remainder of
this Release and the application of such provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each provision
of this Release shall be valid and enforceable to the fullest
extent permitted by law.
6. Headings. The headings in this Release are inserted
for convenience of reference only and shall not in any way affect
the meaning or interpretation of this Release.
7. Counterparts. This Release may be executed in one or
more identical counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
8. Entire Agreement. This Release and Related Severance
Agreement constitutes the entire agreement of the parties in this
matter and shall supersede any other agreement between the
parties, oral or written, concerning the same subject matter.
9. Governing Law. This Release shall be governed by, and
construed and enforced in accordance with, the laws of the State
of Missouri, without reference to the conflict of laws rules of
such State.
IN WITNESS WHEREOF, Employee and the Company have executed
this Release as of the day and year first above written.
BROWN SHOE COMPANY, INC.
By:__________________________________
Vice President, General Counsel
and Corporate Secretary
EMPLOYEE
By:__________________________________
Charles C. Gillman
Exhibit 10.(l)
EARLY RETIREMENT AGREEMENT
EARLY RETIREMENT AGREEMENT (the "Agreement") dated October
26, 1999 ("Effective Date") between Harry E. Rich ("Employee")
and Brown Shoe Company, Inc., a New York corporation ("Company").
WHEREAS, the Employee will reach his Retirement Date on
December 31, 1999; and
WHEREAS, the Company recognizes the value of the services
performed by the Employee during his period of employment with
the Company; and
WHEREAS, the Employee wishes to be assured that he will be
entitled to certain additional compensation and provided certain
benefits following his Retirement Date and upon his "Retirement
Payment Date" (as defined below); and
WHEREAS, the parties hereto wish to provide the terms and
conditions upon which the Company shall pay such additional
compensation and provide such benefits to the Employee after his
retirement; and
WHEREAS, the Employee wishes to have the additional
compensation and benefits provided for in this Agreement and, in
exchange for such additional compensation and benefits, is
willing to give to the Company, under certain circumstances, his
covenant not to compete;
NOW, THEREFORE, in consideration of the premises and of the
mutual promises herein contained, the parties hereto agree as
follows:
1. Definitions.
a. "Competitor" shall mean any person, firm,
corporation, partnership or other entity which in its prior
fiscal year had annual gross sales volume or revenues of
shoes of more than $20,000,000 or is reasonably expected to
have such sales or revenues in either the current fiscal
year or the next following fiscal year.
b. "Confidential Information" shall have the meaning
set forth in Section 6.
c. "Customer" shall mean any wholesale customer of
the Company which either purchased from the Company during
the one (1) year immediately preceding the Retirement Date,
or is reasonably expected by the Company to purchase from
the Company in the one (1) year period immediately following
the Retirement Date, more than $1,000,000 in shoes.
d. "Retirement Date" shall mean December 31, 1999.
e. "Retirement Payment Date" shall mean the earlier
of the Employee's death or June 30, 2001.
2. Payments and Benefits Upon Retirement. Upon and after
the Employee's Retirement Date, the following shall apply:
a. The Company shall pay to the Employee on his
Retirement Date (i) the full base salary earned by him
through the Retirement Date and unpaid on such date, plus
(ii) credit for any vacation earned by him but not taken at
the Retirement Date, plus (iii) all other amounts earned by
him and unpaid as of the Retirement Date. Additionally, the
Company shall pay to Employee his bonus for the Company's
fiscal year ending January 29, 2000 at the same time as
other such bonuses are paid to other employees of the
Company.
b. The Company shall continue to pay to the Employee
his base monthly salary at the highest rate in effect at any
time during the twelve months immediately preceding the
Retirement Date (including on a monthly basis beginning in
February 2000 one-twelfth of his targeted bonus for the
fiscal year ending January 31, 2001 which in the aggregate
is $247,500) until the Retirement Payment Date (even if he
dies during such eighteen month period). Such amounts shall
be paid in accordance with the Company's regular pay period
policy for its employees, and shall be counted in
determining Employee's benefits under the Brown Shoe
Company, Inc. Executive Retirement Plan.
c. Employee will be considered to continue as an
employee of the Company from January 1, 2000 through June
30, 2001 solely for purposes of receiving benefits under the
Company's Incentive and Stock Compensation Plan of 1999
(except for purposes of the long-term performance-based
stock award, as explained more fully below), Executive
Retirement Plan, group life insurance program, and medical
and dental plans; provided, however, that it is expressly
understood and agreed that Employee's status as an Employee
of the Company for purposes of the group life insurance
program and medical and dental plans will terminate and
cease in all events immediately upon Employee's re-
employment before June 30, 2001 to the extent covered by his
new Employer's group life insurance, medical and dental
plans; provided further, that Employee shall be entitled to
receive one-third of his long-term performance-based stock
award for the three-year period ending on the last day of
the Company's 2001 fiscal year based on the Company's actual
results during such three-year performance period, such
award to be paid after the end of the Company's 2001 fiscal
year in accordance with normal practices. By virtue of the
fact that Employee is considered to continue in employment
from January 1, 2000 through the Retirement Payment Date,
for purposes of determining the Employee's benefit under the
Brown Shoe Company, Inc. Executive Retirement Plan, an
additional 1.5 years of Credited Service (in addition to the
additional ten (10) years of Credited Service credited to
the Employee in accordance with Section A.5 of the Brown
Shoe Company, Inc. Executive Retirement Plan) shall be
credited to the Employee's actual or deemed Credited
Service, even if he dies before the Retirement Payment Date.
Benefits under the Brown Shoe Company, Inc. Executive
Retirement Plan shall commence as soon as practicable after
the Retirement Payment Date.
d. The Company, at its expense, shall provide to the
Employee, his spouse and any dependents (as long as such
individuals are under the age of 23), for a period beginning
on the Retirement Payment Date and ending upon the
Employee's attainment of age 65, medical and/or dental
coverage under the medical and dental plans maintained by
the Company or under an arrangement which provides benefits
substantially similar to those provided under the medical
and dental plans maintained by the Company. Upon the
Employee's re-employment during such period, to the extent
covered by his new employer's Plan, coverage under this
Section 2.c. shall lapse.
The Employee's participation in and/or coverage
under all other employee benefit plans, programs or
arrangements sponsored or maintained by the Company shall
cease effective as of the Retirement Payment Date.
e. With respect to each non-vested option to purchase
Company stock held by the Employee on the Retirement Payment
Date, the Company shall make a cash lump sum payment to the
Employee within 30 days after the Retirement Payment Date in
an amount equal to the excess, if any, of the fair market
value (determined as of the Retirement Payment Date) of the
Company stock subject to such option over the exercise price
of such option. In addition, any non-vested restricted
stock of the Company held by the Employee on the Retirement
Payment Date which would have vested if the Employee had
remained employed until age 65 shall vest on the Retirement
Payment Date.
f. During the period commencing on the Retirement
Date and ending on the earlier of the Retirement Payment
Date or the date the Employee secures other employment, the
Company shall pay the reasonable costs of outplacement
services selected by the Company and shall provide, at the
Company's expense, office space and secretarial service at a
non-Company facility.
g. The Company shall pay the Employee's federal and
state income tax preparation fees charged by a service
provider selected by the Employee for his taxable years 1999
and 2000.
h. The Company shall pay membership dues for the
Employee charged by the Bogey Club and the St. Louis Club,
both located in St. Louis, Missouri, until the Employee's
attainment of age 65 or his death, if earlier.
i. The Employee shall be given the opportunity to
purchase the Dell personal computer used by the Employee in
his employment with the Company at a purchase price equal to
the book value of the computer.
3. Mitigation or Reduction of Benefits. Employee shall
not be required to mitigate the amount of any payment provided
for in Section 2 by seeking other employment or otherwise.
Except as otherwise specifically set forth herein, the amount of
any payment or benefits provided in Section 2 shall not be
reduced by any compensation or benefits or other amounts paid to
or earned by Employee as the result of employment by another
employer after the Retirement Date or otherwise.
4. Release. Notwithstanding anything to the contrary
stated in this Agreement, no benefits will be paid pursuant to
Section 2 except under Section 2.a. prior to execution by
Employee of a release to the Company in the form attached as
Exhibit A.
5. Covenant Not to Compete. Benefits payable pursuant to
Section 2 (except under Section 2.a.) are subject to the
following restrictions.
a. Post-Retirement Restrictions.
i. Employee acknowledges that (i) the
Company has spent substantial money, time and effort
over the years in developing and solidifying its
relationships with its Customers throughout the world
and in developing its Confidential Information;
(ii) under this Agreement, the Company is agreeing to
provide Employee with certain benefits based upon
Employee's assurances and promises contained herein not
to divert the Company's Customers' goodwill or to put
himself in a position following his employment with
Company in which the confidentiality of Company's
Confidential Information might somehow be compromised.
ii. Accordingly, Employee agrees that, for
eighteen (18) months after the Retirement Date,
Employee will not, directly or indirectly, on
Employee's own behalf or on behalf of any other person,
firm, corporation or entity (whether as owner, partner,
consultant, employee or otherwise):
A. provide any executive- or
managerial-level services in the shoe industry in
the United States in competition with the Company,
for any Competitor;
B. hold any executive- or
managerial-level position with any Competitor in
the United States;
C. engage in any research and
development activities or efforts for a
Competitor, whether as an employee, consultant,
independent contractor or otherwise, to assist the
Competitor in competing in the shoe industry in
the United States;
D. cause or attempt to cause any
Customer to divert, terminate, limit, modify or
fail to enter into any existing or potential
relationship with the Company;
E. cause or attempt to cause any shoe
supplier or manufacturer of the Company to divert,
terminate, limit, modify or fail to enter into any
existing or potential relationship with the
Company; and
F. solicit, entice, employ or seek to
employ, in the shoe industry, any executive- or
managerial-level employee of, or any consultant or
advisor to, the Company.
b. Acknowledgment Regarding Restrictions. Employee
recognizes and agrees that the restraints contained in
Section 5.a. (both separately and in total) are reasonable
and should be fully enforceable in view of the high-level
positions Employee has had with the Company, the national
and international nature of both the Company's business and
competition in the shoe industry, and the Company's
legitimate interests in protecting its Confidential
Information and its Customer goodwill and relationships.
Employee specifically hereby acknowledges and confirms that
he is willing and intends to, and will, abide fully by the
terms of Section 5.a. of this Agreement. Employee further
agrees that the Company would not have adequate protection
if Employee were permitted to work for its Competitors in
violation of the terms of this Agreement since the Company
would be unable to verify whether (i) its Confidential
Information was being disclosed and/or misused, and
(ii) Employee was involved in diverting or helping to divert
the Company's Customers and/or its Customer goodwill.
c. Company's Right to Injunctive Relief. In the
event of a breach or threatened breach of any of Employee's
duties and obligations under the terms and provisions of
Section 5.a. of this Agreement, the Company shall be
entitled, in addition to any other legal or equitable
remedies it may have in connection therewith (including any
right to damages that it may suffer), to temporary,
preliminary and permanent injunctive relief restraining such
breach or threatened breach. Employee hereby expressly
acknowledges that the harm which might result to Company's
business as a result of noncompliance by Employee with any
of the provisions of Section 5.a. would be largely
irreparable. Employee specifically agrees that if there is
a question as to the enforceability of any of the provisions
of Section 5.a. hereof, Employee will not engage in any
conduct inconsistent with or contrary to such Section until
after the question has been resolved by a final judgment of
a court of competent jurisdiction. Employee undertakes and
agrees that if Employee breaches or threatens to breach the
Agreement, Employee shall be liable for any attorneys' fees
and costs incurred by Company in enforcing its rights
hereunder.
d. Employee Agreement to Disclose this Agreement.
Employee agrees to disclose, during the eighteen month
period following the Retirement Date, the terms of this
Section 5 to any potential future employer.
6. Confidential Information. The Employee acknowledges
and confirms that certain data and other information (whether in
human or machine readable form) that comes into his possession or
knowledge (whether before or after the date of this Agreement)
and which was obtained from the Company, or obtained by the
Employee for or on behalf of the Company, and which is identified
herein, is the secret, confidential property of the Company (the
"Confidential Information"). This Confidential Information
includes, but is not limited to:
a. lists or other identification of customers or
prospective customers of the Company (and key individuals
employed or engaged by such parties);
b. lists or other identification of sources or
prospective sources of the Company's products or components
thereof (and key individuals employed or engaged by such
parties);
c. all compilations of information, correspondence,
designs, drawings, files, formulae, lists, machines, maps,
methods, models, notes or other writings, plans, records,
regulatory compliance procedures, reports, specialized or
technical data, schematics, source code, object code,
documentation, and software used in connection with the
development, manufacture, fabrication, assembly, marketing
and sale of the Company's products;
d. financial, sales and marketing data relating to
the Company or to the industry or other areas pertaining to
the Company's activities and contemplated activities
(including, without limitation, manufacturing,
transportation, distribution and sales costs and non-public
pricing information);
e. equipment, materials, procedures, processes, and
techniques used in, or related to, the development,
manufacture, assembly, fabrication or other production and
quality control of the Company's products and services;
f. the Company's relations with its Customers,
prospective customers, suppliers and prospective suppliers
and the nature and type of products or services rendered to
such Customers (or proposed to be rendered to prospective
customers);
g. the Company's relations with its employees
(including, without limitation, salaries, job
classifications and skill levels); and
h. any other information designated by the Company to
be confidential, secret and/or proprietary (including
without limitation, information provided by customers or
suppliers of the Company).
Notwithstanding the foregoing, the term "Confidential
Information" shall not consist of any data or other information
which has been made publicly available or otherwise placed in the
public domain other than by the Employee in violation of this
Agreement.
7. Notice. All notices hereunder shall be in writing and
shall be deemed to have been duly given (a) when delivered
personally or by courier, or (b) on the third business day
following the mailing thereof by registered or certified mail,
postage prepaid, or (c) on the first business day following the
mailing thereof by overnight delivery service, in each case
addressed as set forth below:
a. If to the Company
Brown Shoe Company, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63166-0029
Attention: Chief Executive Officer
b. If to Employee:
Harry E. Rich
101 Fair Oaks
Ladue, MO 63124
Any party may change the address to which notices are to be
addressed by giving the other party written notice in the manner
herein set forth.
8. Successors; Binding Agreement.
a. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets of the Company, upon or prior to such
succession, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such
succession had taken place. A copy of such assumption and
agreement shall be delivered to Employee promptly after its
execution by the successor. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in
this Section 8.a. or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law.
b. This Agreement is personal to the Employee and the
Employee may not assign or delegate any part of his rights
or duties hereunder to any other person, except that this
Agreement shall inure to the benefit of and be enforceable
by the Employee's legal representatives, executors,
administrators, heirs and beneficiaries.
9. Severability. If any provision of this Agreement or
the application thereof to any person or circumstance shall to
any extent be held to be invalid or unenforceable, the remainder
of this Agreement and the application of such provision to
persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each
provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
10. Headings. The headings in this Agreement are inserted
for convenience of reference only and shall not in any way affect
the meaning or interpretation of this Agreement.
11. Counterparts. This Agreement may be executed in one or
more identical counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
12. Waiver. Neither any course of dealing nor any failure
or neglect of either party hereto in any instance to exercise any
right, power or privilege hereunder or under law shall constitute
a waiver of such right, power or privilege or of any other right,
power or privilege or of the same right, power or privilege in
any other instance. All waivers by either party hereto must be
contained in a written instrument signed by the party to be
charged therewith, and, in the case of the Company, by its duly
authorized officer.
13. Entire Agreement. This instrument constitutes the
entire agreement of the parties in this matter and shall
supersede any other agreement between the parties, oral or
written, concerning the same subject matter. Without limiting
the generality of the foregoing, all amounts paid under the
Agreement are provided in lieu of any amounts or benefits to
which the Employee is or could possibly be entitled under the
Severance Agreement executed by the parties on July 27, 1998.
14. Amendment. This Agreement may be amended only by a
writing which makes express reference to this Agreement as the
subject of such amendment and which is signed by the Employee and
by a duly authorized officer of the Company.
15. Governing Law. In light of the Company's and the
Employee's substantial contacts with the State of Missouri, the
facts that the Company is headquartered in Missouri and the
Employee resides in and/or reported to management in Missouri
during his employment with the Company, the parties' interests in
ensuring that disputes regarding the interpretation, validity and
enforceability of this Agreement are resolved on a uniform basis,
and Company's execution of, and the making of, this Agreement in
Missouri, the parties agree that: (i) any litigation involving
any noncompliance with or breach of the Agreement, or regarding
the interpretation, validity and/or enforceability of the
Agreement, shall be filed and conducted exclusively in the state
or federal courts in St. Louis City or County, Missouri; and (ii)
the Agreement shall be interpreted in accordance with and
governed by the laws of the State of Missouri, without regard for
any conflict of law principles.
IN WITNESS WHEREOF, the Employee and the Company have
executed this Agreement as of the day and year first above
written.
BROWN SHOE COMPANY, INC.
By: /s/ Robert D. Pickle.
----------------------------------
ROBERT D. PICKLE.
Vice President, General Counsel
and Corporate Secretary
EMPLOYEE
By: /s/ Harry E. Rich
----------------------------------
Harry E. Rich
Exhibit A
RELEASE
RELEASE (the "Release") dated October 26, 1999 between Harry
E. Rich ("Employee") and Brown Shoe Company, Inc., a New York
corporation (as further defined in Section 7 of the Early
Retirement Agreement, the "Company").
WHEREAS, the Company and the Employee are parties to an
Early Retirement Agreement dated October 26, 1999 (the "Early
Retirement Agreement"), which provides certain additional
compensation and benefits to the Employee following his
retirement from the service of the Company; and
WHEREAS, the execution of this Release is a condition
precedent to, and material inducement to, the Company's provision
of certain benefits under the Early Retirement Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Mutual Promises. The Company undertakes the
obligations contained in the Early Retirement Agreement in
exchange for Employee's promises and obligations contained
herein. The Company's obligations are undertaken in lieu of any
other severance benefits, including, but not limited to, the
benefits provided under the Severance Agreement executed by the
parties on July 27, 1998.
2. Release of Claims; Agreement Not to File Suit.
a. Employee, for and on behalf of himself and his heirs,
beneficiaries, executors, administrators, successors,
assigns and anyone claiming through or under any of the
foregoing, agrees to, and does, remise, release and forever
discharge the Company and its subsidiaries and affiliates,
each of their shareholders, directors, officers, employees,
agents and representatives, and its successors and assigns
(collectively, the "Company Released Persons"), from any and
all matters, claims, demands, damages, causes of action,
debts, liabilities, controversies, judgments and suits of
every kind and nature whatsoever, foreseen or unforeseen,
known or unknown, which have arisen or could arise from
matters which occurred prior to the date of this Release,
which matters include without limitation: (i) the matters
covered by the Early Retirement Agreement and this Release,
(ii) Employee's employment and/or termination from
employment with the Company, and (iii) any claims which
might otherwise arise in the future as a result of
arrangements or agreements in effect as of the date of this
Release or the continuance of such arrangements and
agreements.
b. Employee, for and on behalf of himself and his heirs,
beneficiaries, executors, administrators, successors,
assigns, and anyone claiming through or under any of the
foregoing, agrees that he will not file or otherwise submit
any charge, claim, complaint, or action to any agency,
court, organization, or judicial forum (nor will Employee
permit any person, group of persons, or organization to take
such action on his behalf) against any Company Released
Person arising out of any actions or non-actions on the part
of any Company Released Person arising before the date of
this Release or any action taken after the date of this
Release pursuant to the Early Retirement Agreement.
Employee further agrees that in the event that any person or
entity should bring such a charge, claim, complaint, or
action on his behalf, he hereby waives and forfeits any
right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed.
c. The charges, claims, complaints, matters, demands,
damages, and causes of action referenced in Sections 2.a.
and 2.b. include, but are not limited to: (i) any breach of
an actual or implied contract of employment between Employee
and any Company Released Person, (ii) any claim of unjust,
wrongful, or tortuous discharge (including any claim of
fraud, negligence, retaliation for whistleblowing, or
intentional infliction of emotional distress), (iii) any
claim of defamation or other common law action, or (iv) any
claims of violations arising under the Civil Rights Act of
1964, as amended, 42 U.S.C. Sec. 2000e et seq., the Age
Discrimination in Employment Act, 29 U.S.C. Sec. 621 et seq.,
the Americans with Disabilities Act of 1990, 42 U.S.C.
Sec. 12101 et seq., the Fair Labor Standards Act of 1938, as
amended, 29 U.S.C. Sec. 201 et seq., the Rehabilitation Act of
1973, as amended, 29 U.S.C. Sec. 701 et seq., or of the Missouri
Human Rights Act, Sec. 213.000 R.S. Mo. et seq., the Missouri
Service Letter Statute, Sec. 209.140 R.S. Mo. or any other
relevant federal, state, or local statutes or ordinances, or
any claims for pay, vacation pay, insurance, or welfare
benefits or any other benefits of employment with any
Company Released Person arising from events occurring prior
to the date of this Release other than those payments and
benefits specifically provided in the Early Retirement
Agreement.
d. This Release shall not affect Employee's right to any
governmental benefits payable under any Social Security or
Worker's Compensation law now or in the future.
3. Release of Benefit Claims. Employee, for and on behalf
of himself and his heirs, beneficiaries, executors,
administrators, successors, assigns and anyone claiming through
or under any of the foregoing, further releases and waives any
claims for pay, vacation pay, insurance or welfare benefits or
any other benefits of employment with any Company Released Person
arising from events occurring prior to the date of this Release
other than claims to the payments and benefits specifically
provided for in the Early Retirement Agreement.
4. Revocation Period; Knowing and Voluntary Agreement.
a. Employee acknowledges that he was given a copy of this
Agreement when the Early Retirement Agreement was executed
and he, therefore, has been given a period of at least
twenty-one (21) days to consider whether or not to accept
this Agreement. Furthermore, Employee may revoke this
Agreement for seven (7) days following its execution.
b. Employee represents, declares and agrees that he
voluntarily accepts the payments described above for the
purposes of making a full and final compromise, adjustment
and settlement of all potential claims hereinabove
described. Employee hereby acknowledges that he has been
advised of the opportunity to consult an attorney and that
he understands the Release and the effect of signing the
Release.
5. Severability. If any provision of this Release or the
application thereof to any person or circumstance shall to any
extent be held to be invalid or unenforceable, the remainder of
this Release and the application of such provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each provision
of this Release shall be valid and enforceable to the fullest
extent permitted by law.
6. Headings. The headings in this Release are inserted
for convenience of reference only and shall not in any way affect
the meaning or interpretation of this Release.
7. Counterparts. This Release may be executed in one or
more identical counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
8. Entire Agreement. This Release and related Early
Retirement Agreement constitutes the entire agreement of the
parties in this matter and shall supersede any other agreement
between the parties, oral or written, concerning the same subject
matter.
9. Governing Law. This Release shall be governed by, and
construed and enforced in accordance with, the laws of the State
of Missouri, without reference to the conflict of laws rules of
such State.
IN WITNESS WHEREOF, Employee and the Company have executed
this Release as of the day and year first above written.
BROWN SHOE COMPANY, INC.
By: /s/ Robert D. Pickle.
----------------------------------
ROBERT D. PICKLE.
Vice President, General Counsel
and Corporate Secretary
EMPLOYEE
By: /s/ Harry E. Rich
----------------------------------
Harry E. Rich
EXHIBIT 10.(m)
BROWN SHOE COMPANY, INC.
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
----------------------
TABLE OF CONTENTS
-----------------
SECTION I STATEMENT OF PURPOSE
SECTION II DEFINITIONS
SECTION III ELIGIBILITY AND PARTICIPATION
A. ELIGIBILITY
B. CONDITIONS TO PARTICIPATION
C. CONTINUED PARTICIPATION
SECTION IV ESTABLISHMENT OF THE CREDITS TO PARTICIPANTS' ACCOUNT
A. DEFERRED COMPENSATION
B. DIVIDENDS
SECTION V PAYMENT OF ACCOUNT
A. OTHER THAN DEATH
1. ANNUAL INSTALLMENTS
2. LUMP SUM
3. CHANGE IN ELECTION
B. DEATH
C. PAYMENT FOR FINANCIAL HARDSHIP
D. PAYMENT ON TERMINATION OF THE PLAN, ETC
SECTION VI ADMINISTRATION
SECTION VII COMMITTEE
SECTION VIII ADJUSTMENT IN NUMBER OF UNITS
SECTION IX AMENDMENT AND TERMINATION
A. AMENDMENT
B. TERMINATION
C. AFFECT ON UNITS
SECTION X NON-ALIENATION OF ACCOUNT
SECTION XI EFFECTIVE DATE
SECTION XII MISCELLANEOUS
A. NO TRUST OR FIDUCIARY RELATIONSHIP CREATED
B. ASSUMPTION OF RISK
C. NO INTEREST IN COMMON STOCK
D. APPLICABLE LAW
E. INVALID PLAN PROVISIONS
F. RULE 16B-3 COMPLIANCE
G. HEADINGS
BROWN SHOE COMPANY, INC.
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
----------------------
SECTION I
---------
STATEMENT OF PURPOSE
--------------------
The Brown Shoe Company, Inc. Deferred Compensation Plan
for Non-Employee Directors has been established by Brown Shoe
Company, Inc. (the "Company") and was adopted by the Board of
Directors effective October 31, 1999 to provide an incentive
which will motivate and reward non-employee directors of the
Company and promote the best interests and long-term performance
of the Company.
SECTION II
----------
DEFINITIONS
-----------
A. "Annual Retainer" means the annual retainer received by the
Director.
B. "Account" means the account in a special ledger, to be
established by the Company, in which the Company shall credit
Units for a Participant.
C. "Beneficiary" means the person(s) designated by a
Participant on the Participation Agreement to receive payments
due the Participant in the event of the death of the Participant.
In the absence of such designation or in the event the designated
person fails to survive the Participant, "Beneficiary" shall mean
the estate of the Participant.
D. "Board of Directors" means the board of directors of the
Company.
E. "Committee" means the Compensation Committee of the Board of
Directors.
F. "Common Stock" means shares of the common stock, par value
$3.75 per share, of the Company.
G. "Company" means Brown Shoe Company, Inc., a New York
corporation, or any successor thereto.
H. "Director" means each member and each honorary member of the
Board of Directors who is not an employee of the Company.
I. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
J. "Fair Market Value" as of a given date means the mean
between the high and low selling prices on the New York Stock
Exchange of Common Stock on such given date. In the absence of
actual sales on a given date, "Fair Market Value" means the mean
between the high and low selling prices on the New York Stock
Exchange of Common Stock on the last day preceding such given
date on which a sale of Common Stock occurred.
K. "Meeting Fees" means those fees received by the Director
from the Company for attending annual and special board meetings,
as well as committee meetings.
L. "Participant" means each Director who has an Account under
the Plan.
M. "Participation Agreement" means the agreement supplied by
the Company which evidences a Participant's participation in the
Plan.
N. "Payment Date" means the last day of each quarter of each
fiscal year of the Company.
O. "Plan" means the Brown Shoe Company, Inc. Deferred
Compensation Plan for Non-Employee Directors.
P. "Unit" means the measure of the benefit which may be awarded
under the Plan and which shall, to the extent provided in the
Plan, be equivalent to one share of Common Stock.
SECTION III
-----------
ELIGIBILITY AND PARTICIPATION
-----------------------------
A. Eligibility. All Directors are eligible to become
Participants.
B. Conditions to Participation. Each Director who
desires to become a Participant shall execute and deliver a
Participation Agreement to the Treasurer of the Company
irrevocably electing to defer until the termination of his
service as a Director the receipt of all or a portion of either
his Annual Retainer or Meeting Fees, or both. The Participation
Agreement shall be filed with the Company prior to the
commencement of the first fiscal quarter of the Company after he
becomes a Director and thereafter prior to the commencement of
any fiscal year of the Company.
C. Continued Participation. Each Director shall have
the right to alter the amount of his Annual Retainer or Meeting
Fees deferred pursuant to the Plan or terminate his participation
in the Plan for fiscal years subsequent to any fiscal year in
which written notice of alteration or termination is filed with
the Company. If the Participant chooses to terminate his
participation in the Plan for future fiscal years, those amounts
already deferred will remain in his Account established pursuant
to Section IV hereof and be distributed at the appropriate time
in accordance Section V hereof.
SECTION IV
----------
ESTABLISHMENT OF THE CREDITS TO PARTICIPANTS' ACCOUNT
-----------------------------------------------------
A. Deferred Compensation. The Company shall
establish an Account for each Participant and shall credit to the
Account for each Participant as of each Payment Date a number of
Units equal to the number of shares of Common Stock (including
fractions) which could be purchased on such date with the amount
of the Annual Retainer or Meeting Fees which the Participant
would have otherwise been entitled to receive since the last
Payment Date but for such Participant's deferral election
pursuant to Section III hereof. The deemed purchase price shall
be the Fair Market Value of Common Stock on the Payment Date as
of which the purchase is deemed to be made.
B. Dividends. Until a Participant has been paid his
entire Account, the Company shall credit to such Participant's
Account as of the Payment Date next succeeding the dividend
payment date on Common Stock a number of Units equal to the
number of shares of Common Stock (including fractions) which
could be purchased at the Fair Market Value of Common Stock on
such Payment Date, with the dividends which the Participant would
have received if he had been the owner of a number of shares of
Common Stock equal to the number of Units (excluding fractions)
in his Account on such dividend payment date.
SECTION V
---------
PAYMENT OF ACCOUNT
------------------
A. Other Than Death. Upon a Participant's
termination of service as a Director for a reason other than
death, the Company shall pay to the Participant the amount of
Units credited to his Account either in a lump sum or in equal
installments over a period of either five or ten years, as
elected by the Director in his Participation Agreement.
1. Annual Installments. If the Participant
elects annual installments, he shall designate whether such
payments shall be made over either a five or ten year period.
Depending on the election, the Company shall pay to the
Participant the amount credited to his Account in five or ten
annual installments as follows: a payment in cash shall be made
as soon as practicable after each annual Payment Date commencing
with the Payment Date coincident with or next succeeding his
termination of service. The amount paid shall equal the sum of:
(i) either one-fifth or one-tenth (depending on the Participant's
election) of the number of Units credited to the Participant's
Account pursuant to Section IV hereof as of the Payment Date
coincident with or next succeeding his termination of service
multiplied by the Fair Market Value of the Company's Common Stock
on the Payment Date as of which such installment is paid, plus
(ii) an amount equal to the Fair Market Value of any Units
credited to his Account pursuant to Section IV B since the
immediately preceding installment payment.
2. Lump Sum. If the Participant elects a lump
sum, the Company shall pay to the Participant the amount credited
to his Account in a single lump sum cash payment upon his
termination of service as a Director. Payment of the lump sum
shall be made as of the Payment Date coincident with or next
succeeding the Participant's termination of service and shall be
equal to the number of Units credited to his Account pursuant to
Section IV hereof as of such Payment Date multiplied by the Fair
Market Value of Common Stock on such Payment Date.
3. Change in Election. The Participant shall be
entitled to change the manner of distribution originally elected
provided that such change: (i) is made by written notice to the
Company and such notice is received by the Company at least one
year in advance of any deferred amounts becoming distributable
pursuant to the terms of the Plan; and (ii) the Committee
approves the Participant's new distribution method.
B. Death. Upon a Participant's termination of
service by reason of death or upon the death of a Participant
prior to payment to him of the balance of his Account,
installments or remaining installments, as the case may be, his
account shall be paid to the Participant's Beneficiary in a lump
sum as soon as practicable following his death and shall be equal
to the number of Units credited to his Account pursuant to
Section IV hereof as of the Payment Date immediately preceding
distribution multiplied by the Fair Market Value of Common Stock
on such Payment Date.
C. Payment for Financial Hardship. Notwithstanding
any other provisions of this Plan to the contrary, the Board of
Directors or the Committee may authorize payment of a
Participant's Account to such Participant at any time prior to
the time such Account would otherwise be payable, in such manner
as shall be determined by the Board of Directors, if the Board of
Directors determines that the Participant has proved a
demonstrated financial hardship.
D. Payment on Termination of the Plan, Etc. Upon the
termination of the Plan, upon dissolution or liquidation of the
Company, or upon any merger or consolidation in which the Company
is not to be the surviving corporation, each Participant and
Beneficiary receiving payments hereunder shall receive in a lump
sum an amount equal to the number of Units or balance thereof
credited to the Participant's Account multiplied by the Fair
Market Value of Common Stock on the Payment Date coincident with
or next preceding such termination, such dissolution or
liquidation, or such merger or consolidation, immediately prior
to or simultaneously with such termination, such dissolution or
liquidation, or such merger or consolidation.
SECTION VI
----------
ADMINISTRATION
--------------
The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee
shall have full power and authority to administer, construe and
interpret the Plan. The decisions of the Committee concerning
the administration, construction, and interpretation of the Plan
shall be final. No member of the Committee shall be personally
liable for his acts or omissions in respect of the Plan, unless
attributable to such member's fraud or willful misconduct.
SECTION VII
-----------
COMMITTEE
---------
All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced
to writing and signed by a majority of the members shall be fully
as effective as if it had been made by a majority vote at a
meeting duly called and held. Notwithstanding any other
provision of this Plan to the contrary, in the event the
Committee is making a determination with respect to a Committee
member's benefits provided pursuant to this Plan, the interested
Committee member shall abstain from the decision-making process
with respect to such determination.
SECTION VIII
------------
ADJUSTMENT IN NUMBER OF UNITS
-----------------------------
Notwithstanding any other provision in the Plan, if
there is any change in the Common Stock by reason of exchanges of
shares, split-ups, recapitalizations, mergers, consolidations,
reorganizations, or combination (or stock dividends to the extent
that the credits have not otherwise been made pursuant to Section
IV B), the Units shall be appropriately adjusted by the Committee
or the Board of Directors.
SECTION IX
----------
AMENDMENT AND TERMINATION
-------------------------
A. Amendment. The Board of Directors may at any time
and from time to time amend the Plan in such respects as it may
deem advisable.
B. Termination. The Board of Directors may at any
time terminate the Plan.
C. Affect on Units. Except as provided in Section
VIII hereof, no amendment or termination of the Plan shall,
without the consent of a Participant or Beneficiary, affect the
number of Units credited to his Account.
SECTION X
---------
NON-ALIENATION OF ACCOUNT
-------------------------
No right or payment under this Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance
or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge the same shall be void. No right or
payment hereunder shall in any manner be liable for or subject to
the debts, contracts, liabilities or torts of the person entitled
to such benefit. If any Participant or Beneficiary hereunder
should become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or payment
hereunder, then such right or payment shall, in the discretion of
the Board of Directors or the Committee, cease, and in such
event, the Company may hold or apply the same or any part thereof
for the benefit of the Participant or Beneficiary, his or her
spouse, children or other dependents, or any of them, in such
manner and in such proportion as the Board of Directors or the
Committee shall determine. The determination of the Board of
Directors or the Committee shall be final.
SECTION XI
----------
EFFECTIVE DATE
--------------
The Plan shall be effective as of October 31, 1999.
SECTION XII
-----------
MISCELLANEOUS
-------------
A. No Trust or Fiduciary Relationship Created.
Nothing contained in the Plan and no action taken pursuant
thereto shall create or be construed to create a trust of any
kind or a fiduciary relationship between the Company and any
Participant, his Beneficiary or any other person. All payments
hereunder shall be made from the general assets of the Company.
B. Assumption of Risk. Each Participant, on behalf
of himself, and his Beneficiary, shall assume all risks in
connection with the value of any Unit credited to his Account.
C. No Interest in Common Stock. Nothing contained in
the Plan shall be construed as conferring upon a Participant or
any other person any right, title or interest in any shares of
Common Stock, including without limitation, voting rights, rights
to any Common Stock or any other equity interest in the Company.
D. Applicable Law. The validity, construction, and
effect of the Plan and any rules and regulations relating to the
Plan shall be determined in accordance with the laws of the State
of New York, without giving effect to the choice of law
principles thereof.
E. Invalid Plan Provisions. If any provisions of the
Plan is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any Participant, or
would disqualify the Plan under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to
conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, such provision shall
be stricken as to such jurisdiction or Participant and the
remainder of the Plan shall remain in full force and effect.
F. Rule 16b-3 Compliance. Transactions under this
Plan are intended to comply with all applicable terms and
conditions of Rule 16b-3 as promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor rule
or regulation thereto as in effect from time to time. To the
extent that any provision of the Plan or action by the Committee
or Board of Directors fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by
the Committee or Board of Directors.
G. Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate
reference. Such headings shall not be deemed in any way material
or relevant to the construction or interpretation of the Plan or
any provision thereof.
BROWN SHOE COMPANY, INC.
By: /s/ Andrew M. Rosen
-------------------------------
Title: Sr. Vice President
-------------------------------
Date: October 8, 1999
-------------------------------
<PAGE> 1
[PHOTO]
BROWN SHOE ANNUAL REPORT 1999
<PAGE> 2
[PHOTO]
<PAGE> 3
[PHOTO]
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[PHOTO]
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[PHOTO]
<PAGE> 6
[PHOTO]
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[PHOTO]
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[PHOTO]
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[PHOTO]
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[PHOTO]
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Come on in. We're Brown Shoe.
- -----------------------------------------------------------------------------
WE'RE DIFFERENT. WE'RE DYNAMIC. WE'RE CHANGING. WE'RE THE LEADER IN FOOTWEAR.
WITH 1,350 RETAIL STORES, WE ARE THE NO. 1 RETAILER OF BRAND NAME,
VALUE-PRICED SHOES FOR THE ENTIRE FAMILY. THROUGH OUR WHOLESALE BUSINESS, WE
DELIVER SOME 65 MILLION PAIRS OF GREAT LOOKING, GREAT FEELING SHOES FOR
WOMEN, MEN AND CHILDREN TO THE MARKETPLACE IN THE UNITED STATES AND CANADA.
- -----------------------------------------------------------------------------
<PAGE> 12
[LOGO]
SALES
[GRAPH]
A Famous Footwear 58%
B Brown Shoe Wholesale 30%
C Naturalizer Retail 12%
EARNINGS PER SHARE
1.96
----------
----------
1.32
(1.19)
------------
1997 1998 1999
<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR 1999 FISCAL YEAR 1998 FISCAL YEAR 1997<F*>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS:
Net sales $1,592,532 $1,538,530 $1,567,202
Net earnings (loss) 35,501 23,669 (20,896)
PER SHARE OF COMMON STOCK:
Diluted net earnings (loss) 1.96 1.32 (1.19)
Dividends paid .40 .40 .85
Shareholders' equity 13.69 11.95 11.04
FINANCIAL POSITION:
Total assets 650,338 655,232 694,988
Working capital 270,005 250,939 260,437
Shareholders' equity 249,945 217,174 199,190
Return on beginning shareholders' equity 16.3% 11.9% (8.8%)
Current ratio 2.2:1 2.0:1 1.9:1
- ------------------------------------------------------------------------------------------------------------------
<FN>
<F*> Fiscal 1997 includes aftertax restructuring charges and operating losses
of $45.6 million related to the Company's Pagoda International marketing
division, and a $1.5 million aftertax loss on the sale of the Famous
Fixtures division of Famous Footwear.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
RONALD A. FROMM, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
[PHOTO]
DEAR FELLOW INVESTORS: Progress sums it up. For Brown Shoe, 1999 was a year
of visible progress both operationally and financially, a year in which we
acted boldly, built on our successes, aggressively competed in the
marketplace, and positioned the company for continued growth in sales and
profitability.
Famous Footwear, the company's largest division with 867 stores at
year-end, delivered yet another record year for our shareholders, capturing
operating earnings of $54 million. Our Brown Pagoda division, which sells
footwear primarily to the mass market, also posted a record year. Equally
important, we're successfully positioning our flagship Naturalizer brand to
attract a younger, more compelling target customer. This positioning will
benefit Naturalizer Retail as we go forward. We also took steps to revitalize
our LifeStride brand to fit with today's more casual workplace, and are
excited about this line for 2000.
11
<PAGE> 14
CHAIRMAN'S LETTER CONTINUED
In addition, we delivered impressive financial results:
- -- Earnings per share of $1.96 rose 48 percent from year-ago results
of $1.32.
- -- Return on equity increased to 16.3 percent, a significant improvement
over the 11.9 percent recorded in 1998.
- -- Cash flow from operations was strong at $39.1 million.
- -- The year closed with a strengthened balance sheet as the net
debt-to-capital ratio improved to 35.6 percent, versus 41.1 percent last
year.
FOCUSED ON OPPORTUNITIES TO CREATE GROWTH. We enter fiscal 2000 with
increasing confidence that the groundwork we've laid will allow us to achieve
growth across all divisions. Our goal is to make Brown Shoe the leading
company in the footwear industry, with performance that continues to win
market share and delivers annual earnings growth in excess of 15 percent.
You see, we have a unique combination at Brown Shoe. We have our
high-performing Famous Footwear retail chain that, while generating record
profits, is strategically positioned for significant expansion. Our wholesale
divisions are each earning better shelf space, and are poised to further
increase their market share now. And Brown Shoe's financial strength affords
us the ability to invest in dynamic merchandising and marketing programs.
More importantly, our operating expertise--from shoe design to the retail
floor--provides
12
<PAGE> 15
insights to identify emerging footwear trends, so we can deliver
fashion-right shoes, in the hottest styles--styles consumers want right now.
FAMOUS FOOTWEAR. Today, our Famous Footwear chain is the No. 1 source of
brand name, value-priced footwear for the entire family. The chain's buying
power, access to top brands, state-of-the-art marketing, merchandising and
distribution systems, and sales and profit record make it "best of class."
In 1999, Famous Footwear delivered outstanding performance--a 14.4 per-
cent increase in operating earnings and a 7.7 percent increase in
sales--making 1999 another year of record sales and earnings.
Famous Footwear is on track for continued growth. We plan to open 80 to
90 new stores during 2000. Our new stores are slightly larger, and relatively
more profitable than the existing store base. At the same time, we will
continue our successful strategy of closing approximately one under-performing
store for every two stores we open. This strategy increases both total square
footage and sales per square foot: in 1999, Famous Footwear opened 77 new
stores and closed 37--achieving increases of 5.3 and 4.2 percent for total
square footage and sales per square foot, respectively. Together with stable
gross margin rates and aggressive expense control, this process contributed
to a 30 basis point rise in operating margin to 5.8 percent, from 5.5 percent
in 1998 and 4.6 percent in 1997.
13
<PAGE> 16
name brands
nike adidas skechers reebok rockport new balance naturalizer keds steve
madden k-swiss nunn bush timberland connie bandolino buster brown westies
aerosoles esprit vans dr. martens white mountain nine west marquise ny lugz
wolverine caterpiller converse avia basswood hush puppies nicole dexter
street cars mia eastland fila florsheim stacy adams tommy hilfiger premier
candie's mootsie tootsie
FAMOUS FOOTWEAR IS THE LARGEST RETAILER OF BRAND NAME, VALUE-PRICED
FOOTWEAR FOR THE ENTIRE FAMILY #1
<PAGE> 17
FAMOUS FOOTWEAR: A 20-YEAR HISTORY OF GROWTH
As the leading retailer of brand name, value-priced footwear for the family,
our 867-store Famous Footwear chain attains levels of performance that make
it "best of class." Sales increased 7.7 percent over 1998, and 27 percent
since 1995. Operating profits reached $54 million, up 14.4 percent from 1998
and 155 percent since 1995. Sales per square foot continue to increase, up
4.2 percent over last year, and 15 percent since 1995.
<PAGE> 18
CHAIRMAN'S LETTER CONTINUED
The culture of Famous Footwear demands excellence in execution, and we'll
get even better in 2000. It all starts with the power of our branded offering
across all types of footwear, and the ability to anticipate shifting consumer
preferences. At Famous Footwear, we're meeting those preferences with highly
developed merchandising systems that flow product, store-by-store, filling
each location's demand for the "hottest" shoes.
Our strategy also demands we increase sales in our highest-performing
stores. In 1999, we tested a new merchandising/marketing program in select
markets. It employed our extensive database and powerful systems technology
to select and price the right products, and execute targeted advertising and
store display programs that pull customers into our stores. Pilot markets saw
double-digit increases in store sales. In 2000, this program rolls out to
other key markets. In summary, we expect Famous Footwear to continue to be
Brown Shoe's main earnings driver.
BROWN BRANDED DIVISION. Brown Branded, which markets our women's brands to
department stores and specialty footwear stores, made substantial progress in
revitalizing Naturalizer and LifeStride in 1999. Our charge is to build
Naturalizer's momentum while broadening LifeStride--improving market share
for both. With Naturalizer, we're pulling a younger customer to the brand.
And at LifeStride, we've entered the office casual footwear segment.
16
<PAGE> 19
Key to the Naturalizer strategy was launching a dynamic "image" campaign
in Fall 1999 that captured the fashion appeal and new designs of this
footwear. In this report you'll see examples of the bold, new images that are
appearing in fashion magazines, department stores and our own Naturalizer
specialty stores. We believe that Naturalizer's 24 percent growth in major
department stores for the Fall season validates our progress.
Ultimately, the Naturalizer brand can support additional product
categories through licensing, more in-store shops for our many department
store accounts, and a revitalized specialty store chain--making Naturalizer
truly a mega-brand.
Equally ambitious plans exist for LifeStride. LifeStride is the No. 1
unit-volume dress brand in department stores, and it dominates the under $40
price zone. While the dress shoe market is shrinking as the workplace
embraces "business casual," we see a compelling opportunity for LifeStride.
We've added a strong business casual component. In fact, in 2000, casual and
tailored shoes will represent about 45 percent of the line. Early orders
indicate that the consumer's trust in LifeStride translates well to casual
footwear, and we expect to increase market share in 2000 and beyond.
We recognize while a new face for our brands is important, ultimately
consumers respond to great product. In early 1999, we reengineered our shoe
styling process to better anticipate shoe fashion trends and quicken our time
to market.
17
<PAGE> 20
REVITALIZING OUR BRANDS We've revitalized and repositioned our Naturalizer
women's footwear brand to meet consumer preference for great looking, more
casual shoes. European design distinguishes both dress and casual styles.
Today, dress/tailored shoes are 40 percent of Naturalizer's sales, down from
50 percent two years ago. Two years ago, the average Naturalizer customer was
over age 55, today our in-store research indicates she is 44.
[PHOTO]
repositioning
A NEW FASHION FOCUS IN OUR FLAGSHIP BRAND
DRESS TODAY
<PAGE> 21
[PHOTO]
CASUAL TODAY
<PAGE> 22
CHAIRMAN'S LETTER CONTINUED
From our style center in Florence, Italy, we capture European influences,
elements like heel shapes and fabrics--before they appear at retail--and
electronically send them to our line-builders in the U.S. who blend them with
the latest U.S. fashion trends. This is just one step in a new process that
is shortening the product design cycle by some 30 percent.
NATURALIZER RETAIL STORES. While the consumer is seeing and buying the new
Naturalizer styles in department stores, our 486-store Naturalizer Retail
division still struggled in 1999. Sales were flat versus 1998 and same-store
sales declined by about 4 percent. As a result, the chain incurred an
operating loss of $3.7 million. We regard this performance as unacceptable,
and have aggressive plans in place for achieving operating improvement.
At the heart of our turn-around strategy is our fashion-right product
and our bold image campaign. By placing fresh product and eye catching
displays in our stores every 4 to 6 weeks, we plan on driving sales gains.
We'll also improve productivity through a better mix of retail locations. In
2000, we will close about 25 of our poorest performing stores. At the same
time, we'll open some 25 new concept stores in the "right places," with the
"right look" that exudes the new Naturalizer image. While the chain is still
in the early stages of transition to a fashion-driven specialty retailer, we
expect to see improved operating results and increased same-store sales
during the coming year.
20
<PAGE> 23
BROWN PAGODA DIVISION. Brown Pagoda achieved a 34 percent increase in
operating earnings to post a record year. We're also proud to announce that
this division was named Wal-Mart's footwear "Supplier of the Year," and we
continue to win accolades as the leading outside supplier to Payless
ShoeSource.
Buster Brown & Co., our kids' group, had an outstanding year. Our premier
licenses, Barbie and Star Wars, were big winners. Sales of Barbie footwear,
designed for girls ages 2 to 8, again doubled, and we sold an impressive 4.2
million pairs of Star Wars shoes.
We continue to sign the best licenses and develop footwear that captures
the imagination of young consumers and their moms. For 2000, we have several
exciting license agreements in place. We'll launch a Sammy Sosa line of kids'
athletic and baseball shoes, and we'll offer lines featuring the popular
Digimon: Digital Monsters, NASCAR Racers, and Rugrats characters.
Introduced in 1904, Buster Brown was our first real shoe brand. Since
many parents grew up wearing Buster Brown, they know and trust it. In 2000,
we plan to support this brand with a national magazine advertising campaign
featuring kids and their dogs with the "Let's grow up together" theme.
Also in 2000, we'll roll out a new co-branding strategy that places our
Buster Brown & Co. name on all our children's shoes. Packaging for our
Barbie shoes, for example, will inform parents that Barbie shoes are made by
Buster Brown & Co., with its pledge of quality.
21
<PAGE> 24
VOLUME
MASS MARKET RETAIL POWER
[PHOTO]
GROWTH AT MASS MARKET Mass market merchandisers are the hottest growing
segment for shoe sales today. And Brown Shoe has become the leading outside
supplier of footwear to two of the largest--Wal-Mart and Payless ShoeSource.
We're partnering with these and other leading retailers to bring their
customers well-made, great-looking shoes at affordable prices.
<PAGE> 25
[PHOTO]
<PAGE> 26
CHAIRMAN'S LETTER CONTINUED
Equally successful is Brown Pagoda's adult footwear business. We set the
industry standard for product development, speed to market, quality, and
ability to meet customers' delivery needs. Our licensed Dr. Scholl's brand,
for example, a top seller at mass market, had an 11 percent sales increase
over 1998.
E-SHOES + ABILITY TO DELIVER = E-GROWTH. As we enter the 21st century, we
believe that business-to-business, e-commerce provides an opportunity to
competitively differentiate Brown Shoe with retailers. To that end, we've
launched the most comprehensive e-commerce site in our industry.
www.brownshoeonline.com allows our retail partners to check inventory, place
orders, track arrivals, and much more. This investment already is paying off
for both Brown Shoe and its customers, as retail users have increased their
order volume with us by 13 percent since its implementation.
Phase II of this system, e-direct, allows retailers to "make the sale"
even when out-of-stock on a shoe: the retailer collects payment, and e-direct
ships it from our warehouse to her home.
Also in 1999, we launched the Naturalizer consumer site
www.naturalizeronline.com. Here, consumers can browse our selection by style
or by size, and directly order their favorite shoes, confident that their
selection will carry Naturalizer's fit and comfort features. Plus, we're
partnering with Nordstrom.com to offer a Naturalizer boutique on its web site.
24
<PAGE> 27
IN CONCLUSION. As Chairman of Brown Shoe, I'm obviously proud of the visible
progress that was achieved in 1999. I am more pleased to tell you there is a
new sense of urgency and a renewed passion to win that characterize our
management's outlook. Our employees and business partners also deserve much
credit for embracing this enthusiasm. They continue to do a terrific job for
your company.
In light of our improved performance and encouraging prospects, we are
obviously disappointed with the earnings multiple and price of our stock.
That said, we continue to focus on growing sales and earnings and on building
a compelling business. We believe that Wall Street will come to recognize the
progress we've made, and will eventually reward us with a proper multiple.
As you know, in 1999 we changed our name back to Brown Shoe Company. It
was a move that reflected our 122-year heritage in shoes, but more
importantly, it reflects our commitment to becoming the best performing
company in the footwear industry--the Leader in Footwear.
Thank you for your continuing support.
/s/ Ron Fromm
RONALD A. FROMM, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
25
<PAGE> 28
EXECUTIVE MANAGEMENT TEAM
[PHOTOS]
GREGORY J. VAN GASSE BRIAN C. COOK
President, Brown Branded Division Executive Vice President
and President, Famous Footwear
GARY M. RICH DAVID H. SCHWARTZ
President, Brown Pagoda Division President, Brown Sourcing Division
107 YEARS OF FOOTWEAR INDUSTRY EXPERIENCE Our Executive Management Team is
the best. Brian Cook celebrates his 20th year as president of Famous
Footwear, a chain that has grown from 14 to 867 stores under his leadership.
Gary Rich led Brown Pagoda to yet another record year in 1999. Dave Schwartz
has built a sourcing organization that not only delivers 65 million pairs of
shoes a year, but also consistently earns customer quality awards. Greg Van
Gasse joined us in 1998 and, as you'll see, brings us a new level of brand
marketing.
26
<PAGE> 29
consumer driven
<PAGE> 30
[LOGO]
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FAMOUS FOOTWEAR IS A DESTINATION. Whether you know us as Famous Footwear,
Factory Brand Shoes or Supermarket of Shoes, our 867 stores all deliver great
brands at great prices. One out of every 10 families shops us for
back-to-school shoes each year. They come for brands--Famous Footwear is
among the top retailers for Nike, Timberland, Naturalizer, Rockport, Keds and
Buster Brown. They come for value--leading brands at great discounts. They come
for convenience--our stores are located in neighborhood shopping centers,
regional and outlet malls, wherever families want to shop. And they come
because it's fun to shop our stores.
FASHION TRENDS ARE OUR BUSINESS. Unlike athletic and other specialty
footwear stores, Famous Footwear responds season-by-season, market-by-market,
and store-by-store to changes in consumer trends. 1999 was the year of
junior-casual brands. We had the "hottest" new brands like--Steve Madden, Mia
and Skechers.
- -------------------------------------------------------------------------------
<PAGE> 31
[PHOTO]
<PAGE> 32
[PHOTO]
FAMOUS FOOTWEAR. America's #1 choice for value-priced, branded family shoes.
<PAGE> 33
[PHOTO]
<PAGE> 34
[PHOTO]
<PAGE> 35
[PHOTO]
FAMOUS FOOTWEAR. The best brands at the best prices.
<PAGE> 36
[PHOTO]
<PAGE> 37
brand driven
<PAGE> 38
[LOGO]
- -----------------------------------------------------------------------------
THERE'S A REVOLUTION HAPPENING AT NATURALIZER. Long recognized as the
best-fitting, most comfortable women's shoes, today's Naturalizer has
forward-styling and an energized attitude. Customers can't help but notice us
with our bold new "image" graphics and younger styles. Launched in Fall 1999,
the new image campaign can be seen in department stores, our Naturalizer
concept stores, and in magazine advertising.
NATURALIZER RETAIL. We're focused hard on revitalizing our 486-store chain
of Naturalizer stores. An aggressive direct mail program of catalogs,
dramatic in-store presentations, and great looking shoes, are pulling in new,
younger customers to our Naturalizer stores.
LIFESTRIDE. You probably didn't know that LifeSride is the number one
selling brand at $29.99 in department stores today. No longer just your
classic pump, LifeStride appeals to customers who crave fashion and buy shoes
to "make" the outfit.
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<PAGE> 39
[PHOTO]
<PAGE> 40
[PHOTO]
BRAND IMAGE. New, bold, in-store graphics and advertising.
<PAGE> 41
[PHOTO]
NATURALIZER. Grab life by the straps.
<PAGE> 42
[PHOTO]
<PAGE> 43
[PHOTO]
Got the Pack? Get the Mule. [LOGO]
<PAGE> 44
[PHOTO]
ORIGINAL DR. SCHOLL'S. Recognized worldwide.
<PAGE> 45
market driven
<PAGE> 46
[LOGO]
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BUSTER BROWN & CO. is the kids' division of Brown Shoe, that sells branded,
licensed and private label kids' shoes. Kids love shoes that feature their
favorite cartoon or sports hero. Starting in summer 2000, we will launch an
exciting program to co-brand these kids' shoes with the Buster Brown & Co.
name and pledge of quality. There isn't a label that means more to moms than
Buster Brown, and this brand soon will be featured in a national magazine
advertising program, "Let's grow up together."
BARBIE SHOES have become one of our strongest licensed brands in kids'
footwear. In 1999, we doubled our sales of Barbie shoes by expanding the line
to include shoes that are fashion-right for girls ages 2 to 8.
- ------------------------------------------------------------------------------
<PAGE> 47
[PHOTO]
[LOGO]
branded shoes
<PAGE> 48
[PHOTO]
<PAGE> 49
[PHOTO]
Let's grow up together. [LOGO]
<PAGE> 50
[PHOTO]
SOSA AND DIGIMON. Power brands for active kids.
<PAGE> 51
[PHOTO]
<PAGE> 52
BROWN SHOE DIVISIONS
[LOGO]
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RETAIL STORES
- ------------------------------------------------------------------------------
FAMOUS FOOTWEAR
[PHOTO] [LOGOS]
- ------------------------------------------------------------------------------
NATURALIZER RETAIL DIVISION
[PHOTO] [LOGO]
- ------------------------------------------------------------------------------
BROWN SHOE COMPANY OF CANADA, LTD.--RETAIL DIVISION
[PHOTO] [LOGOS]
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<PAGE> 53
BROWN SHOE DIVISIONS
T H E L E A D E R I N F O O T W E A R(TM)
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WHOLESALE MARKETERS
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BROWN BRANDED DIVISION
[LOGOS]
-------------------------------
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BROWN PAGODA DIVISION
[LOGO]
-------------------------------
[LOGOS]
-------------------------------
- ------------------------------------------------------------------------------
BROWN SOURCING DIVISION
- ------ ----- --------- --------- ------ ----- ------
TAIWAN CHINA HONG KONG INDONESIA BRAZIL ITALY MEXICO
- ------ ----- --------- --------- ------ ----- ------
- ------------------------------------------------------------------------------
BROWN SHOE COMPANY OF CANADA, LTD.--
WHOLESALE DIVISION
[LOGO]
- ------------------------------------------------------------------------------
51
<PAGE> 54
BRANDS AND STORES
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
FOOTWEAR RETAIL STORES
<CAPTION>
NUMBER OF STORES
-----------------------------------------------
1999 1998 1997 1996<F*> 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FAMOUS FOOTWEAR Family footwear stores that feature
"brand names for less," located in shopping centers, regional
malls and outlet centers in the U.S. 867 827 815 794 814
===================================================================================================================
NATURALIZER Stores selling the Naturalizer and Naturalsport
brands of women's footwear, located in regional malls and
outlet centers in the U.S. and Canada. 486 462 464 462 424
===================================================================================================================
<FN>
<F*> Reflects the transfer of 40 Naturalizer outlet stores from the Famous
Footwear division to the Naturalizer Retail division
</TABLE>
- ------------------------------------------------------------------------------
FOOTWEAR BRANDS
WOMEN'S
AirStep
Basswood
Connie
Connie Too
Dr. Scholl's <F1>
Fanfares
Larry Stuart Collection
LifeStride
LS Studio
Maserati
Naturalizer
Naturalsport
NightLife
Original Dr. Scholl's <F1>
Penaljo
Tx Traction
CHILDREN'S
Airborne
Basswood
Barbie <F2>
Buster Brown
Digimon: Digital Monsters <F3>
Hello Kitty <F4>
LiveWires
Nascar Racers <F3>
Rugrats <F5>
Sammy Sosa <F6>
Star Wars <F7>
The Land Before Time <F8>
Treats
MEN'S AND ATHLETIC
AirStep
Basswood
Big Country
Brown Shoe
Dr. Scholl's <F1>
Jean Pier Clemente
le coq sportif <F9>
Nature Sole
Penn <F10>
Regal
Tx Traction
As denoted, these brands are the
registered trademarks of, and are
under license from:
[FN]
<F1> Schering-Plough Healthcare
Products, Inc.
<F2> Mattel, Inc.
<F3> Saban Consumer Products
<F4> Sanrio, Inc.
<F5> MTV Networks
<F6> K.K.S.M. Inc.
<F7> Lucasfilm, Ltd.
<F8> Universal Studios
<F9> LCS International B.V.
<F10> Head Sport AG
All other brands are registered trade-
marks of Brown Shoe Company, Inc.
- ------------------------------------------------------------------------------
52
<PAGE> 55
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION 54
FIVE-YEAR SUMMARY OF KEY FINANCIAL INFORMATION 58
CONSOLIDATED FINANCIAL STATEMENTS 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 63
REPORTS ON FINANCIAL STATEMENTS 79
SUPPLEMENTARY FINANCIAL INFORMATION 80
- -------------------------------------------------------------------------------
SAFE HARBOR STATEMENT: This Annual Report contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Actual results could differ materially from those projected as they
are subject to various risks and uncertainties. These include general
economic conditions, competition, consumer apparel and footwear trends, and
political and economic conditions in Brazil and China, which are significant
footwear sourcing countries. These factors are listed and further discussed
in the Company's Annual Report on Form 10-K.
- -------------------------------------------------------------------------------
<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Brown Shoe Company, Inc. had an impressive year in fiscal 1999, posting a 48%
increase in earnings per share compared to fiscal 1998. The Company's Famous
Footwear and Brown Pagoda divisions both achieved record earnings.
The Company's net sales of $1.593 billion in fiscal 1999 were 3.5% higher
than the $1.539 billion in fiscal 1998. The increased net sales reflect
higher sales at Famous Footwear and the wholesale operations. Net earnings in
fiscal 1999 reached $35.5 million compared to net earnings of $23.7 million
in fiscal 1998. Net earnings in fiscal 1999 include a $0.7 million loss
related to the withdrawal from the Pagoda International marketing division
compared to a $7.5 million loss in fiscal 1998. Excluding the Pagoda
International results, net earnings of the Company increased 16.0% to $36.2
million in fiscal 1999 versus $31.2 million in fiscal 1998, and sales
increased 5.2%.
Famous Footwear achieved its fourth consecutive year of improved earnings.
Net sales of $927.6 million in fiscal 1999 increased 7.7% from $861.3 million
in fiscal 1998. In fiscal 1999, same-store sales increased 2.2% and 40 net
new stores were added while sales per square foot increased 4.2%, reflecting
improved store productivity from the new stores opened versus those stores
closed in the past year. Operating earnings for fiscal 1999 increased 14.4%
to $54.0 million as a result of increased sales, stable gross margins,
aggressive expense control and strong execution. At the end of fiscal 1999,
867 stores were in operation compared to 827 stores in fiscal 1998. During
the year, 77 stores were opened and 37 stores were closed, with plans for
fiscal 2000 including the net addition of 25 to 30 stores.
The Company's wholesale operations--Brown Branded, Brown Pagoda and Canadian
Wholesale divisions--had net sales of $469.2 million in fiscal 1999,
representing a 2.9% increase over fiscal 1998. Sales of the Naturalizer brand
increased 5.0% in 1999, reflecting good customer acceptance of the
rejuvenated product line. In addition, fiscal 1999 sales included a strong
performance of Barbie, Star Wars, and Dr. Scholl's licensed products.
Operating earnings of $32.8 million in fiscal 1999 were slightly lower than
fiscal 1998's $33.5 million, due to a change in the method of determining the
level of profit to be earned on intersegment sales to the Naturalizer Retail
operations. Excluding the impact of this change, operating earnings for the
wholesale operations would have increased 5.2% in fiscal 1999, primarily due
to the sales gains and improved execution in the developing and sourcing of
footwear.
In the Company's Naturalizer Retail operations, which include stores in both
the United States and Canada, net sales of $186.6 million in fiscal 1999
declined slightly from $187.2 million in fiscal 1998. Same-store sales in
fiscal 1999 decreased 4.1% and 2.7% in the United States and Canada,
respectively. An operating loss of $3.7 million was incurred in fiscal 1999
compared to an operating profit of $0.8 million in fiscal 1998. The decrease
in operating earnings resulted from same-store sales declines, reflecting
missed product opportunities, and increased marketing expenses to promote the
Naturalizer brand's new image. At the end of fiscal 1999, 486 stores were in
operation including 347 stores in the United States and 139 stores in Canada.
Domestically, the Company had a net increase of 16 stores in fiscal 1999,
while Canada had a net increase of 8 stores.
Consolidated gross profit as a percent of sales of 39.3% in 1999 was lower
than the 39.9% achieved in 1998. The decrease reflected competitive pressures
at both retail and wholesale and higher markdowns.
Selling and administrative expenses as a percent of sales improved to 35.1%
in 1999 versus 35.9% rate in 1998 due to strong expense control throughout
the Company and additional leverage of the expense base at Famous Footwear.
Interest expense of $17.3 million in fiscal 1999 decreased from $19.4 million
in fiscal 1998 due to lower average borrowings and the payments of $25.0
million due on long-term debt. The lower average borrowings resulted from
positive cash flow from operations and foreign cash repatriation of
approximately $26 million in fiscal 1999.
Other income of $2.2 million in fiscal 1999 primarily resulted from the gain
recognized from the sale of the le coq sportif footwear and apparel business.
This compared to an expense of $4.5 million in fiscal 1998 primarily from the
write-off of $1.9 million in intangible assets and additional charges of $2.0
million associated with withdrawal from the Pagoda International marketing
business.
The Company's tax provision of $16.3 million in fiscal 1999 represented an
effective tax rate of 31.4% as compared to 37.1% in fiscal 1998. Fiscal 1998
results included a higher level of Pagoda International losses on which no
tax benefit was realized. See Note 5 to the consolidated financial statements
for a further explanation and a reconciliation of the effective tax rates to
the statutory rates.
54 BROWN SHOE COMPANY, INC. 1999
<PAGE> 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
1998 COMPARED TO 1997
The Company's net sales of $1.539 billion in fiscal 1998 were $28 million
lower than the $1.567 billion in fiscal 1997. Net sales were impacted by
withdrawal from the Pagoda International marketing division and the sale of
Famous Footwear's fixtures manufacturing business at the end of fiscal 1997.
Adjusting for these items, net sales increased 3.1%, led primarily by Famous
Footwear. Net earnings of $23.7 million in fiscal 1998 compared to a net loss
of $20.9 million in fiscal 1997. The net loss in fiscal 1997 included $45.6
million of Pagoda International restructuring charges and operating losses
compared to a loss of $7.5 million incurred in fiscal 1998. Excluding the
Pagoda International results and the aftertax loss of $1.5 million incurred
on the sale of the Famous Fixtures business in fiscal 1997, net earnings of
the Company's core businesses were $31.2 million in fiscal 1998 compared to
$26.2 million in fiscal 1997.
Net sales at Famous Footwear increased 1.3% in fiscal 1998 to $861.3 million
and increased 3.9% adjusting for the sale of the Famous Fixtures business.
Same-store sales increased 0.4% and 12 net new stores were added in fiscal
1998. Sales per square foot increased 3.2% in fiscal 1998 reflecting improved
store productivity from the new stores opened versus those stores closed in
the prior year. At the end of fiscal 1998, 827 stores were in operation
compared to 815 stores in fiscal 1997. During the year, 60 stores were opened
and 48 stores were closed. Excluding the effect of the sale of the fixtures
business, operating earnings for fiscal 1998 increased 24.5% to $47.2 million
as a result of higher gross margins, good expense management and successful
merchandising strategies to overcome a decline in athletic footwear sales.
The Company's wholesale operations--Brown Branded, Brown Pagoda and Canadian
Wholesale divisions--had a net sales increase of 1.7% during fiscal 1998 to
$455.9 million. Sales of the Naturalizer brand increased 8.7% in 1998
reflecting consumer acceptance and new retail distribution of the brand.
Operating earnings of $33.5 million increased 4.8% in fiscal 1998 resulting
from improved margins and well-controlled operating expenses.
In the Company's Naturalizer Retail operations, net sales of $187.2 million
increased 3.1% in fiscal 1998. Same-store sales in fiscal 1998 increased 2.6%
and 1.2% in the United States and Canada, respectively. At the end of fiscal
1998, 462 stores were in operation including 331 stores in the United States
and 131 stores in Canada. Domestically, the Company had a net decrease of 10
stores in fiscal 1998 while Canada had a net increase of 8 Naturalizer
stores. Even though the Canadian operations performed at record levels, total
Naturalizer Retail operations had operating earnings of $0.8 million in
fiscal 1998, compared to $2.3 million in fiscal 1997. Operations in the
United States stores were adversely impacted by higher store operating costs.
Consolidated gross profit as a percent of sales of 39.9% in 1998 was higher
than the 37.9% in 1997, which excluded the impact of the Pagoda International
restructuring charge of $14.7 million. The improvement in gross profit rate
reflected increases at Famous Footwear and the wholesale operations.
Selling and administrative expenses as a percent of sales of 35.9% in 1998
were higher than the 35.2% in 1997, excluding the impact of the Pagoda
International restructuring charge. The increase in the selling and
administrative expense rate in 1998 was due to a higher mix of retail sales
versus wholesale sales as well as a higher level of retail expenses in 1998
compared to 1997.
Interest expense of $19.4 million in fiscal 1998 decreased from $21.8 million
in fiscal 1997, primarily as a result of lower average borrowings for the
year due to positive cash flow provided from operations.
Other expense of $4.5 million in fiscal 1998 varied from other income of $0.5
million in 1997 as a result of environmental remediation costs of $2.3
million and the write-off of certain intangible assets of $1.9 million.
The Company's tax provision of $13.9 million in fiscal 1998 represented an
effective tax rate of 37.1%. The 1997 tax provision of $18.7 million included
an $8.0 million provision for taxes due on the foreign cash to be repatriated
as a result of the decision to withdraw from the Pagoda International
marketing division. In addition, fiscal 1997 results included a high level of
Pagoda International losses on which no tax benefit was realized.
PAGODA INTERNATIONAL RESTRUCTURING
In fiscal 1997, the Company made the decision to withdraw from the Pagoda
International marketing division in Latin America and Europe. The
restructuring plan included the sale of the remaining Brazilian inventory of
licensed products and the shift of European inventory ownership and marketing
of its licensed footwear to other parties. In addition, plans were developed
to repatriate foreign cash previously available to support international
operations. Aftertax charges of $33.0 million were recorded to cover the
following costs: $14.7 million for inventory markdowns and royalty
agreements' shortfall; $7.3 million for bad debts, severance and other
administrative costs; $3.0 million for other costs associated with the
restructuring; and $8.0 million for income taxes associated with the United
States taxes owed on the foreign cash anticipated to be repatriated. As of
January 29, 2000, withdrawal
1999 BROWN SHOE COMPANY, INC. 55
<PAGE> 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
from the division's operations had been completed, as the inventory has been
sold and all licenses either terminated or assigned to other parties.
A cumulative summary of activity in the restructuring reserve is as follows
(in millions):
<TABLE>
- --------------------------------------------------------------------------
<S> <C>
Establishment of reserve $ 33.0
Inventory markdowns and royalty
agreements' shortfall (14.7)
Bad debt write-offs, severance and other costs (10.3)
Utilization of tax provision (8.0)
- --------------------------------------------------------------------------
Remaining reserve at January 29, 2000 $ --
==========================================================================
</TABLE>
The reserve activity had a $4.8 million and $5.4 million negative cash flow
impact on fiscal 1999 and fiscal 1998, respectively.
IMPACT OF INFLATION
The effects of inflation on the Company have been minor over the last several
years and are not expected to have a significant impact in the foreseeable
future.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1999, the Company's borrowing level continued to decrease as
cash flow from operations exceeded capital expenditures and dividends. As a
result, total debt decreased from $197.0 million at the end of fiscal 1998 to
$172.0 million at the end of fiscal 1999. The Company's ratio of total
debt-to-total capitalization decreased from 47.6% at the end of fiscal 1998
to 40.8% at the end of fiscal 1999. Favorable cash flow from operations in
fiscal 1999 as well as cash repatriation amounting to approximately $26
million from Canada and other foreign operations impacted the ratio. In
addition, the Company realized approximately $9.5 million in fiscal 1999 from
the sale of the le coq sportif footwear and apparel business.
Working capital at the end of fiscal 1999 was $270.0 million, which was $19.1
million higher than at the end of fiscal 1998. The Company's current ratio,
the relationship of current assets to current liabilities, increased from 2.0
to 1 at the end of fiscal 1998, to 2.2 to 1 at the end of fiscal 1999. The
increase in the current ratio was primarily due to lower levels of accounts
payable and current maturities of long-term debt.
Cash provided by operating activities in 1999 of $39.1 million was
significantly lower than in 1998 as a result of lower trade accounts payable
with inventories remaining stable in fiscal 1999. Fiscal 1998 was favorably
impacted from decreased inventories and receivables primarily at the
Company's wholesale operations.
Cash used by investing activities in fiscal 1999 of $19.1 million included
capital expenditures of $28.7 million partially offset by the proceeds
received from the sale of the le coq sportif business. Capital expenditures
were $22.7 million in fiscal 1998 and in both years were primarily for new
store openings and remodelings at Famous Footwear and Naturalizer Retail.
The Company's debt agreements contain various covenants which, among other
things, require the maintenance of certain financial ratios related to fixed
charge coverage and debt-to-total capitalization, establish minimum levels of
net worth, and limit the sale of assets and the level of liens and certain
investments. The Company was in compliance with all of its covenants during
fiscal 1999 and at fiscal year-end, and expects to continue to be in
compliance based on current estimates for fiscal 2000. The Company's current
borrowing capacity under the revolving bank Credit Agreement is believed to
be adequate to fund its operational needs and long-term debt maturities in
2000.
The Company's long-term debt is rated Ba2 by Moody's Investors Service, BB by
Standard & Poor's Corporation, and BB+ by Fitch Investors Service. In fiscal
1999, Standard & Poor's Corporation revised its outlook on the Company to
stable from negative as a result of the continuing improvement in financial
performance.
Brown Shoe Company, Inc. paid a dividend of $0.40 per share in fiscal 1999
and fiscal 1998. The 1999 dividend marked the 77th year of consecutive
quarterly dividends.
FINANCIAL INSTRUMENTS
The market risk inherent in the Company's financial instruments and positions
represents the potential loss arising from adverse changes in foreign
currency exchange rates and interest rates. To address these risks, the
Company enters into various hedging transactions to the extent described
below. All decisions on hedging transactions are authorized and executed
pursuant to the Company's policies and procedures, which do not allow the use
of financial instruments for trading purposes. The Company also is exposed to
credit-related losses in the event of nonperformance by counterparties to
these financial instruments; however, counterparties to these agreements are
major international financial institutions, and the risk of loss due to
nonperformance is believed to be minimal.
A description of the Company's accounting policies for derivative financial
instruments is included in Note 10 to the consolidated financial statements.
56 BROWN SHOE COMPANY, INC. 1999
<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
FOREIGN CURRENCY EXCHANGE RATES
In the normal course of business, the Company is exposed to foreign currency
exchange rate risks as a result of having assets, liabilities and inventory
purchase commitments outside the United States. The Company employs an
established foreign currency hedging strategy to protect earnings and cash
flows from the adverse impact of exchange rate movements. A substantial
portion of inventory sourced from foreign countries 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 a foreign
currency, the Company enters into foreign exchange contracts or option
contracts with maturity periods normally less than one year to reduce its
exposures to foreign exchange risk. The level of outstanding contracts during
the year is dependent on the seasonality of the Company's business and on
demand for footwear from various locations throughout the world. The changes
in market value of foreign exchange contracts have a high correlation to the
price changes in the currency of the related hedged transactions. The
potential loss in fair value of the Company's net currency positions at
January 29, 2000 resulting from a hypothetical 10% adverse change in all
foreign currency exchange rates would not be material.
Assets and liabilities outside the United States are primarily located in
Canada and Hong Kong. The Company's investments in foreign subsidiaries with
a functional currency other than the United States' dollar are generally
considered long-term, and thus generally are not hedged. The net investment
in foreign subsidiaries translated into dollars using the year-end exchange
rates was approximately $34 million at January 29, 2000. The potential loss
in fair value resulting from a hypothetical 10% adverse change in foreign
exchange rates would be approximately $3 million. Any loss in fair value
would be reflected as a cumulative translation adjustment in Other
Comprehensive Income and would not impact earnings.
INTEREST RATES
The Company's financing arrangements include both fixed and variable rate
debt in which changes in interest rates will impact the fixed and variable
rate debt differently. A change in the interest rate of fixed rate debt will
only impact the fair value of the debt, whereas a change in the interest
rates on the variable rate debt will impact interest incurred and cash flows.
The Company had no interest rate derivative instruments outstanding at
year-end and has not elected to enter into any derivative instruments based
upon cost/benefit considerations.
The revolving bank Credit Agreement, the Company's only variable rate debt,
had no outstanding borrowings as of January 29, 2000. A hypothetical 10%
adverse change in interest rates on the average outstanding borrowings for
fiscal 1999 would not be material to the Company's net earnings and cash
flows.
At January 29, 2000, the fair value of the Company's total debt is estimated
at approximately $165 million, based upon the borrowing rate currently
available to the Company for financing arrangements with similar terms and
maturities. Market risk is viewed as the potential change in fair value of
the Company's debt resulting from a hypothetical 10% adverse change in
interest rates and would be approximately $6 million at January 29, 2000.
YEAR 2000 COMPLIANCE
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 compliant. In late fiscal 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000
date change. The Company is not aware of any material problems resulting from
Year 2000 issues, either with its internal systems or the products and
services of third parties. The Company will continue to monitor its critical
computer applications and those of its suppliers and vendors throughout the
year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
ENVIRONMENTAL MATTERS
The Company is involved in environmental remediation and ongoing compliance
at several sites, including its closed New York tannery and its owned
facility in Colorado. In addition, various federal and state authorities have
identified the Company as a potentially responsible party for remediation at
certain landfills from the sale or disposal of solvents and other by-products
from the closed tannery and shoe manufacturing facilities. While the Company
currently operates no domestic manufacturing facilities, prior operations
included numerous manufacturing and other facilities for which the Company
may have responsibility under various environmental laws for the remediation
of conditions that may be identified in the future. At January 29, 2000, the
accrued environmental liabilities for all sites total approximately $3.9
million. See Note 13 to the consolidated financial statements for a further
description of specific properties.
1999 BROWN SHOE COMPANY, INC. 57
<PAGE> 60
FIVE-YEAR SUMMARY OF KEY FINANCIAL INFORMATION
<TABLE>
FIVE-YEAR SUMMARY
<CAPTION>
1999 1998 1997 1996 1995
THOUSANDS, EXCEPT PER SHARE AMOUNTS (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $1,592,532 $1,538,530 $1,567,202 $1,525,052 $1,455,896
Cost of goods sold 967,161 925,190 988,530 958,288 948,925
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 625,371 613,340 578,672 566,764 506,971
=====================================================================================================================
Selling and administrative expenses 558,436 551,877 559,536 521,553 494,098
Interest expense 17,349 19,383 21,756 19,327 15,969
Other (income) expense, net (2,179) 4,477 (452) (1,341) 1,630
- ---------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations
before income taxes 51,765 37,603 (2,168) 27,225 (4,726)
Income tax (provision) benefit (16,264) (13,934) (18,728) (6,910) 5,423
- ---------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 35,501 23,669 (20,896) 20,315 697
Credit for disposal of discontinued operations,
net of income taxes -- -- -- -- 2,600
- ---------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 35,501 $ 23,669 $ (20,896) $ 20,315 $ 3,297
=====================================================================================================================
Returns from continuing operations:
Return on net sales 2.2% 1.5% (1.3%) 1.3% 0.1%
Return on beginning shareholders' equity 16.3% 11.9% (8.8%) 8.8% 0.3%
Return on average invested capital 7.9% 5.3% (4.2%) 4.1% 0.2%
Dividends paid $ 7,295 $ 7,223 $ 15,323 $ 17,956 $ 23,325
Capital expenditures 28,688 22,747 21,727 21,044 26,939
PER COMMON SHARE
Basic earnings (loss) from continuing operations $ 1.99 $ 1.34 $ (1.19) $ 1.16 $ .04
Basic net earnings (loss) 1.99 1.34 (1.19) 1.16 .19
Diluted earnings (loss) from continuing operations 1.96 1.32 (1.19) 1.15 .04
Diluted net earnings (loss) 1.96 1.32 (1.19) 1.15 .19
Dividends paid .40 .40 .85 1.00 1.30
Shareholders' equity 13.69 11.95 11.04 13.19 12.92
FINANCIAL POSITION
Receivables, net $ 68,236 $ 67,815 $ 77,355 $ 90,246 $ 86,417
Inventories, net 365,989 362,274 380,177 398,803 342,282
Working capital 270,005 250,939 260,437 301,020 209,399
Property and equipment, net 84,600 82,178 82,744 85,380 87,720
Total assets 650,338 655,232 694,988 722,375 661,056
Long-term debt and capitalized lease obligations 162,034 172,031 197,027 197,025 105,470
Shareholders' equity 249,945 217,174 199,190 237,037 231,636
Average common shares outstanding--Basic 17,859 17,692 17,591 17,531 17,483
Average common shares outstanding--Diluted 18,125 17,943 17,841 17,725 17,637
- ---------------------------------------------------------------------------------------------------------------------
All data presented reflects the fiscal year ended on the Saturday nearest to January 31.
</TABLE>
58 BROWN SHOE COMPANY, INC. 1999
<PAGE> 61
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
THOUSANDS, EXCEPT NUMBER AND PER SHARE AMOUNTS JANUARY 29, 2000 JANUARY 30, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34,158 $ 45,532
Receivables, net of allowance of $8,088 in 1999 and $9,820 in 1998 68,236 67,815
Inventories, net of adjustment to last-in, first-out cost of $11,709
in 1999 and $13,424 in 1998 365,989 362,274
Deferred income taxes 9,376 9,381
Prepaid expenses and other current assets 10,015 12,381
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 487,774 497,383
- --------------------------------------------------------------------------------------------------------------------
Prepaid pension costs 39,028 34,825
Other assets 38,936 40,846
Property and equipment, net 84,600 82,178
- --------------------------------------------------------------------------------------------------------------------
$650,338 $655,232
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $113,820 $124,921
Employee compensation and benefits 35,727 36,935
Other accrued expenses 53,820 53,146
Income taxes 4,402 6,442
Current maturities of long-term debt 10,000 25,000
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 217,769 246,444
- --------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt, including capitalized lease obligations 162,034 172,031
Deferred income taxes 8,416 6,086
Other liabilities 12,174 13,497
- --------------------------------------------------------------------------------------------------------------------
Total Other Liabilities 182,624 191,614
- --------------------------------------------------------------------------------------------------------------------
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; 18,262,990 and
18,168,340 shares outstanding 68,486 68,131
Additional capital 49,153 48,243
Unamortized value of restricted stock (3,566) (4,058)
Accumulated other comprehensive loss (6,034) (8,842)
Retained earnings 141,906 113,700
- --------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 249,945 217,174
- --------------------------------------------------------------------------------------------------------------------
$650,338 $655,232
====================================================================================================================
See notes to consolidated financial statements.
</TABLE>
1999 BROWN SHOE COMPANY, INC. 59
<PAGE> 62
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED EARNINGS
<CAPTION>
THOUSANDS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,592,532 $1,538,530 $1,567,202
Cost of goods sold 967,161 925,190 988,530
- --------------------------------------------------------------------------------------------------------------------
Gross profit 625,371 613,340 578,672
- --------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 558,436 551,877 559,536
Interest expense 17,349 19,383 21,756
Other (income) expense, net (2,179) 4,477 (452)
- --------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 51,765 37,603 (2,168)
Income tax provision (16,264) (13,934) (18,728)
- --------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 35,501 $ 23,669 $ (20,896)
====================================================================================================================
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ 1.99 $ 1.34 $ (1.19)
====================================================================================================================
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ 1.96 $ 1.32 $ (1.19)
====================================================================================================================
See notes to consolidated financial statements.
</TABLE>
60 BROWN SHOE COMPANY, INC. 1999
<PAGE> 63
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOWS
<CAPTION>
THOUSANDS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 35,501 $ 23,669 $(20,896)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 25,547 26,943 26,686
Loss on disposal or impairment of facilities and equipment 1,567 961 1,475
Provision for losses on accounts receivable 2,234 2,772 5,145
Changes in operating assets and liabilities, net of business sold:
Receivables (3,769) 6,768 7,746
Inventories (3,715) 17,903 18,626
Prepaid expenses and other current assets 2,761 9,100 6,178
Trade accounts payable and accrued expenses (12,627) 2,904 16,349
Income taxes (4,949) (5,553) 7,990
Other, net (3,410) (6,587) (10,615)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 39,140 78,880 58,684
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (28,688) (22,747) (21,727)
Proceeds from sale of le coq sportif 9,538 -- --
Proceeds from sales of fixed assets 14 58 401
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (19,136) (22,689) (21,326)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Decrease in short-term notes payable -- (54,000) (8,000)
Debt issuance costs -- -- (678)
Principal payments of long-term debt (25,000) -- (2,000)
Proceeds from issuance of common stock 917 428 93
Dividends paid (7,295) (7,223) (15,323)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (31,378) (60,795) (25,908)
- --------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (11,374) (4,604) 11,450
Cash and Cash Equivalents at Beginning of Year 45,532 50,136 38,686
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 34,158 $ 45,532 $ 50,136
====================================================================================================================
See notes to consolidated financial statements.
</TABLE>
1999 BROWN SHOE COMPANY, INC. 61
<PAGE> 64
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED SHAREHOLDERS' EQUITY
<CAPTION>
UNAMORTIZED ACCUMULATED
COMMON STOCK VALUE OF OTHER TOTAL
THOUSANDS, EXCEPT NUMBER OF ---------------------- ADDITIONAL RESTRICTED COMPREHENSIVE RETAINED SHAREHOLDERS'
SHARES AND PER SHARE AMOUNTS SHARES DOLLARS CAPITAL STOCK INCOME (LOSS) EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE FEBRUARY 1, 1997 17,969,977 $ 67,387 $46,310 $ (5,700) $(4,433) $133,473 $237,037
=============================================================================================================================
Net loss (20,896) (20,896)
Currency translation adjustment (3,994) (3,994)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive loss (24,890)
Dividends ($0.85 per share) (15,323) (15,323)
Stock issued under employee
benefit plans 6,350 24 69 93
Stock issued under restricted
stock plan, net 73,000 274 657 (931) --
Amortization of deferred
compensation under
restricted stock plan 2,273 2,273
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1998 18,049,327 67,685 47,036 (4,358) (8,427) 97,254 199,190
=============================================================================================================================
Net earnings 23,669 23,669
Currency translation adjustment (415) (415)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive income 23,254
Dividends ($0.40 per share) (7,223) (7,223)
Stock issued under employee
benefit plans 27,138 102 326 428
Stock issued under restricted
stock plan, net 91,875 344 881 (1,225) --
Amortization of deferred
compensation under
restricted stock plan 1,525 1,525
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 30, 1999 18,168,340 68,131 48,243 (4,058) (8,842) 113,700 217,174
=============================================================================================================================
Net earnings 35,501 35,501
Currency translation adjustment 2,808 2,808
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive income 38,309
Dividends ($0.40 per share) (7,295) (7,295)
Stock issued under employee
benefit plans 56,150 210 707 917
Stock issued under restricted
stock plan, net 38,500 145 203 (348) --
Amortization of deferred
compensation under
restricted stock plan 840 840
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 29, 2000 18,262,990 $ 68,486 $49,153 $ (3,566) $(6,034) $141,906 $249,945
=============================================================================================================================
See notes to consolidated financial statements.
</TABLE>
62 BROWN SHOE COMPANY, INC. 1999
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Brown Shoe Company, Inc., (the "Company") founded in 1878, is a footwear
retailer and wholesaler. In fiscal 1999, the shareholders of the Company
approved a change in the Company's name to Brown Shoe Company, Inc. from
Brown Group, Inc. The Company's shares trade under the "BWS" symbol on the
New York and Chicago Stock Exchanges.
The Company provides a broad offering of branded, licensed and private label
casual, athletic and dress footwear products to women, children and men.
Footwear is sold at a variety of price points through multiple distribution
channels both domestically and internationally. The Company currently
operates 1,353 retail shoe stores in the United States and Canada primarily
under the Famous Footwear, Naturalizer and F.X. LaSalle names. In addition,
through its Brown Branded, Brown Pagoda and Canadian Wholesale divisions, the
Company designs, sources and markets footwear to retail stores domestically
and internationally, including department stores, mass merchandisers and
specialty shoe stores. In 1999, approximately 70% of the Company's sales were
at retail, compared to 68% in 1998 and 66% in 1997. See Note 6 for additional
information regarding the Company's business segments.
CONSOLIDATION
The consolidated financial statements include the accounts of Brown Shoe
Company, Inc. and its wholly-owned subsidiaries, after the elimination of
intercompany accounts and transactions. The accounts of the Brown Pagoda
division are consolidated as of December 31.
ACCOUNTING PERIOD
The Company's fiscal year is the 52 or 53-week period ending the Saturday
nearest to January 31. Fiscal years 1999, 1998 and 1997 ended on January 29,
2000, January 30, 1999, and January 31, 1998, respectively. Fiscal years
1999, 1998 and 1997 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.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with maturities of three
months or less when purchased to be cash equivalents.
INVENTORIES
All inventories are valued at the lower of cost or market, with 93% of
consolidated inventories using the last-in, first-out (LIFO) method. If the
first-in, first-out (FIFO) method had been used, inventories would have been
$11.7 million and $13.4 million higher at January 29, 2000 and January 30,
1999, respectively.
COMPUTER SOFTWARE COSTS
In fiscal 1998, the Company adopted AICPA Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," 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 approximately $1.3 million or
$0.07 per diluted share for fiscal 1998. No restatement of prior year results
was required.
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.
REVENUE RECOGNITION
Retail sales are recorded, net of returns, and exclude sales tax. Wholesale
sales are recorded, net of returns, when the merchandise has been shipped and
legal title has passed to the customer.
INCOME TAXES
Provision is made for the tax effects of timing differences between financial
and tax reporting. These differences relate principally to employee benefit
plans, bad debt reserves and inventory.
EARNINGS PER SHARE
Basic earnings per share is calculated using only the outstanding shares of
common stock. Diluted earnings per share is calculated using all outstanding
shares, unvested restricted stock and the dilutive effect, if any, of stock
options.
COMPREHENSIVE INCOME
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which
reports Comprehensive Income and its components within the Statement of
Consolidated Shareholders' Equity. Comprehensive Income includes all changes
in equity except those resulting from investments by owners and distributions
to owners. The Accumulated Other Comprehensive Loss for the Company is
composed solely of cumulative foreign currency translation adjustments.
1999 BROWN SHOE COMPANY, INC. 63
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK BASED COMPENSATION
The Company 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, stock
performance plan and restricted stock grants. No compensation expense is
recorded for stock options granted at market value. The Company has elected
to apply the provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123), by making pro
forma disclosures of net earnings and earnings per share to reflect the fair
value of stock options as if SFAS No. 123 had been adopted.
RECLASSIFICATIONS
Certain reclassifications have been made in the footnote amounts for fiscal
1998 and 1997 to conform to the fiscal 1999 presentation.
[2] EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net earnings (loss) $35,501 $23,669 $(20,896)
=======================================================================
DENOMINATOR (SHARES):
Denominator for basic
earnings (loss)
per share 17,859 17,692 17,591
Dilutive effect of
unvested restricted
stock and stock
options 266 251 --
- -----------------------------------------------------------------------
Denominator for diluted
earnings (loss)
per share 18,125 17,943 17,591
=======================================================================
Basic earnings (loss)
per share $ 1.99 $ 1.34 $ (1.19)
=======================================================================
Diluted earnings (loss)
per share $ 1.96 $ 1.32 $ (1.19)
=======================================================================
</TABLE>
The fiscal 1997 denominator for diluted earnings (loss) per share excludes
the potential effect of dilutive securities in accordance with SFAS No. 128
because the inclusion of such shares in the computation are anti-dilutive in
a period in which a loss was recognized.
[3] RETIREMENT AND OTHER BENEFIT PLANS
The Company's pension plan covers substantially all full-time United States
employees. Under the plan, salaried, management and certain hourly 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 Company's funding policy for all plans is to make the minimum annual
contributions required by applicable regulations.
In addition to providing pension benefits, the Company sponsors unfunded
defined benefit postretirement health and life insurance plans that cover
both salaried and hourly employees who had become eligible for benefits by
January 1, 1995. 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 Company intends to
continue to increase retiree contributions in the future. The life insurance
plans provide coverage ranging from $1,000 to $50,000 for qualifying retired
employees.
The following table sets forth the plans' changes in benefit obligations and
plan assets and amounts recognized in the Company's Consolidated Balance
Sheets at January 29, 2000 and January 30, 1999 (in thousands):
64 BROWN SHOE COMPANY, INC. 1999
<PAGE> 67
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
-------------------------- -----------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $120,904 $100,275 $ 6,691 $ 6,887
Service cost 4,626 4,009 5 4
Interest cost 7,316 7,300 378 447
Plan participants' contributions -- -- 329 380
Plan amendments 47 1,225 -- --
Actuarial (gain) loss (18,737) 16,101 (682) 164
Gross benefits paid (14,800) (8,006) (1,055) (1,191)
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 99,356 $120,904 $ 5,666 $ 6,691
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $157,707 $146,722 $ -- $ --
Actual return on plan assets 3,982 18,960 -- --
Employer contributions 4,225 31 727 811
Plan participants' contributions -- -- 328 380
Gross benefits paid (14,800) (8,006) (1,055) (1,191)
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $151,114 $157,707 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Funded status at end of year $ 51,758 $ 36,803 $(5,666) $(6,691)
Unrecognized net actuarial gain (13,238) (2,520) (1,708) (1,589)
Unrecognized prior service cost 508 542 (1) (2)
- ---------------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year $ 39,028 $ 34,825 $(7,375) $(8,282)
===========================================================================================================================
Amounts recognized in the
consolidated balance sheets consist of:
Prepaid benefit cost $ 43,769 $ 41,849 $ -- $ --
Accrued benefit cost (4,741) (7,024) (7,375) (8,282)
- ---------------------------------------------------------------------------------------------------------------------------
Net amount recognized at end of year $ 39,028 $ 34,825 $(7,375) $(8,282)
===========================================================================================================================
</TABLE>
Net periodic benefit cost (income) for 1999, 1998 and 1997 included the
following components (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
--------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 4,626 $ 4,009 $ 3,494 $ 5 $ 4 $ 4
Interest cost 7,316 7,300 6,876 378 447 523
Expected return on assets (12,859) (11,884) (10,759) -- -- --
Amortization of:
Actuarial (gain) loss 108 -- -- (562) (939) (1,321)
Prior service cost 80 16 74 (1) (9) (31)
Transition asset -- (547) (635) -- -- --
Settlement cost 750 700 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total net periodic benefit cost (income) $ 21 $ (406) $ (950) $(180) $(497) $ (825)
=====================================================================================================================
</TABLE>
1999 BROWN SHOE COMPANY, INC. 65
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
--------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE
ASSUMPTION:
Discount rate 7.75% 6.25% 7.75% 6.25%
Expected return on
plan assets 9.50% 9.50% n/a n/a
Rate of compensation
increase 4.75% 4.50% n/a n/a
- -----------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 6.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed. A one-percentage-point
change in assumed health care cost trend rates would not have a material
impact on service and interest cost and the postretirement benefit
obligation.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $7.9 million, $4.7 million and $0,
respectively, as of January 29, 2000 and $9.4 million, $7.0 million and $0 as
of January 30, 1999.
The Company's defined contribution 401(k) plan covers salaried, management
and certain hourly employees. Company contributions represent a partial
matching of employee contributions generally up to a maximum of 3.5% of the
employee's salary. The Company's expense for this plan was $2.7 million in
1999, $2.8 million in 1998 and $2.0 million in 1997.
[4] RESTRUCTURING CHARGES
Included in net loss for fiscal 1997 is an aftertax charge of $31.0 million
for the cost of withdrawal from the Company's Pagoda International marketing
division in Latin America and Europe. The total charge included $14.7 million
reflected in cost of goods sold for inventory markdowns and anticipated
royalty payment shortfalls. Costs for bad debts, severance and other
restructuring costs of $7.3 million are reflected in selling and
administrative expenses. Other expense (income) included $1.0 million
primarily for the disposal of fixed assets. In addition, an $8.0 million
provision for income taxes was recorded for the anticipated repatriation of
foreign cash to the United States. Taxes were not previously provided on
these accumulated earnings as they were considered to be permanently
reinvested in the Company's international operations. The total charge
resulted in a reduction in earnings of $1.76 per basic share for fiscal 1997.
In fiscal 1998, the Company provided $2.0 million, which is reflected in
other expense, to cover additional costs related to the restructuring. As of
January 29, 2000, withdrawal from the division's operations had been
completed, as all of the inventory has been sold and all licenses either
terminated or assigned to other parties.
Through January 29, 2000, the reserve has been fully utilized: $14.7 million
for inventory markdowns and royalty agreements; $10.3 million of bad debt
write-offs, severance and other costs; and $8.0 million for taxes related to
cash repatriations.
[5] INCOME TAXES
The components of earnings (loss) before income taxes consisted of domestic
earnings before income taxes of $28.8 million, $25.2 million, and $14.1
million in 1999, 1998 and 1997, respectively, and foreign earnings (loss)
before income taxes of $23.0 million, $12.4 million, and $(16.3) million in
1999, 1998 and 1997, respectively.
The components of income tax expense (benefit) are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL
Currently payable $ 9,391 $ 9,373 $ 6,158
Deferred 1,920 (662) 7,313
- ------------------------------------------------------------------------
11,311 8,711 13,471
STATE 913 1,626 614
FOREIGN 4,040 3,597 4,643
- ------------------------------------------------------------------------
Total income tax
expense $16,264 $13,934 $18,728
========================================================================
</TABLE>
The Company made federal, state and foreign tax payments of $15.4 million,
$13.7 million and $4.9 million in fiscal 1999, 1998 and 1997, respectively.
66 BROWN SHOE COMPANY, INC. 1999
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The differences between the tax expense 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>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at
statutory rate $18,117 $13,161 $ (759)
State income taxes,
net of federal
tax benefit 593 1,057 399
Foreign tax in excess
of (less than)
domestic rate (4,843) (2,913) 574
Foreign operating
losses with no
benefit provided 603 2,347 9,390
Provision for foreign
cash repatriation 1,200 -- 8,000
Other 594 282 1,124
- --------------------------------------------------------------------------
$16,264 $13,934 $18,728
==========================================================================
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Employee benefits, compensation,
and insurance $ 5,943 $ 7,364
Allowance for doubtful accounts 2,835 3,289
Inventory capitalization and
inventory reserves 4,365 4,185
Postretirement and postemployment
benefit plans 3,095 3,525
Other 9,232 9,703
- ---------------------------------------------------------------------------
Total deferred tax assets 25,470 28,066
DEFERRED TAX LIABILITIES
Excess depreciation -- (1,874)
Retirement plans (13,833) (12,319)
LIFO inventory valuation (8,978) (8,663)
Other (1,699) (1,915)
- ---------------------------------------------------------------------------
Total deferred tax liabilities (24,510) (24,771)
Net deferred tax asset $ 960 $ 3,295
===========================================================================
</TABLE>
No deferred tax valuation allowance was recorded at the end of fiscal 1999
based on management's assessment it is more likely than not all the net
deferred tax assets will be realized through future taxable earnings.
As of January 29, 2000, no deferred taxes have been provided on the
undistributed earnings of the Company's Canadian subsidiary. It is
anticipated no additional United States tax would be incurred if the
accumulated Canadian earnings were distributed given the current United
States and Canadian income tax rates. The accumulated unremitted earnings
from the Company's other foreign subsidiaries as of January 29, 2000 on which
deferred taxes have not been provided are indefinitely reinvested. In the
event these other foreign entities' earnings were distributed, it is
estimated U.S. taxes, net of available foreign tax credits, of approximately
$19.2 million would be due.
[6] BUSINESS SEGMENT INFORMATION
The Company has four reportable segments: Famous Footwear, Wholesale
Operations, Naturalizer Retail, and Pagoda International.
Famous Footwear, which represents the Company's largest operating unit,
consists of an 867-store chain that sells branded footwear for the entire
family.
Wholesale Operations include Brown Branded, Brown Sourcing, Brown Pagoda and
Canada Wholesale divisions. These operating units source and market branded,
licensed and private label footwear primarily to mass-merchandisers,
department stores and company-owned concept stores and Famous Footwear.
Naturalizer Retail specialty store operations include 347 Naturalizer Retail
stores in the United States and 139 stores in Canada.
Pagoda International was the Company's international marketing division that
sold footwear products to retailers in Europe, Latin America, and the Far
East. In fiscal 1997, the Company made a decision to reduce its investment in
this division, and the liquidation of the division was completed by the end
of 1999.
The "Other" segment includes the Scholze Tannery business and Corporate
assets and general and administrative expenses, which are not allocated to
the operating units. At the end of fiscal 1999, the Company sold the Scholze
Tannery business at approximately book value.
The Company's reportable segments are operating units that market to
different customers and are each managed separately as they distribute their
products on a retail or wholesale basis. An operating segment's performance
is evaluated and resources allocated based on operating profit. Operating
profit represents gross profit less general and administrative expenses and
other
1999 BROWN SHOE COMPANY, INC. 67
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
operating income or expense. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Intersegment sales are generally recorded at a profit to
the selling division. All intersegment profits related to inventory on hand
at the purchasing division are eliminated against the earnings of the selling
division.
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
$2.4 million in fiscal 1999 for Naturalizer Retail and a corresponding
decrease to operating profit for the Wholesale Operations.
<TABLE>
<CAPTION>
FAMOUS WHOLESALE NATURALIZER PAGODA
THOUSANDS FOOTWEAR OPERATIONS RETAIL INTERNATIONAL OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1999
External sales $927,626 $469,188 $186,621 $ 505 $ 8,592 $1,592,532
Intersegment sales -- 170,834 -- -- -- 170,834
Depreciation and amortization 16,030 3,464 4,340 30 1,683 25,547
Operating profit (loss) 54,022 32,791 (3,655) (664) (14,823) 67,671
Operating segment assets 332,680 194,910 76,334 -- 46,414 650,338
Capital expenditures 18,287 1,762 8,309 -- 330 28,688
======================================================================================================================
FISCAL 1998
External sales $861,329 $455,935 $187,201 $ 25,825 $ 8,240 $1,538,530
Intersegment sales -- 188,969 -- -- -- 188,969
Depreciation and amortization 13,902 5,961 3,972 187 2,921 26,943
Operating profit (loss) 47,235 33,480 784 (7,307) (13,293) 60,899
Operating segment assets 316,628 208,779 76,896 9,872 43,057 655,232
Capital expenditures 14,794 1,968 5,864 -- 121 22,747
- ----------------------------------------------------------------------------------------------------------------------
FISCAL 1997
External sales $849,917 $448,369 $181,622 $ 78,330 $ 8,964 $1,567,202
Intersegment sales -- 189,463 -- -- -- 189,463
Depreciation and amortization 14,697 4,064 3,800 353 3,772 26,686
Restructuring charges -- -- -- 23,000 -- 23,000
Operating profit (loss) 32,047 31,951 2,264 (36,583) (8,604) 21,075
Operating segment assets 322,113 229,767 71,998 31,306 39,804 694,988
Capital expenditures 12,259 3,028 5,860 432 148 21,727
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
RECONCILIATION OF
OPERATING PROFIT TO
CONSOLIDATED PRETAX
EARNINGS (LOSS):
Total operating profit $67,671 $60,899 $21,075
Interest expense 17,349 19,383 21,756
Non-operating other
(income) expense (1,443) 3,913 1,487
- ---------------------------------------------------------------------------
Total consolidated
pretax earnings (loss) $51,765 $37,603 $(2,168)
===========================================================================
</TABLE>
For geographic purposes, the domestic operations include the wholesale
distribution of branded, licensed and private label footwear to a variety of
retail customers, and operation of the Famous Footwear and Naturalizer
nationwide chains of footwear stores.
The Company's foreign operations primarily consist of wholesale distribution
operations in the Far East, and wholesaling and retailing in Canada. The Far
East operations include "first-cost" operations, where footwear is sold at
foreign ports to customers who then import the footwear into the United
States.
68 BROWN SHOE COMPANY, INC. 1999
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's net sales and long-lived assets by geographic area
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $1,280,468 $1,221,904 $1,208,878
Far East 236,451 223,986 242,100
Canada 75,340 74,503 76,716
Latin America,
Europe and Other 1,980 25,728 66,583
Inter-Area Transfers (1,707) (7,591) (27,075)
- --------------------------------------------------------------------------
$1,592,532 $1,538,530 $1,567,202
==========================================================================
LONG-LIVED ASSETS
United States $ 138,651 $ 127,636 $ 122,840
Far East 12,045 12,622 15,332
Canada 11,709 10,894 11,080
Latin America,
Europe and Other 159 6,697 7,206
- --------------------------------------------------------------------------
$ 162,564 $ 157,849 $ 156,458
==========================================================================
</TABLE>
Long-lived assets consist primarily of property and equipment, prepaid
pension costs, goodwill, trademarks and other assets.
[7] PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 30,493 $ 30,338
Leasehold improvements 57,458 48,128
Furniture, fixtures, and equipment 143,121 138,588
- ---------------------------------------------------------------------------
231,072 217,054
Allowances for depreciation
and amortization (146,472) (134,876)
- ---------------------------------------------------------------------------
$ 84,600 $ 82,178
===========================================================================
</TABLE>
Under the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," charges included in selling and administrative expense
for impaired assets of $1.3 million, $0.1 million and $0.7 million were
recognized in fiscal 1999, 1998 and 1997, respectively. Fair value was based
on estimated future cash flows to be generated by retail stores, discounted
at a market rate of interest.
[8] LONG-TERM AND SHORT-TERM FINANCING ARRANGEMENTS
Long-term debt, including capitalized lease obligations, net of unamortized
discounts, consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
- ----------------------------------------------------------------------------
<S> <C> <C>
9.5% Senior Notes due 2006 $100,000 $100,000
7.36% Senior Notes, payments of
$10,000 due annually through 2003 40,000 50,000
7.07%-8.83% Debentures due 2002 18,547 18,545
7.125% Debentures due 2003 10,000 10,000
8.45%-8.6% Debentures due 1999 -- 15,000
Capitalized lease obligations 3,487 3,486
- ----------------------------------------------------------------------------
$172,034 $197,031
============================================================================
</TABLE>
Maturities of long-term debt and capitalized lease obligations for 2000
through 2004 are: 2000--$10.0 million; 2001--$10.0 million; 2002--$28.6
million; 2003--$20.0 million and 2004--$0.5 million.
The Company's 9.5% Senior Notes are due 2006. These Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after
October 15, 2001.
The Company's revolving bank Credit Agreement, which provides $155.0 million
in committed working capital and letter of credit financing, expires January
2001. Interest on borrowings under the Credit Agreement is at varying rates
and at the Company's option based on one of the following: the LIBOR rate,
the Bank of America corporate base rate, or the Federal funds rate. A
facility fee, 0.25% at January 29, 2000, based on the Company's leverage
ratio, is payable on the entire amount of the facility. At January 29, 2000,
the Company had no short-term borrowings outstanding and approximately $11.2
million in letters of credit outstanding under the revolving bank Credit
Agreement.
The Company's Canadian operations maintain uncommitted lines of credit
totaling approximately $5.5 million, with letters of credit outstanding of
approximately $1.7 million as of January 29, 2000.
The Company's debt agreements contain various covenants which, among other
things, require the maintenance of certain financial ratios related to fixed
charge coverage and total debt to capital, establish minimum levels of net
worth, establish limitations on indebtedness, certain types of payments,
including dividends, liens and investments, and limit the use of
1999 BROWN SHOE COMPANY, INC. 69
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
proceeds of asset sales. The 9.5% Senior Notes, the revolving bank Credit
Agreement, and the 7.36% unsecured Senior Notes are guaranteed by certain
wholly-owned domestic subsidiaries of the Company.
The maximum amount of short-term borrowings under the revolving bank credit
arrangements at the end of any month was $38.0 million in 1999 and $76.0
million in 1998. The average short-term borrowings during the year were $15.8
million in 1999 and $21.5 million in 1998. The weighted average interest
rates approximated 6.8% in 1999 and 7.1% in 1998.
Cash payments of interest for fiscal 1999, 1998, and 1997 were $18.0 million,
$20.1 million, and $22.5 million, respectively.
[9] LEASES
The Company leases substantially all of its retail locations and certain
other equipment and facilities. Over 60 percent 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>
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum payments $90,366 $87,473 $86,132
Contingent payments 2,844 2,489 2,665
- ----------------------------------------------------------------------------
$93,210 $89,962 $88,797
============================================================================
</TABLE>
Future minimum payments under noncancelable operating leases with an initial
term of one year or more were as follows at January 29, 2000 (in thousands):
<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
2000 $ 90,458
2001 82,928
2002 71,317
2003 58,592
2004 45,335
Thereafter 97,700
- -----------------------------------------------------------------------------
Total minimum lease payments $446,330
=============================================================================
</TABLE>
The Company is contingently liable for lease commitments of approximately $34
million which primarily relate to Cloth World and Meis specialty retailing
chains, which were sold.
[10] FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in interest rates and foreign exchange rates. The
instruments primarily used are foreign exchange contracts and foreign
currency options. Periodically, interest rate swaps and interest rate futures
are utilized. The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to these financial instruments; however,
counterparties to these agreements are major international financial
institutions, and the risk of loss due to nonperformance is believed to be
minimal.
The Company enters into foreign exchange instruments to hedge foreign
currency transactions on a continuous basis for periods consistent with its
committed exposures. The terms of these instruments are generally less than a
year. The primary purpose of the foreign currency hedging activities is to
protect the Company 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.
The United States dollar equivalent of contractual amounts of the Company's
financial instruments consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
- ----------------------------------------------------------------------------
<S> <C> <C>
DELIVERABLE FINANCIAL INSTRUMENTS
Italian Lira $10,700 $ 5,100
Canadian Dollars 4,500 12,800
French Francs and Other Currencies 1,900 10,000
NON-DELIVERABLE FINANCIAL INSTRUMENTS
New Taiwanese Dollars 7,300 7,800
Brazilian Real and Other Currencies -- 5,000
- ----------------------------------------------------------------------------
$24,400 $40,700
============================================================================
</TABLE>
The unrealized losses related to these instruments, based on dealer-quoted
prices, were $0.6 million and $0.3 million at January 29, 2000, and January
30, 1999, respectively.
Realized gains and losses on financial instruments 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
70 BROWN SHOE COMPANY, INC. 1999
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which the related inventory is sold. Material gains and losses on financial
instruments hedging forecasted purchases are recorded in income in the period
the value of the instruments change.
The Company had no interest rate derivative instruments outstanding at
January 29, 2000 and January 30, 1999.
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at January 29, 2000 and January 30, 1999 are (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES
Long-term debt,
including current
maturities $172,034 $165,304 $197,031 $198,475
======================================================================
</TABLE>
The fair value of the Company's long-term debt was based upon the borrowing
rates currently available to the Company for financing arrangements with
similar terms and maturities.
Carrying amounts reported on the balance sheet for cash, cash equivalents and
receivables approximate fair value due to the short-term maturity of these
instruments.
[12] 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.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. The financial institutions
are located throughout the world, and the Company's policy is designed to
limit exposure to any one institution or geographic region. The Company's
periodic evaluations of the relative credit standing of these financial
institutions are considered in the Company's investment strategy.
The Company's footwear wholesaling businesses sell primarily to department
stores, mass merchandisers, and independent retailers across the United
States and Canada. Receivables arising from these sales are not
collateralized; however, a portion is covered by documentary letters of
credit. Credit risk is affected by conditions or occurrences within the
economy and the retail industry. The Company maintains an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
[13] COMMITMENTS AND CONTINGENCIES
The Company is involved in environmental remediation and ongoing compliance
activities at several sites. The Company is remediating a residential area
adjacent to owned property in Colorado, under the oversight of Colorado
authorities. This residential area has been affected by types of solvents
previously used at the facility. Monitoring of the residential area
continues. The Company also has begun remediation on the owned property.
During fiscal 1999 and 1998, the Company incurred charges of $1.8 million and
$2.3 million, respectively, related to this site.
At its closed New York tannery and two associated landfills, the Company has
completed its remediation efforts, and in 1995 state environmental
authorities reclassified the status of the site to one that has been properly
closed and requires only continued maintenance and monitoring over the next
24 years. In addition, various federal and state authorities have identified
the Company as a potentially responsible party for remediation at certain
landfills from the sale or disposal of solvents and other by-products from
the closed tannery and shoe manufacturing facilities.
Based on information currently available, the Company is carrying an accrued
liability of $3.9 million, as of January 29, 2000, to complete the clean up
at all sites. The ultimate cost may vary.
While the Company currently operates no domestic manufacturing facilities,
prior operations included numerous manufacturing and other facilities for
which the Company may have responsibility under various environmental laws
for the remediation of conditions that may be identified in the future.
The Company is also involved in legal proceedings and litigation arising in
the ordinary course of business. In the opinion of management, after
consulting with legal counsel, the outcome of such proceedings and litigation
currently pending will not have a materially adverse effect on the Company's
results of operations or financial position.
1999 BROWN SHOE COMPANY, INC. 71
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[14] COMMON STOCK
The Company's Common Stock has a par value of $3.75 per share and 100,000,000
shares are authorized. At January 29, 2000 and January 30, 1999, there were
18,262,990 shares and 18,168,340 shares, net of 3,742,907 shares and
3,837,557 shares held in treasury, outstanding, respectively. The stock is
listed and traded on the New York and Chicago Stock Exchanges (symbol BWS).
There were approximately 6,200 shareholders of record at February 26, 2000.
The Company has a Shareholder Rights Plan, under which each outstanding share
of the Company's common stock carries one Common Stock Purchase Right. The
rights may only become exercisable under certain circumstances involving
acquisition of the Company's common stock by a person or group of persons
without the prior written consent of the Company. Depending on the
circumstances, if the rights become exercisable, the holder may be entitled
to purchase shares of the Company'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.
[15] STOCK OPTION AND STOCK RELATED PLANS
The Company has stock option, stock appreciation, restricted stock and stock
performance plans under which certain officers and employees and members of
the board of directors are participants.
All stock options are granted at market value. Stock appreciation units,
while the Company discontinued issuing in 1999, have also been 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. As of January 29, 2000, 653,700 additional shares of common stock were
available to be granted in the form of options, restricted stock or stock
performance.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options instead of the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates
of 5.8%, 5.2% and 6.0%; dividend yields of 2.2%, 2.4% and 4.3%; volatility
factors of the expected market price of the Company's common stock of .36,
.34 and .33; and a weighted-average expected life of the option of 7 years.
The weighted average fair value of options granted during 1999, 1998 and 1997
was $6.76, $5.81 and $4.35 per share, respectively.
72 BROWN SHOE COMPANY, INC. 1999
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
as reported $35,501 $23,669 $(20,896)
Pro forma net
income (loss) 33,666 22,641 (21,513)
Basic earnings (loss)
per share as reported 1.99 1.34 (1.19)
Pro forma basic earn-
ings (loss) per share 1.89 1.28 (1.22)
Diluted earnings (loss)
per share as reported 1.96 1.32 (1.19)
Pro forma diluted
earnings (loss)
per share 1.86 1.26 (1.22)
- ---------------------------------------------------------------------------
</TABLE>
The following summary sets forth the Company's stock option and stock
appreciation rights activity for the three years ended January 29, 2000:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
----------------------------- AVERAGE
OPTION APPRECIATION EXERCISE
SHARES UNITS PRICE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding
February 1, 1997 923,496 110,785 $22
Granted 501,000 101,488 15
Exercised (2,000) -- 14
Terminated (80,578) -- 30
- ----------------------------------------------------------------------------
Outstanding
January 31, 1998 1,341,918 212,273 19
Granted 371,000 82,724 17
Exercised (15,250) (22,330) 15
Terminated (252,574) (16,629) 24
============================================================================
Outstanding
January 30, 1999 1,445,094 256,038 17
Granted 555,300 -- 19
Exercised (50,750) -- 16
Terminated (98,399) (39,005) 21
- ----------------------------------------------------------------------------
Outstanding
January 29, 2000 1,851,245 217,033 $18
============================================================================
</TABLE>
Following is a summary of stock options outstanding as of January 29, 2000,
which have exercise prices ranging from $14 to $38:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING
OPTIONS PRICE LIFE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
OPTIONS OUTSTANDING:
Price under $15 531,500 $14 8
Price $15 or over 1,319,745 19 8
- ----------------------------------------------------------------------------
1,851,245 $18 8
============================================================================
OPTIONS EXERCISABLE:
Price under $15 296,125 $14 7
Price $15 or over 504,245 20 6
- ----------------------------------------------------------------------------
800,370 $18 6
============================================================================
</TABLE>
At January 30, 1999, 550,420 options with a weighted average exercise price
of $19 were exercisable. At January 31, 1998, 596,294 options with a weighted
average exercise price of $21 were exercisable.
Under the Company's restricted stock program, common stock of the Company may
be granted at no cost to certain officers and key employees. Plan
participants are entitled to cash dividends and to vote their respective
shares. Restrictions limit the sale or transfer of these shares during an
eight-year period whereby the restrictions lapse on 50% of these shares after
4 years, 25% after 6 years and the remaining 25% after 8 years. Upon issuance
of stock under the plan, unearned compensation equivalent to the market value
at the date of grant is charged to shareholders' equity and subsequently
amortized to expense over the eight-year restriction period. Restricted
shares granted, net of forfeitures, were 38,500, 91,875 and 73,000 in 1999,
1998 and 1997, respectively, and compensation expense was $0.8 million, $1.5
million and $2.3 million in 1999, 1998, and 1997, respectively.
In fiscal 1999, the Company adopted a stock performance plan under which
common stock will be awarded at the end of the performance period at no cost
to certain officers and key employees if certain financial goals are met.
Compensation expense is recorded over the performance period based on the
anticipated number and market value of shares to be awarded. For fiscal 1999,
compensation expense for performance shares was $0.3 million. The Company has
currently reserved 84,500 shares as eligible to be awarded to participants
upon meeting certain financial goals; however, the actual number of shares
ultimately earned may vary.
1999 BROWN SHOE COMPANY, INC. 73
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[16] SUPPLEMENTARY INFORMATION
BALANCE SHEET
Cash equivalents of $31.8 million and $37.7 million at January 29, 2000 and
January 30, 1999, respectively, are stated at cost, which approximates fair
value.
STATEMENT OF CONSOLIDATED EARNINGS
Advertising and marketing costs totaled $52.5 million, $54.9 million, and
$61.0 million in 1999, 1998 and 1997, respectively.
Other Expense (Income) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $(1,884) $(1,730) $(1,427)
Restructuring charges -- 1,950 1,000
Royalty income (1,599) (1,377) (2,127)
Amortization of
intangibles 893 3,488 1,731
Environmental charges 1,790 2,344 --
Gain on sale of
le coq sportif (2,334) -- --
Other, net 955 (198) 371
- --------------------------------------------------------------------------
Total $(2,179) $4,477 $ (452)
==========================================================================
</TABLE>
[17] IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). The statement is
effective for the Company beginning fiscal 2001. SFAS 133 requires all
derivative instruments be recorded on the balance sheet at their fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in Other Comprehensive Income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The Company
has not yet assessed what the impact of SFAS 133 will be on the Company's
future earnings or financial position.
[18] CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The 9.5% Senior Notes, the revolving bank Credit Agreement, and the 7.36%
Senior Notes, described in Note 8, are unconditionally and jointly and
severally guaranteed by certain wholly-owned domestic subsidiaries of the
Company. The non-guarantor subsidiaries are predominantly foreign
subsidiaries of the Company. Accordingly, condensed consolidating balance
sheets as of January 29, 2000 and January 30, 1999, and the related condensed
consolidating statements of earnings and cash flows for each of the three
years in the period ended January 29, 2000, 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 operation and cash flow of, each of the
consolidating groups.
74 BROWN SHOE COMPANY, INC. 1999
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AS OF JANUARY 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,851 $ 885 $24,422 $ -- $ 34,158
Receivables, net 33,265 11,675 23,296 -- 68,236
Inventory, net 48,066 311,051 18,393 (11,521) 365,989
Other current assets (5,429) 18,846 1,977 3,997 19,391
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 84,753 342,457 68,088 (7,524) 487,774
- ---------------------------------------------------------------------------------------------------------------------
Other assets 52,535 19,121 6,312 (4) 77,964
Property and equipment, net 14,627 63,437 6,536 -- 84,600
Investment in subsidiaries 247,218 34,880 -- (282,098) --
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $399,133 $459,895 $80,936 $(289,626) $650,338
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,020 $ 85,515 $23,285 $ -- $113,820
Accrued expenses 25,684 48,474 10,938 4,451 89,547
Income taxes 1,702 1,528 1,234 (62) 4,402
Current maturities of long-term debt 10,000 -- -- -- 10,000
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 42,406 135,517 35,457 4,389 217,769
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt and capitalized lease
obligations 162,034 -- -- -- 162,034
Other liabilities 21,272 (1,342) 660 -- 20,590
Intercompany payable (receivable) (76,524) 73,388 9,939 (6,803) --
Shareholders' equity 249,945 252,332 34,880 (287,212) 249,945
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $399,133 $459,895 $80,936 $(289,626) $650,338
=====================================================================================================================
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED
JANUARY 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $251,585 $1,283,088 $323,047 $(265,188) $1,592,532
Cost of goods sold 181,608 789,074 261,667 (265,188) 967,161
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 69,977 494,014 61,380 -- 625,371
Selling and administrative expenses 67,448 452,018 40,504 (1,534) 558,436
Interest expense 17,160 61 128 -- 17,349
Intercompany interest (income) expense (13,606) 13,654 (48) -- --
Other (income) expense, net 649 (3,091) (1,271) 1,534 (2,179)
Equity in (earnings) loss of subsidiaries (36,509) (17,842) -- 54,351 --
- ---------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Before Income Taxes 34,835 49,214 22,067 (54,351) 51,765
Income tax provision 666 (12,705) (4,225) -- (16,264)
- ---------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 35,501 $ 36,509 $ 17,842 $ (54,351) $ 35,501
=====================================================================================================================
</TABLE>
1999 BROWN SHOE COMPANY, INC. 75
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE FISCAL YEAR ENDED
JANUARY 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by Operating
Activities $ 29,351 $ (3,427) $ 5,836 $ 7,380 $ 39,140
Investing Activities:
Capital expenditures (1,376) (25,323) (1,989) -- (28,688)
Proceeds from sale of le coq sportif -- 9,538 -- -- 9,538
Other 10 -- 4 -- 14
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (1,366) (15,785) (1,985) -- (19,136)
Financing Activities:
Repayments of long-term debt (25,000) -- -- -- (25,000)
Proceeds from issuance of common stock 917 -- -- -- 917
Dividends paid (7,295) -- -- -- (7,295)
Intercompany financing 58 15,359 (8,037) (7,380) --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing
Activities (31,320) 15,359 (8,037) (7,380) (31,378)
- ---------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents (3,335) (3,853) (4,186) -- (11,374)
Cash and Cash Equivalents at Beginning
of Period 12,186 4,738 28,608 -- 45,532
- ---------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 8,851 $ 885 $24,422 $ -- $ 34,158
=====================================================================================================================
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET AS OF JANUARY 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 12,186 $ 4,738 $28,608 $ -- $ 45,532
Receivables, net 35,779 10,823 21,213 -- 67,815
Inventory, net 52,458 300,009 22,358 (12,551) 362,274
Other current assets (5,597) 17,456 5,511 4,392 21,762
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 94,826 333,026 77,690 (8,159) 497,383
- ---------------------------------------------------------------------------------------------------------------------
Other Assets 45,723 18,076 11,986 (114) 75,671
Property and equipment, net 15,156 60,200 6,822 -- 82,178
Investment in subsidiaries 229,896 35,900 -- (265,796) --
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $385,601 $447,202 $96,498 $(274,069) $655,232
=====================================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,745 $ 92,943 $26,233 $ -- $124,921
Accrued expenses 27,145 51,023 15,546 (3,633) 90,081
Income taxes (5,042) 10,913 564 7 6,442
Current maturities of long-term debt 25,000 -- -- -- 25,000
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 52,848 154,879 42,343 (3,626) 246,444
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt and capitalized lease
obligations 172,031 -- 41 (41) 172,031
Other liabilities 20,130 (716) 238 (69) 19,583
Intercompany payable (receivable) (76,582) 58,029 17,976 577 --
Shareholders' equity 217,174 235,010 35,900 (270,910) 217,174
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $385,601 $447,202 $96,498 $(274,069) $655,232
=====================================================================================================================
</TABLE>
76 BROWN SHOE COMPANY, INC. 1999
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED
JANUARY 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $262,498 $1,223,024 $326,529 $(273,521) $1,538,530
Cost of goods sold 184,622 752,497 261,592 (273,521) 925,190
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 77,876 470,527 64,937 -- 613,340
Selling and administrative expenses 74,129 425,959 53,426 (1,637) 551,877
Interest expense 19,287 5 91 -- 19,383
Intercompany interest (income) expense (14,123) 14,067 56 -- --
Other (income) expense, net (310) 279 2,871 1,637 4,477
Equity in (earnings) loss of subsidiaries (24,829) (5,980) -- 30,809 --
- ---------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Before Income Taxes 23,722 36,197 8,493 (30,809) 37,603
Income tax provision (53) (11,368) (2,513) -- (13,934)
- ---------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 23,669 $ 24,829 $ 5,980 $ (30,809) $ 23,669
=====================================================================================================================
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE FISCAL YEAR ENDED
JANUARY 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by Operating
Activities $ 37,645 $ 51,971 $ (6,925) $(3,811) $ 78,880
Investing Activities:
Capital expenditures (837) (19,717) (2,193) -- (22,747)
Other 13 25 20 -- 58
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (824) (19,692) (2,173) -- (22,689)
Financing Activities:
Decrease in short-term notes payable (54,000) -- -- -- (54,000)
Proceeds from issuance of common stock 428 -- -- -- 428
Dividends paid (7,223) -- -- -- (7,223)
Intercompany financing 34,712 (34,384) (4,179) 3,851 --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing
Activities (26,083) (34,384) (4,179) 3,851 (60,795)
- ---------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 10,738 (2,105) (13,277) 40 (4,604)
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 $ 12,186 $ 4,738 $ 28,608 $ -- $ 45,532
=====================================================================================================================
</TABLE>
1999 BROWN SHOE COMPANY, INC. 77
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED
JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $256,031 $1,201,078 $369,735 $(259,642) $1,567,202
Cost of goods sold 180,568 755,729 312,051 (259,818) 988,530
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 75,463 445,349 57,684 176 578,672
Selling and administrative expenses 71,752 412,221 76,954 (1,391) 559,536
Interest expense 21,512 9 235 -- 21,756
Intercompany interest (income) expense (15,403) 15,368 35 -- --
Other (income) expense, net (4,655) 1,201 1,435 1,567 (452)
Equity in (earnings) loss of subsidiaries 22,622 23,693 -- (46,315) --
- ---------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Before Income Taxes (20,365) (7,143) (20,975) 46,315 (2,168)
Income tax provision (531) (15,479) (2,718) -- (18,728)
- ---------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $(20,896) $ (22,622) $(23,693) $ 46,315 $ (20,896)
=====================================================================================================================
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE FISCAL YEAR ENDED
JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
THOUSANDS PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided (Used) by Operating
Activities $ 23,891 $ 29,544 $(1,590) $ 6,839 $ 58,684
Investing Activities:
Capital expenditures (2,512) (17,530) (1,685) -- (21,727)
Other 386 8 7 -- 401
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (2,126) (17,522) (1,678) -- (21,326)
Financing Activities:
Decrease in short-term notes payable (8,000) -- -- -- (8,000)
Debt issuance costs (678) -- -- -- (678)
Repayments of long-term debt (2,000) -- -- -- (2,000)
Proceeds from issuance of common stock 93 -- -- -- 93
Dividends paid (15,323) -- -- -- (15,323)
Intercompany financing 5,721 (11,489) 14,846 (9,078) --
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing
Activities (20,187) (11,489) 14,846 (9,078) (25,908)
- ---------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 1,578 533 11,578 (2,239) 11,450
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 $ 1,448 $ 6,843 $41,885 $ (40) $ 50,136
=====================================================================================================================
</TABLE>
78 BROWN SHOE COMPANY, INC. 1999
<PAGE> 81
REPORTS ON FINANCIAL STATEMENTS
MANAGEMENT REPORT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Brown Shoe Company, 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 Company's financial statements have been audited by Ernst & Young LLP,
independent auditors. Management has made available to Ernst & Young LLP all
the Company'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 Shoe Company's Board of Directors comprised four
outside directors in 1999. The Committee meets regularly with the Company'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 Company 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 Company
maintains an internal auditing program that independently assesses the
effectiveness of the internal controls and recommends possible improvements
thereto. Management believes that the Company'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 Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of conduct, which is
published throughout the Company. The code of conduct addresses, among other
things, the necessity of ensuring open communication within the Company;
potential conflicts of interest; compliance with all domestic and foreign
laws, including those relating to financial disclosure; and the
confidentiality of proprietary information. The Company maintains a
systematic program to assess compliance with these policies. The results of
this compliance program are discussed with the Audit Committee.
/s/ Ronald A. Fromm /s/ Andrew M. Rosen
Ronald A. Fromm Andrew M. Rosen
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Brown Shoe Company, Inc.
We have audited the accompanying consolidated balance sheets of Brown Shoe
Company, Inc. as of January 29, 2000 and January 30, 1999 and the related
statements of consolidated earnings, shareholders' equity, and cash flows for
each of the three years in the period ended January 29, 2000. 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 auditing standards generally
accepted in the United States. 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 Shoe
Company, Inc. at January 29, 2000 and January 30, 1999 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended January 29, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
St. Louis, Missouri
February 23, 2000
1999 BROWN SHOE COMPANY, INC. 79
<PAGE> 82
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY INFORMATION (UNAUDITED)
Following is a summary of selected quarterly information (in thousands except
per share) for fiscal years ended January 29, 2000, and January 30, 1999.
<TABLE>
<CAPTION>
QUARTERS
---------------------------------------------------
FIRST SECOND THIRD FOURTH
(13 WEEKS) (13 WEEKS) (13 WEEKS) (13 WEEKS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net Sales $396,826 $410,100 $429,132 $356,474
Gross Profit 157,807 161,075 171,844 134,645
Net Earnings 6,316 10,517 14,763 3,905
Per Share of Common Stock:
Net Earnings--Basic $ .36 $ .59 $ .82 $ .22
Net Earnings--Diluted .35 .58 .81 .22
Dividends Paid .10 .10 .10 .10
Market Value:
High 16-3/4 21-3/4 19-7/8 18-1/8
Low 13-1/8 15-1/2 16-7/8 10-3/4
- ---------------------------------------------------------------------------------------------------------------------
1998
Net Sales $402,309 $383,618 $411,976 $340,627
Gross Profit 155,324 154,002 163,754 140,260
Net Earnings 3,871 4,295 12,898 2,605
Per Share of Common Stock:
Net Earnings--Basic $ .22 $ .24 $ .73 $ .15
Net Earnings--Diluted .22 .24 .72 .14
Dividends Paid .10 .10 .10 .10
Market Value:
High 16 19-7/8 16-7/8 18-7/8
Low 14-1/4 15-7/8 12-7/8 15-7/8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1998, the Company purchased, for a
three-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. These policies cover all duly elected
directors and all duly elected or appointed officers of Brown Shoe Company,
Inc. and its subsidiary companies.The policy premium for the three-year term is
$312,000. In October 1999, the Company extended the above policy for one
additional year. The premium for the additional year is $114,000. To date, no
claims have been paid under any policy of directors' and officers' liability
insurance.
80 BROWN SHOE COMPANY, INC. 1999
<PAGE> 83
OPERATING EXECUTIVES AND OFFICERS
EXECUTIVE MANAGEMENT
RONALD A. FROMM<F*>
Chairman of the Board, President
and Chief Executive Officer
BRIAN C. COOK<F*>
Executive Vice President and
President, Famous Footwear
GARY M. RICH<F*>
President, Brown Pagoda division
ANDREW M. ROSEN<F*>
Chief Financial Officer and Treasurer
DAVID H. SCHWARTZ<F*>
President, Brown Sourcing division
GREGORY J. VAN GASSE<F*>
President, Brown Branded division
OFFICERS AND OPERATING MANAGEMENT
DANIEL P. AMADO
Senior Vice President and
Brand Director, New Products
Brown Branded division
JAMES W. ANDERSON
Vice President, Finance
Brown Pagoda division
THEODORE L. ANDERSON<F*>
Senior Vice President
Retail Sales and Operations
Famous Footwear
CARL H. BENGSTON
Senior Vice President
Latin American and European
Operations, Brown Sourcing
division
WILLIAM A. DANDY<F*>
Senior Vice President, Marketing
Famous Footwear
ELIZABETH A. FAGAN
Vice President, Public Affairs
EARL B. FISCHER
Vice President, Information Systems
Famous Footwear
ROBERT D. GIBBS
Vice President, Distribution
KENNETH W. GILBERTSON
President, Canada Wholesale division
CHARLES C. GILLMAN<F*>
Senior Vice President and Director
Far East Operations
Brown Sourcing division
DENNIS F. HADICAN
Vice President and General Manager
Westport, Brown Pagoda division
DAVID E. HANEBRINK
Vice President and General Manager
Men's, Boys' and Athletics
Brown Pagoda division
RICHARD P. KUETHER
Vice President, Logistics
Famous Footwear
J. MARTIN LANG<F*>
Senior Vice President and Chief
Financial Officer, Famous Footwear
BYRON D. NORFLEET<F*>
Senior Vice President and General
Manager, Naturalizer Retail division
ROBERT D. PICKLE
Vice President, General Counsel
and Corporate Secretary
SHARON L. POSTON
Vice President, Customer Service
Brown Branded division
RICHARD T. PRICE
Vice President
Information Systems
JAMES M. ROE<F*>
Senior Vice President, Real Estate
Famous Footwear
JEFFREY M. SANDERS
Senior Vice President and
General Manager, LifeStride
Brown Branded division
MARK J. SCHAUSTER
Senior Vice President and Director
of Product Development
Brown Branded division
RICHARD C. SCHUMACHER<F*>
Vice President and Controller
PAUL M. SHAPIRO
Vice President and General Manager
Buster Brown & Co.,
Brown Pagoda division
ALAN A. SILVERSTEIN
Senior Vice President
and General Manager, Women's
Brown Pagoda division
ROBERT E. STADLER, JR.<F*>
Vice President, Administration
Brown Shoe, and Senior Vice
President, Finance and Administration
Brown Branded division
JEAN-GUY VAUDRY
President, Canada Retail division
GEORGE J. ZELINSKY<F*>
Senior Vice President and
General Merchandise Manager
Famous Footwear
SPENCER E. ZIMMERMAN
Senior Vice President and
General Manager, Naturalizer
Brown Branded division
[FN]
<F*> Member of the Company's
Operating Committee
1999 BROWN SHOE COMPANY, INC. 81
<PAGE> 84
BOARD OF DIRECTORS
RONALD A. FROMM <F1>
Chairman of the Board, President
and Chief Executive Officer
JOSEPH L. BOWER <F3,F4>
Donald Kirk David Professor
Harvard Business School
JULIE C. ESREY <F2,F4>
Director of various organizations
RICHARD A. LIDDY <F1,F2,F4>
Chairman of the Board, President
and Chief Executive Officer
GenAmerica Corporation
JOHN PETERS MACCARTHY <F2,F3>
Retired Chairman of the Board and
Chief Executive Officer, Boatmen's
Trust Company
PATRICIA G. MCGINNIS <F2>
President and Chief Executive
Officer, The Council for Excellence
in Government
W. PATRICK MCGINNIS <F3>
President and Chief Executive
Officer, Ralston Purina Company
JERRY E. RITTER <F1,F3,F4>
Director of various corporations
[FN]
<F1> Member of the Executive Committee
<F2> Member of the Audit Committee
<F3> Member of the Compensation Committee
<F4> Member of the Governance and Nominating Committee
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
Brown Shoe Company, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63105-3693
Mailing Address:
Post Office Box 29
St. Louis, Missouri 63166-0029
Telephone: (314) 854-4000
Fax: (314) 854-4274
E-mail: [email protected]
INTERNET ADDRESS
http://www.brownshoe.com
ANNUAL MEETING
11:00 a.m. Central Time
Thursday, May 25, 2000
Brown Shoe Company, Inc.
Corporate Headquarters
STOCK LISTED
[LOGO]
Brown Shoe stock is listed
on the New York Stock
Exchange and the Chicago Stock
Exchange (ticker symbol BWS).
NUMBER OF SHAREHOLDERS OF RECORD
6,200
NUMBER OF EMPLOYEES
11,500
INDEPENDENT AUDITORS
Ernst & Young LLP
St. Louis, Missouri
TRANSFER AGENT/REGISTRAR/DIVIDEND
DISBURSING AGENT
First Chicago Trust,
a division of EquiServe
Post Office Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (201) 324-0498
(800) 446-2617
Internet: http://www.fctc.com
E-mail: [email protected]
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan
provides a means of automatic
dividend reinvestment and includes
a provision for voluntary investment
of additional cash. For a prospectus
and enrollment form, contact
First Chicago Trust (address above).
DIRECT DEPOSIT OF DIVIDENDS
Registered shareholders may have
their quarterly dividend checks
deposited directly to their bank
accounts. For more information or to
request an enrollment form, contact
First Chicago Trust (address above).
TRUSTEE OF DEBENTURES/NOTES
State Street Bank and Trust
Company of Missouri, N.A.
One Metropolitan Square
Post Office Box 321
St. Louis, Missouri 63166-0321
(314) 206-3020
ADDITIONAL INFORMATION
ON THE INTERNET:
You can access financial and other
information such as significant news
releases, Forms 10-K and 10-Q, and
product information, on the Internet
at http://www.brownshoe.com
BY FAX-BACK:
Copies of Brown Shoe news
releases can be transmitted at no
charge via fax by calling "Company
News On-Call" at (800) 758-5804
extension 109435.
BY CALLING OR WRITING:
You can also request that any of these
materials be mailed to you at no
charge by calling or writing:
Brown Shoe Company, Inc.
Investor Relations Office
Post Office Box 29
St. Louis, Missouri 63166-0029
(314) 854-4000
DESIGN: SAMATAMASON PHOTOGRAPHY: SANDRO, VICTOR JOHN PENNER, BRUCE WEBER,
STEVE ADAMS, JAMES GARRAHAN PRINTING: H. MACDONALD PRINTING
82 BROWN SHOE COMPANY, INC. 1999
<PAGE> 85
[PHOTO]
<PAGE> 86
[PHOTO]
<PAGE> 87
[PHOTO]
<PAGE> 88
[PHOTO]
<PAGE> 89
[PHOTO]
<PAGE> 90
[PHOTO]
<PAGE> 91
[PHOTO]
<PAGE> 92
[PHOTO]
<PAGE> 93
[PHOTO]
<PAGE> 94
[PHOTO]
[LOGO]
BROWN SHOE
T H E L E A D E R I N F O O T W E A R
8300 Maryland Avenue, St. Louis, Missouri 63105-3693
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
BROWN SHOE COMPANY, INC.
January 29, 2000
State or Country
Name of Incorporation
---- ----------------
Brown California, Inc. California
Brown Cayman Ltd. Cayman Islands
Brown Group Dublin Limited Ireland
Brown Group International, Inc. Delaware
Brown Group Retail, Inc. Pennsylvania
Brown Missouri, Inc. Missouri
Brown Retail Development Company Louisiana
Brown Shoe Company of Canada, Ltd. Canada
Brown Shoe de Mexico, S.A. de C.V. Mexico
Brown Shoe Italy S.R.L. Italy
Brown Texas, Inc. Texas
Buster Brown & Co. Missouri
Clayton License, Inc. Delaware
CV Missouri L.L.C. Missouri
Laysan Company Limited Hong Kong
Leeway International Company Limited Hong Kong
Maryland Square, Inc. Missouri
Maserati Footwear, Inc. New York
PIC International Corporation Cayman Islands
Pagoda Asia Pacific Limited Hong Kong
Pagoda International Corporation do Brazil, LTDA Brazil
Pagoda International Footwear Limited Hong Kong
Pagoda Leather Limited Hong Kong
Pagoda Trading Company, Inc. Missouri
Pagoda Trading North America, Inc. Missouri
Sidney Rich Associates, Inc. Missouri
Whitenox Limited Hong Kong
Exhibit 21
Subsidiaries of the Registrant (Continued)
Naturalizer Retail does business under the following names:
Exalt
Naturalizer
Naturalizer Outlet
Famous Footwear does business under the following names:
Factory Brand Shoes
Famous Footwear
Supermarket of Shoes
Brown Shoe Company, Inc. does business under the following names:
Brown Branded
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Brown Shoe Company, Inc. of our report
dated February 23, 2000, included in the 1999 Annual Report to
Shareholders of Brown Shoe Company, Inc.
Our audits also included the financial statement schedule of
Brown Shoe Company, Inc. 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 also consent to the incorporation by reference in the
following registration statements of Brown Shoe Company, Inc.
of our report dated February 23, 2000, with respect to the
consolidated financial statements and schedule of Brown Shoe
Company, Inc. included or incorporated by reference in the
Annual Report (Form 10-K) for the year ended January 29, 2000:
Registration
Form Statement
Number Number Description
- --------------------------------------------------------------------
Form S-8 2-58347 Stock Purchase Plan of 1977, as amended
Form S-8 33-22328 Brown Group, Inc. Stock Option and
Restricted Stock Plan of 1987, as amended
Form S-8 33-58751 Stock Option and Restricted Stock Plan of
1994, as amended
Form S-8 33-60671 Stock Option and Restricted Stock Plan
of 1998
Form S-8 33-83717 Incentive and Stock Compenstion Plan of 1999
Form S-3 33-21477 Debt Securities
St. Louis, Missouri /s/ Ernst & Young LLP
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JAN-29-2000
<CASH> 34,158
<SECURITIES> 0
<RECEIVABLES> 76,324
<ALLOWANCES> (8,088)
<INVENTORY> 365,989
<CURRENT-ASSETS> 487,774
<PP&E> 231,072
<DEPRECIATION> 146,472
<TOTAL-ASSETS> 650,338
<CURRENT-LIABILITIES> 217,769
<BONDS> 162,034
0
0
<COMMON> 68,486
<OTHER-SE> 181,459
<TOTAL-LIABILITY-AND-EQUITY> 650,338
<SALES> 1,592,532
<TOTAL-REVENUES> 1,592,532
<CGS> 967,161
<TOTAL-COSTS> 967,161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,234
<INTEREST-EXPENSE> 17,349
<INCOME-PRETAX> 51,765
<INCOME-TAX> 16,264
<INCOME-CONTINUING> 35,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,501
<EPS-BASIC> 1.99
<EPS-DILUTED> 1.96
</TABLE>
