UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________ FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended November 1, 1997 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ ____________ Commission file number 1-2191 ____________ BROWN GROUP, INC. (Exact name of registrant as specified in its charter) New York 43-0197190 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 8300 Maryland Avenue St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) (314) 854-4000 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] As of November 29, 1997, 18,020,177 shares of the registrant's common stock were outstanding.
BROWN GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands) <TABLE> <CAPTION> (Unaudited) ------------------------- November 1, November 2, February 1, 1997 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> ASSETS Current Assets Cash and Cash Equivalents $ 25,496 $ 28,091 $ 38,686 Receivables, net of allowances of $10,512 at November 1, 1997, $11,049 at November 2, 1996, and $10,203 at February 1, 1997 85,598 87,425 90,246 Inventories, net of adjustment to last-in, first-out cost of $16,984 at November 1, 1997, $19,646 at November 2, 1996, and $18,846 at February 1, 1997 393,972 408,813 398,803 Other Current Assets 35,471 39,378 37,040 --------- --------- --------- Total Current Assets 540,537 563,707 564,775 Property and Equipment 210,262 206,458 202,229 Less allowances for depreciation and amortization (126,701) (121,676) (116,849) --------- --------- --------- 83,561 84,782 85,380 Other Assets 72,795 71,653 72,220 --------- --------- --------- $ 696,893 $ 720,142 $ 722,375 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable $ 32,000 $ 42,000 $ 62,000 Accounts Payable 124,007 130,247 124,697 Accrued Expenses 87,647 75,596 71,053 Income Taxes 16,794 5,410 4,005 Current Maturities of Long-Term Debt 2,000 2,000 2,000 --------- --------- --------- Total Current Liabilities 262,448 255,253 263,755 Long-Term Debt and Capitalized Lease Obligations 197,027 199,023 197,025 Other Liabilities 23,282 25,446 24,558 Shareholders' Equity Common Stock 67,579 67,359 67,387 Additional Capital 46,755 46,340 46,310 Cumulative Translation Adjustment (7,298) (3,600) (4,433) Unamortized Value of Restricted Stock (4,601) (6,274) (5,700) Retained Earnings 111,701 136,595 133,473 --------- --------- --------- 214,136 240,420 237,037 --------- --------- --------- $ 696,893 $ 720,142 $ 722,375 ========= ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Thousands, except per share) <TABLE> <CAPTION> Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------ ------------------------ November 1, November 2, November 1, November 2, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net Sales $ 433,886 $ 420,347 $1,204,524 $1,166,115 Cost of Goods Sold 278,056 264,160 756,625 729,530 --------- --------- ---------- ---------- Gross Profit 155,830 156,187 447,899 436,585 --------- --------- ---------- ---------- Selling and Administrative Expenses 146,871 134,061 419,624 395,531 Interest Expense 5,145 4,445 16,274 13,700 Other (Income) Expense 395 (672) 305 (812) --------- --------- ---------- ---------- Earnings Before Income Taxes 3,419 18,353 11,696 28,166 Income Tax 16,742 5,448 19,947 9,220 --------- --------- ---------- ---------- NET EARNINGS (LOSS) $ (13,323) $ 12,905 $ (8,251) $ 18,946 ========= ========= ========== ========== NET EARNINGS (LOSS) PER COMMON SHARE $ (.75) $ .73 $ (.46) $ 1.07 ========= ========= ========== ========== Weighted Average Number of Outstanding Shares of Common Stock 17,806 17,702 17,779 17,651 DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .75 $ .75 ========= ========= ========== ========== </TABLE> See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands) <TABLE> <CAPTION> Thirty-Nine Weeks Ended ----------------------- November 1, November 2, 1997 1996 ----------- ----------- <S> <C> <C> Net Cash Provided (Used) by Operating Activities $ 45,223 $ (1,758) Investing Activities: Capital expenditures (15,311) (13,810) Other 390 1,100 ---------- --------- Net Cash Used by Investing Activities (14,921) (12,710) Financing Activities: Decrease in short-term notes payable (30,000) (70,000) Repurchase of long-term debt - (6,450) Proceeds from issuance of long-term debt - 100,000 Proceeds from issuance of common stock 29 Dividends paid (13,521) (13,465) Debt issuance expense - (2,584) ---------- --------- Net Cash Provided (Used) by Financing Activities (43,492) 7,501 ---------- --------- Decrease in Cash and Cash Equivalents (13,190) (6,967) Cash and Cash Equivalents at Beginning of Period 38,686 35,058 ---------- --------- Cash and Cash Equivalents at End of Period $ 25,496 $ 28,091 ========== ========== </TABLE> See Notes to Condensed Consolidated Financial Statements.
BROWN GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation ------------------------------ The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals and the effect on LIFO inventory valuation of estimated annual inflationary cost increases and year-end inventory levels) to present fairly the results of operations. These statements, however, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flow in conformity with generally accepted accounting principles. The Company's business is subject to seasonal influences, and interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole. For further information refer to the consolidated financial statements and footnotes included in the Company's Annual Report and Form 10-K for the period ended February 1, 1997. Note B - Earnings Per Share --------------------------- Net earnings per share of Common Stock is computed by dividing net earnings by the weighted average number of shares outstanding. The dilutive effect of stock options is not significant and is therefore excluded from the calculation. In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," was issued which the Company is required to adopt at the end of fiscal 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior interim and annual periods. The impact of the provisions of SFAS No. 128 on the calculation of Basic and Diluted earnings per share for the thirteen and thirty-nine week periods ended November 1, 1997 and November 2, 1996 is not material. Note C - Inventories -------------------- During fiscal 1996, the remaining domestically manufactured footwear at Brown Shoe Company was sold resulting in a liquidation of LIFO inventory layers. The effect of this liquidation was to increase pretax earnings by $4.0 million in the thirty-nine weeks ended November 2, 1996.
Note D - Restructuring Charges ------------------------------ Included in the Consolidated Statements of Earnings for the thirteen weeks and thirty nine weeks ended November 1, 1997 is an after tax non-recurring charge of $21.0 million for the cost of reducing the company's investment in Pagoda International's operations. The charge includes $13.0 million of which $7.9 million is reflected in Cost of Goods Sold for inventory write-down, $4.2 million in Selling and Administrative Expenses for bad debt, severance, and other restructuring expenses, and $.9 million in Other (Income) Expense for the disposal of fixed assets. In addition, an $8.0 million provision for income taxes was recorded for the repatriation of approximately $23.5 million 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. No activity has been reflected against the reserve in the third quarter. The $21.0 million charge resulted in a reduction of earnings of $1.18 per share for the thirteen weeks and thirty nine weeks ended November 1, 1997. Subsequent to November 1, 1997, Pagoda International signed a letter of intent with Calcados Dilly Ltda., a Brazilian footwear manufacturing and marketing company. According to the terms of the agreement, Dilly, Ltda. will assume all distribution responsibilities in Brazil and will act as a distributor of the Company's children's character licensed footwear brands and le coq sportif. Dilly, Ltda. will begin purchasing of the Brazilian inventories no later than February 1, 1998 for a period not to exceed thirty months. In addition, the Company plans to continue as a licensee and supplier of children's character licensed footwear in Europe, but negotiations are underway to shift inventory ownership and marketing to various distributors. Note E: Condensed Consolidating Financial Information ----------------------------------------------------- Certain of the Company's debt is unconditionally and jointly and severally guaranteed by certain wholly-owned domestic subsidiaries of the Company. Accordingly, condensed consolidating balance sheets as of November 1, 1997 and November 2, 1996, and the related condensed consolidating statements of earnings and cash flows for the thirty-nine weeks ended November 1, 1997 and November 2, 1996, are provided. These condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that this information, presented in lieu of complete financial statements for each of the guarantor subsidiaries, provides meaningful information to allow investors to determine the nature of the assets held by, and the operations and cash flows of, each of the consolidating groups.
CONDENSED CONSOLIDATING BALANCE SHEET AS OF NOVEMBER 1, 1997 <TABLE> <CAPTION> Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Assets Current Assets Cash and cash equivalents . . $ 1,081 $ (2,866) $ 27,281 $ - $ 25,496 Receivables, net. . . . . . . 29,090 12,400 44,108 - 85,598 Inventory, net. . . . . . . . 60,234 315,310 33,135 (14,707) 393,972 Other current assets. . . . . 3,616 20,315 6,349 5,191 35,471 -------- -------- -------- -------- ---------- Total Current Assets . . . . 94,021 345,159 110,873 (9,516) 540,537 Property and Equipment, net. . . 18,107 58,206 7,248 - 83,561 Other Assets . . . . . . . . . . 43,561 16,571 12,872 (209) 72,795 Investment in Subsidiaries . . . 250,657 44,215 3,811 (298,683) - -------- -------- -------- --------- ---------- Total Assets . . . . . . . . $406,346 $464,151 $134,804 $(308,408) $ 696,893 ======== ======== ======== ========= ========== Liabilities & Shareholders' Equity Current Liabilities Notes payable . . . . . . . . $ 32,000 $ - $ - $ - $ 32,000 Accounts payable. . . . . . . 5,793 92,957 25,257 - 124,007 Accrued expenses. . . . . . . 25,040 41,306 16,184 5,117 87,647 Income taxes. . . . . . . . . 3,781 11,804 694 515 16,794 Current maturities of long-term debt . . . . . . . 2,000 - - - 2,000 -------- -------- -------- --------- ---------- Total Current Liabilities. 68,614 146,067 42,135 5,632 262,448 Long-Term Debt and Capitalized Lease Obligations. . . . . . 197,027 - 75 (75) 197,027 Other Liabilities. . . . . . . . 20,704 2,077 592 (91) 23,282 Intercompany Payable (Receivable) (94,135) 86,854 17,331 (10,050) - Shareholders' Equity . . . . . . 214,136 229,153 74,671 (303,824) 214,136 -------- -------- -------- --------- ---------- Total Liabilities and Shareholders' Equity . $406,346 $464,151 $134,804 $(308,408) $ 696,893 ======== ======== ======== ========= ========== </TABLE> CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 <TABLE> <CAPTION> Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> Net Sales. . . . . . . . . . . . $193,682 $922,032 $286,098 $(197,288) $1,204,524 Cost of goods sold . . . . . . . 137,950 578,452 237,610 (197,387) 756,625 -------- -------- -------- --------- ---------- Gross profit . . . . . . . . . . 55,732 343,580 48,488 99 447,899 Selling and administrative expenses. 55,501 308,397 56,849 (1,123) 419,624 Interest expense . . . . . . . . 16,173 2 99 - 16,274 Intercompany interest (income) expense. . . . . . . (11,414) 11,425 (11) - - Other (income) expense . . . . . (2,907) 337 1,653 1,222 305 Equity in (earnings) of subsidiaries . . . . . . . 6,138 11,887 - (18,025) - -------- -------- -------- --------- ---------- Earnings (Loss) Before Income Taxes . . . . . . . . (7,759) 11,532 (10,102) 18,025 11,696 Income tax provision (benefit) . 492 17,670 1,785 - 19,947 -------- -------- -------- -------- ---------- Net Earnings (Loss) . . . . . $ (8,251) $ (6,138) $(11,887) $ 18,025 $ (8,251) ======== ======== ======== ========= ========== </TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 <TABLE> <CAPTION> Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> Net Cash Provided (Used) by Operating Activities . . . . $ 24,028 $ 19,519 $(11,979) $ 13,655 $ 45,223 Investing Activities: Capital expenditures . . . . (2,588) (11,647) (1,076) - (15,311) Other. . . . . . . . . . . . 383 - 7 - 390 -------- -------- -------- --------- -------- Net Cash Used by Investing Activities . . . . (2,205) (11,647) (1,069) - (14,921) Financing Activities: Increase (decrease) in short-term notes payable . . (30,000) - - - (30,000) Proceeds from issuance of common stock . . . . . . . . 29 - - - 29 Dividends paid. . . . . . . . (13,521) - - - (13,521) Intercompany financing. . . . 22,880 (17,048) 10,022 (15,854) - -------- -------- -------- --------- -------- Net Cash Provided (Used) by Financing Activities. . . . . (20,612) (17,048) 10,022 (15,854) (43,492) Increase (Decrease) in Cash and Cash Equivalents. . . . . 1,211 (9,176) (3,026) (2,199) (13,190) 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 . . . . . . . . $ 1,081 $ (2,866) $ 27,281 $ - $ 25,496 ======== ======== ======== ======== ======== </TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET AS OF NOVEMBER 2, 1996 <TABLE> <CAPTION> Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> Assets Current Assets Cash and cash equivalents . . . $ 1,204 $ 7,993 $ 18,894 $ - $ 28,091 Receivables, net. . . . . . . . 32,339 12,820 42,266 - 87,425 Inventory, net. . . . . . . . . 68,012 305,520 48,529 (13,248) 408,813 Other current assets. . . . . . 9,565 17,764 8,073 3,976 39,378 -------- -------- -------- --------- -------- Total Current Assets . . . . . 111,120 344,097 117,762 (9,272) 563,707 Property and Equipment, net. . . . 17,789 58,927 8,066 - 84,782 Other Assets . . . . . . . . . . . 42,860 16,036 13,112 (355) 71,653 Investment in Subsidiaries . . . . 260,982 52,932 3,811 (317,725) - -------- -------- -------- --------- -------- Assets . . . . . . . . . $432,751 $471,992 $142,751 $(327,352) $720,142 ======== ======== ======== ========= ======== Liabilities & Shareholders' Equity Current Liabilities Notes payable . . . . . . . . . $ 42,000 $ - $ - $ - $ 42,000 Accounts payable. . . . . . . . 3,959 99,861 26,427 - 130,247 Accrued expenses. . . . . . . . 28,762 35,974 13,374 (2,514) 75,596 Income taxes. . . . . . . . . . 1,084 3,120 2,292 (1,086) 5,410 Current maturities of long-term debt . . . . . . . . 2,000 - - - 2,000 -------- -------- -------- --------- -------- Total Current Liabilities . 77,805 138,955 42,093 (3,600) 255,253 Long-Term Debt and Capitalized Lease Obligations. . . . . . . 199,023 - 125 (125) 199,023 Other Liabilities. . . . . . . . . 20,619 2,944 496 1,387 25,446 Intercompany Payable (Receivable). (105,116) 97,874 9,392 (2,150) - Shareholders' Equity . . . . . . . 240,420 232,219 90,645 (322,864) 240,420 -------- -------- -------- --------- -------- Total Liabilities and Shareholders' Equity . . $432,751 $471,992 $142,751 $(327,352) $720,142 ======== ======== ======== ========= ======== </TABLE> CONDENSED CONSOLIDATING STATEMENT OF EARNINGS THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 <TABLE> <CAPTION> Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> Net Sales. . . . . . . . . . . . . $190,659 $887,925 $304,664 $(217,133) $1,166,115 Cost of goods sold . . . . . . . . 136,593 566,661 243,512 (217,236) 729,530 -------- -------- -------- --------- ---------- Gross profit. . . . . . . . . . 54,066 321,264 61,152 103 436,585 Selling and administrative expenses . . . . 54,899 289,709 51,802 (879) 395,531 Interest expense . . . . . . . . . 13,296 211 193 - 13,700 Intercompany interest (income) expense. . . . . . . . (10,607) 10,637 (30) - - Other (income) expense . . . . . . (3,504) 170 1,540 982 (812) Equity in (earnings) of subsidiaries . . . . . . . . (17,557) (5,386) - 22,943 - -------- -------- -------- --------- ---------- Earnings (Loss) Before Income Taxes . . . . . . . . . 17,539 25,923 7,647 (22,943) 28,166 Income tax provision (benefit) . . (1,407) 8,366 2,261 - 9,220 -------- -------- -------- --------- ---------- Net Earnings (Loss) . . . . . . $ 18,946 $ 17,557 $ 5,386 $ (22,943) $ 18,946 ======== ======== ======== ========= ========== </TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 <TABLE> <CAPTION> Guarantor Non-Guarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Totals -------- ------------ ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> Net Cash Provided (Used) by Operating Activities . . . . . $(22,926) $ 28,786 $(9,272) $ 1,654 $ (1,758) Investing Activities: Capital expenditures . (833) (11,216) (1,761) - (13,810) Other . . . . . . . 1,096 4 - - 1,100 -------- -------- ------- ------- --------- Net Cash Provided (Used) by Investing Activities . 263 (11,212) (1,761) - (12,710) Financing Activities: Increase (decrease) in short-term notes payable . (70,000) - - - (70,000) Repurchase of long-term debt . (6,450) - - - (6,450) Process from issuance of long-term debt . . 100,000 - - - 100,000 Dividends paid. . . (13,465) - - (13,465) Intercompany financing 16,657 (18,547) 3,544 (1,654) - Debt issuance expense. (2,584) - - - (2,584) -------- -------- ------- ------- --------- Net Cash Provided (Used) by Financing Activities . 24,158 (18,547) 3,544 (1,654) 7,501 Increase (Decrease) in Cash and Cash Equivalents. . 1,495 (973) (7,489) - (6,967) Cash and Cash Equivalents at Beginning of Period (291) 8,966 26,383 - 35,058 -------- -------- ------- ------- --------- Cash and Cash Equivalents at End of Period . . . $ 1,204 $ 7,993 $18,894 $ - $28,091 ======== ======== ======= ======= ======= </TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------- Results of Operations --------------------- Quarter ended November 1, 1997 compared to the Quarter ended November 2, 1996 ----------------------------------------------------------------------------- Consolidated net sales for the fiscal quarter ended November 1, 1997, were $433.9 million, compared to $420.3 million in the quarter ended November 2, 1996. A net loss of $13.3 million for the third quarter of 1997 compares to net earnings of $12.9 million for the third quarter of 1996. The 1997 loss includes an aftertax, non-recurring charge of $21.0 million for the cost of reducing the company's investment in its Pagoda International division's operations. The 1997 loss also includes a $5.0 million loss from Pagoda International operations compared to breakeven results in 1996. The 1996 results include a $1.6 million benefit from a reduction in tax valuation reserves. Third quarter 1997 sales from the footwear retailing operations increased 8.6% from the third quarter of 1996. Famous Footwear's total sales of $243.1 million increased 8.9% from last year representing a same-store sales increase of 1.0% and 29 more stores in operation, reflecting a total of 812 stores in operation. The Naturalizer Retail division's total sales increased 6.1% in the 1997 quarter to $33.1 million, resulting from an increase of 2.7% on a same- store basis and one less store in operation. The Canadian retailing operation's sales of $13.5 million increased 10.1%, which resulted from a same-store sales increase of 7.4% and six more stores in operation than in the third quarter of 1996. Sales from footwear wholesaling businesses decreased 6.1% to $144.2 million compared to $153.6 million in last year's third quarter. The sales decline was primarily caused by lower sales at the Brown Branded Marketing division and the Pagoda International operations. Gross profit as a percent of sales decreased to 35.9% from 37.2% for the same period last year. Excluding the restructuring charge impact, the gross profit as a percent of sales was 37.7% resulting in a slight increase over prior year primarily due to the higher margins at Famous Footwear. Selling and administrative expenses as a percent of sales increased to 33.9% from 31.9% for the same period last year. Selling and administrative expenses as a percent of sales were 32.9% excluding the restructuring charge impact. The increase reflects a higher expense rate at the company's wholesaling operations and the effect from a greater mix of retail sales. Excluding the restructuring charge and operating losses from Pagoda International, the consolidated tax rate was 40.8% of consolidated pre-tax income for the third quarter of 1997 compared to 29.7% in last year's quarter, which reflected a $1.6 million reduction in tax valuation reserves. Nine Months ended November 1, 1997 compared to the Nine Months ended November 1, 1996 -------------------------------------------------------------------- Consolidated net sales for the first nine months of 1997 were $1,204.5 million, an increase of 3.3% from the first nine months of 1996 total of $1,166.1 million.
A net loss of $8.3 million for the first nine months of 1997 compares to net earnings of $18.9 million for the first nine months of 1996. The 1997 loss includes an aftertax, non-recurring charge of $21.0 million related to Pagoda International's operations. The 1997 loss also includes a $9.1 million loss from Pagoda International operations compared to a $2.6 million loss in 1996. The 1996 results include aftertax credits of $2.6 million from liquidation of LIFO inventories and $1.6 million from a reduction in tax valuation reserves. Sales from the footwear retailing operations increased 7.0% to $795.0 million from the first nine months of 1996. Famous Footwear's total sales for the first nine months of 1997 increased 8.1% to $656.8 million, reflecting a 1.4% increase in same-store sales and 29 more units in operation. Naturalizer Retail division's total sales decreased 0.7% to $98.9 million in the first nine months of 1997 with a corresponding 1.5% decline on a same-store basis. Sales from the Canadian retailing operation during 1997 increased 9.4% to $39.3 million, with a same-store sales increase of 6.3% and six more units than in the nine-month period ended November 2, 1996. Sales from footwear wholesaling businesses for the first nine months of 1997 decreased 3.2% to $409.5 million from the same period last year. These higher 1996 sales were reflected at the Pagoda Division and primarily resulted from the sale of footwear for Disney's "Hunchback of Notre Dame" movie in the prior year. Gross profit as a percent of sales decreased to 37.2% for the nine-month period ended November 1, 1997 from 37.4% for the nine-month period ended November 2, 1996. Excluding the restructuring charge impact, the gross profit as a percent of sales was 37.8% resulting in an increase over prior year primarily due to a higher mix of retail sales. Selling and administrative expenses as a percent of sales increased to 34.8% for the first nine months of 1997 from 33.9% for the first nine months of 1996. The increase reflects lower sales in the wholesale operations as the restructuring charge has no significant impact on the first nine months of 1997 expenses. The consolidated tax rate was 35.3% excluding the restructuring charge and losses from Pagoda International operations. This tax rate compares to the 1996 tax rate of 35.2% excluding the impact of the reversal of the tax valuation reserve. Financial Condition ------------------- A summary of key financial data and ratios at the dates indicated is as follows: November 1, November 2, February 1, 1997 1996 1997 ----------- ----------- ----------- Working Capital (millions) $278.1 $308.5 $301.0 Current Ratio 2.1:1 2.2:1 2.1:1 Total Debt as a Percentage of Total Capitalization 51.9% 50.3% 52.4% Net Debt (Total Debt less Cash and Cash Equivalents) as a Percentage of Total Capitalization 49.0% 47.2% 48.4%
Cash flow from operating activities for the first nine months of fiscal 1997 was a net generation of $45.2 million versus a use of $1.8 million last year. In 1997's first nine months, cash flow improved primarily as a result of lower accounts receivable and continued improvement in inventory management. The decrease in the ratio of total debt as a percentage of total capitalization at November 1, 1997, compared to the end of fiscal 1996, is due primarily to the Company's lower level of short-term notes payable. At November 1, 1997, $32.0 million was borrowed and $17.3 million of letters of credit were outstanding under the Company's $155 million revolving bank Credit Agreement. As a result of the $21.0 million restructuring charge during the third quarter of 1997, the Company amended its revolving Credit Agreement and its 7.36% Senior Note Agreement to modify certain financial covenants. Forward Looking Statements -------------------------- From time to time, the Company publishes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. In Exhibit 99 to the Company's fiscal 1996 Annual Report on Form 10-K, detailed factors that could cause variations in results to occur are listed and discussed. Such Exhibit is incorporated herein by reference.
PART II - OTHER INFORMATION Item 1 - Legal Proceedings -------------------------- There have been no material developments during the quarter ended November 1, 1997, in the legal proceedings described in the Company's Form 10-K for the period ended February 1, 1997. Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (a) Listing of Exhibits (3) (i) (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. (i) (b) 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. (ii) Bylaws of the Company as amended through February 1, 1997, incorporated herein by reference to Exhibit 3 to the Company's Report on Form 10-K for the fiscal year ended February 1, 1997. (4) (b) (iv) 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, filed herewith. (c) (i) Amendment No. 2, dated October 7, 1997, to the Senior Note Agreement between the Company and Prudential Insurance Company of America, as amended, filed herewith. (11) Computation of Earnings Per Share (Page 16) (27) Financial Data Schedule (Page 17) (99.1) Discussion of Certain Risk Factors That Could Affect the Company's Operating Results as incorporated herein by reference to the Company's Report on Form 10-K for the fiscal year ended February 1, 1997. (b) Reports on Form 8-K: The Corporation filed a current report on Form 8-K dated August 8, 1997 in response to Items 5 and 7, amending its Rights Agreement to replace Boatmen's Trust Company as rights agent with First Chicago Trust Company of New York. The Corporation filed a current report on Form 8-K dated October 9, 1997 in response to Items 5 and 7, which announced the decision to substantially reduce its investment in its Pagoda International division. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BROWN GROUP, INC. Date: December 12, 1997 /s/ Harry E. Rich --------------------------------- Executive Vice President and Chief Financial Officer and On Behalf of the Corporation as the Principal Financial Officer
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE BROWN GROUP, INC. <TABLE> <CAPTION> (Thousands, except per share) Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------ ------------------------ November 1, November 2, November 1, November 2, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- <S> <S> <S> <S> PRIMARY Weighted average shares outstanding 17,806 17,702 17,779 17,651 Net effect of dilutive stock options based on the treasury stock method using average market price 42 119 58 21 --------- --------- --------- ---------- TOTAL 17,848 17,821 17,837 17,672 ========= ========= ========= ========== Net earnings (loss) $ (13,323) $ 12,905 $ (8,251) $ 18,946 ========= ========= ========= ========== Net earnings (loss) per share (1) $ (.75) $ .73 $ (.46) $ 1.07 ========= ========= ========= ========== FULLY DILUTED Weighted average shares outstanding 17,806 17,702 17,779 17,651 Net effect of dilutive stock options based on the treasury stock method using the period-end market price, if higher than the average market price 42 137 58 56 --------- --------- --------- ---------- TOTAL 17,848 17,839 17,837 17,707 ========= ========= ========= ========== Net earnings (loss) $ (13,323) $ 12,905 $ (8,251) $ 18,946 ========= ========= ========= ========== Net earnings (loss) per share (1) $ (.75) $ .73 $ (.46) $ 1.07 ========= ========= ========= ========== </TABLE> (1) The dilutive effect of stock options was not included in weighted average shares outstanding for purposes of calculating earnings per share