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CALERES INC — Interim / Quarterly Report 2000
Dec 11, 2000
32936_10-q_2000-12-11_f85c39e7-5185-4d04-9988-135c64c9b48b.zip
Interim / Quarterly Report
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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 October 28, 2000 |
| --- | --- |
| [ ] | Transition report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ____ |
Commission file number 1-2191
| BROWN SHOE COMPANY, INC. (Exact name of registrant as specified in its charter) | |
|---|---|
| New York (State or other jurisdiction of incorporation or organization) | 43-0197190 (IRS Employer Identification Number) |
| 8300 Maryland Avenue St. Louis, Missouri (Address of principal executive offices) | 63105 (Zip Code) |
| (314) 854-4000 (Registrant's telephone number, including area code) | |
| N/A (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 25, 2000, 17,663,472 shares of the registrant's common stock were outstanding.
1
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
| (Unaudited) — October 28, 2000 | October 30, 1999 | January 29, 2000 | ||||
|---|---|---|---|---|---|---|
| ASSETS | ||||||
| Current Assets | ||||||
| Cash and Cash Equivalents | $ 44,634 | $ | 47,704 | $ | 34,158 | |
| Receivables, net | 57,942 | 68,546 | 68,236 | |||
| Inventories | 444,355 | 384,400 | 365,989 | |||
| Other Current Assets | 26,979 | 21,341 | 19,391 | |||
| Total Current | ||||||
| Assets | 573,910 | 521,991 | 487,774 | |||
| Other Assets | 80,125 | 76,206 | 77,964 | |||
| Property and Equipment | 247,235 | 231,704 | 231,072 | |||
| Less Allowances and Depreciation and Amortization | (156,144 | ) | (147,891 | ) | (146,472 | ) |
| 91,091 | 83,813 | 84,600 | ||||
| $ 745,126 | $ | 682,010 | $ | 650,338 | ||
| LIABILITIES AND SHAREHOLDERS' | ||||||
| EQUITY | ||||||
| Current Liabilities | ||||||
| Notes Payable | $ 59,000 | $ | 23,000 | $ | - | |
| Accounts Payable | 141,292 | 119,860 | 113,820 | |||
| Accrued Expenses | 85,562 | 92,090 | 89,547 | |||
| Income Taxes | 8,606 | 10,343 | 4,402 | |||
| Current Maturities of Long-Term | ||||||
| Debt | 10,000 | 10,000 | 10,000 | |||
| Total Current | ||||||
| Liabilities | 304,460 | 255,293 | 217,769 | |||
| Long-Term Debt and Capitalized Lease Obligations | 152,037 | 162,033 | 162,034 | |||
| Other Liabilities | 19,443 | 18,593 | 20,590 | |||
| Shareholders' Equity | ||||||
| Common Stock | 66,553 | 68,473 | 68,486 | |||
| Additional Capital | 47,465 | 49,109 | 49,153 | |||
| Unamortized Value of Restricted | ||||||
| Stock | (2,596 | ) | (3,793 | ) | (3,566 | ) |
| Accumulated Other Comprehensive | ||||||
| Loss | (7,915 | ) | (7,527 | ) | (6,034 | ) |
| Retained Earnings | 165,679 | 139,829 | 141,906 | |||
| 269,186 | 246,091 | 249,945 | ||||
| $ 745,126 | $ | 682,010 | $ | 650,338 |
See Notes to Condensed Consolidated Financial Statements.
2
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
| Thirteen Weeks Ended — October 28, 2000 | October 30, 1999 | October 28, 2000 | October 30, 1999 | |||||
|---|---|---|---|---|---|---|---|---|
| Net Sales | $ 462,945 | $ | 429,132 | $ | 1,275,923 | $ | 1,236,058 | |
| Cost of Goods Sold | 278,955 | 257,288 | 762,794 | 745,332 | ||||
| Gross Profit | 183,990 | 171,844 | 513,129 | 490,726 | ||||
| Selling & Administrative | ||||||||
| Expenses | 157,050 | 146,279 | 455,385 | 429,461 | ||||
| Interest Expense | 4,747 | 4,236 | 13,326 | 13,311 | ||||
| Other Income | (535 | ) | (722 | ) | (1,968 | ) | (2,055 | ) |
| Earnings Before Income Taxes | 22,728 | 22,051 | 46,386 | 50,009 | ||||
| Income Tax Provision | 7,113 | 7,288 | 15,025 | 18,413 | ||||
| NET EARNINGS | $ 15,615 | $ | 14,763 | $ | 31,361 | $ | 31,596 | |
| BASIC EARNINGS PER COMMON SHARE | $ .88 | $ | .82 | $ | 1.76 | $ | 1.77 | |
| DILUTED EARNINGS PER COMMON SHARE | $ .88 | $ | .81 | $ | 1.75 | $ | 1.74 | |
| DIVIDENDS PER COMMON SHARE | $ .10 | $ | .10 | $ | .30 | $ | .30 |
See Notes to Condensed Consolidated Financial Statements.
3
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
| Thirty-nine Weeks Ended — October 28, 2000 | October 30, 1999 | |||
|---|---|---|---|---|
| Net Cash (Used)Provided by Operating Activities | $ (4,985 | ) | $ 19,300 | |
| Investing Activities: | ||||
| Proceeds from the sale of le coq sportif | 906 | 9,410 | ||
| Capital expenditures | (23,636 | ) | (19,983 | ) |
| Net Cash Used by Investing Activities | (22,730 | ) | (10,573 | ) |
| Financing Activities: | ||||
| Increase in short-term notes | ||||
| payable | 59,000 | 23,000 | ||
| Principal payments of long-term | ||||
| debt | (10,000 | ) | (25,000 | ) |
| Payments for purchase of treasury | ||||
| stock | (5,380 | ) | - | |
| Proceeds from issuance of common | ||||
| stock | 13 | 913 | ||
| Dividends paid | (5,442 | ) | (5,468 | ) |
| Net Cash (Used) Provided by Financing Activities | 38,191 | (6,555 | ) | |
| Increase in Cash and Cash Equivalents | 10,476 | 2,172 | ||
| Cash and Cash Equivalents at Beginning of | ||||
| Period | 34,158 | 45,532 | ||
| Cash and Cash Equivalents at End of Period | $ 44,634 | $ 47,704 |
See Notes to Condensed Consolidated Financial Statements.
4
BROWN SHOE COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals) to present fairly the results of operations. These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
The Company's business is subject to seasonal influences, and interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
For further information refer to the consolidated financial statements and footnotes included in the Company's Annual Report and Form 10-K for the period ended January 29, 2000.
Note B - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the periods ended October 28, 2000 and October 30, 1999 (000's, except per share data):
| Thirteen Weeks Ended — October 28, 2000 | October 30, 1999 | Thirty-nine Weeks Ended — October 28, 2000 | October 30, 1999 | |
|---|---|---|---|---|
| Numerator: | ||||
| Net earnings - | ||||
| Basic and Diluted | $ 15,615 | $ 14,763 | $ 31,361 | $ 31,596 |
| Denominator: | ||||
| Weighted average | ||||
| shares outstanding - Basic | 17,648 | 17,899 | 17,810 | 17,842 |
| Effect of potentially | ||||
| dilutive securities | 141 | 307 | 159 | 302 |
| Weighted average | ||||
| shares outstanding - Diluted | 17,789 | 18,206 | 17,969 | 18,144 |
| Basic earnings per common share | $ .88 | $ .82 | $ 1.76 | $ 1.77 |
| Diluted earnings per common | ||||
| share | $ .88 | $ .81 | $ 1.75 | $ 1.74 |
5
Note C - Comprehensive Income
Comprehensive Income includes all changes in equity except those resulting from investments by shareholders and distributions to shareholders.
The following table sets forth the reconciliation from Net Earnings to Comprehensive Income for the periods ended October 28, 2000 and October 30, 1999 (000's):
| Thirteen Weeks Ended — October 28, 2000 | October 30, 1999 | Thirty-nine Weeks Ended — October 28, 2000 | October 30, 1999 | |||
|---|---|---|---|---|---|---|
| Net Earnings | $ 15,615 | $ | 14,763 | $ 31,361 | $ | 31,596 |
| Foreign Currency Translation | ||||||
| Adjustment | (1,163 | ) | 1,245 | (1,881 | ) | 1,315 |
| Comprehensive Income | $ 14,452 | $ | 16,008 | $ 29,480 | $ | 32,911 |
Note D - Business Segment Information
Applicable business segment information is as follows for the periods ended October 28, 2000 and October 30, 1999 (000's):
| Famous Footwear | Wholesale Operations | Naturalizer Retail | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Thirteen Weeks | |||||||||
| Ended October 28, 2000 | |||||||||
| External Sales | $ 292,813 | $ 120,106 | $ 50,026 | $ | - | $ | - | $ | 462,945 |
| Intersegment Sales | - | 49,841 | - | - | - | 49,841 | |||
| Operating profit (loss) | 22,257 | 9,798 | (1,775 | ) | - | (2,955 | ) | 27,325 | |
| Thirteen Weeks | |||||||||
| Ended October 30, 1999 | |||||||||
| External Sales | $ 263,136 | $ 116,715 | $ 46,649 | $ | 141 | $ | 2,491 | $ | 429,132 |
| Intersegment Sales | - | 47,780 | - | - | - | 47,780 | |||
| Operating profit (loss) | 23,531 | 8,809 | (1,956 | ) | 37 | (3,067 | ) | 27,354 | |
| Thirty-nine | |||||||||
| Weeks Ended October 28, 2000 | |||||||||
| External Sales | $ 783,837 | $ 340,024 | $ 152,062 | $ | - | $ | - | $ | 1,275,923 |
| Intersegment Sales | - | 145,904 | - | - | - | 145,904 | |||
| Operating profit (loss) | 46,757 | 23,364 | (1,788 | ) | - | (9,104 | ) | 59,229 | |
| Thirty-nine | |||||||||
| Weeks Ended October 30, 1999 | |||||||||
| External Sales | $ 724,271 | $ 363,369 | $ 140,756 | $ | 468 | $ | 7,194 | $ | 1,236,058 |
| Intersegment Sales | - | 138,809 | - | - | - | 138,809 | |||
| Operating profit (loss) | 48,839 | 27,472 | (2,279 | ) | (639 | ) | (9,659 | ) | 63,734 |
6
Reconciliation of operating profit to earnings before income taxes (000's):
| Thirteen Weeks Ended — October 28, 2000 | October 30, 1999 | October 28, 2000 | October 30, 1999 | |||||
|---|---|---|---|---|---|---|---|---|
| Total operating profit | $ 27,325 | $ | 27,354 | $ | 59,229 | $ | 63,734 | |
| Interest expense | (4,747 | ) | (4,236 | ) | (13,326 | ) | (13,311 | ) |
| Non-operating other income | ||||||||
| (expense) | 150 | (1,067 | ) | 483 | (414 | ) | ||
| Earnings before | ||||||||
| income taxes | $ 22,728 | $ | 22,051 | $ | 46,386 | $ | 50,009 |
Operating profit represents gross profit less selling and administrative expenses and other operating income or expense. The "Other" segment includes Corporate selling and administrative expenses, which are not allocated to the operating units. Results from the Scholze Tannery business are also included in the "Other" segment in fiscal 1999. At the end of fiscal 1999, the Company sold the Scholze Tannery business at approximately book value.
Note E - Stock Repurchase Program
On May 4, 2000, the Company announced the approval by the Board of Directors of a stock repurchase program which allows the Company to repurchase up to 2 million shares of the Company's outstanding common stock. In the third quarter of fiscal 2000, the Company purchased 345,300 shares at a cost of approximately $3.5 million under this authorization. Year-to-date the Company has purchased 499,000 shares at a cost of approximately $5.4 million.
Note F - Subsequent Event
I n November 2000, the Company entered into a new revolving bank Credit Agreement, which provides $165.0 million in committed working capital and letter of credit financing, subject to certain borrowing base tests. The new agreement expires November 2003. Interest on borrowings under this new Credit Agreement is at varying rates and at the Company's option based on one of the following: the LIBOR rate, the Bank One, N.A. corporate base rate, or the Federal funds rate. A facility fee is payable on the entire amount of the facility and is based on the Company's leverage ratio; the initial rate is .375%.
This agreement contains 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 proceeds of asset sales.
The revolving bank Credit Agreement as well as the Company's 9.5% Senior Notes and the 7.36% Senior Notes are guaranteed by certain wholly-owned subsidiaries of the Company.
7
Note G - Condensed Consolidated Financial Information
Certain of the Company's debt is fully unconditionally and jointly and severally guaranteed by certain wholly-owned domestic subsidiaries of the Company. Accordingly, condensed consolidating balance sheets as of October 28, 2000 and October 30, 1999, and the related condensed consolidating statements of earnings and cash flows for the thirty-nine weeks ended October 28, 2000 and October 30, 1999, 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 OCTOBER 28, 2000
| (Thousands) | Parent | Eliminations | Consolidated Totals | |||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | ||||||||
| and cash equivalents | $ 1,458 | $ | 6,370 | $ | 36,806 | $ - | $ 44,634 | |
| Receivables, | ||||||||
| net | 28,069 | 10,605 | 19,268 | - | 57,942 | |||
| Inventories | 46,564 | 393,854 | 16,810 | (12,873 | ) | 444,355 | ||
| Other | ||||||||
| current assets | (4,770 | ) | 25,021 | 2,223 | 4,505 | 26,979 | ||
| Total Current Assets | 71,321 | 435,850 | 75,107 | (8,368 | ) | 573,910 | ||
| Other Assets | 49,469 | 24,619 | 6,041 | (4 | ) | 80,125 | ||
| Property and Equipment, | ||||||||
| net | 13,936 | 70,707 | 6,448 | - | 91,091 | |||
| Investment in Subsidiaries | 278,876 | 44,081 | - | (322,957 | ) | - | ||
| Total Assets | $ 413,602 | $ | 575,257 | $ | 87,596 | $ (331,329 | ) | $ 745,126 |
| Liabilities | ||||||||
| & Shareholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Notes | ||||||||
| payable | $ 59,000 | $ | - | $ | - | $ - | $ 59,000 | |
| Accounts | ||||||||
| payable | 4,289 | 122,197 | 14,806 | - | 141,292 | |||
| Accrued | ||||||||
| expenses | 21,813 | 50,007 | 10,919 | 2,823 | 85,562 | |||
| Income | ||||||||
| taxes | 5,611 | 1,074 | 1,770 | 151 | 8,606 | |||
| Current | ||||||||
| maturities of long-term debt | 10,000 | - | - | - | 10,000 | |||
| Total Current Liabilities | 100,713 | 173,278 | 27,495 | 2,974 | 304,460 | |||
| Long-Term Debt and Capitalized Lease Obligations | 152,037 | - | - | - | 152,037 | |||
| Other Liabilities | 20,152 | (1,335 | ) | 626 | - | 19,443 | ||
| Intercompany Payable | ||||||||
| (Receivable) | (128,486 | ) | 123,241 | 15,394 | (10,149 | ) | - | |
| Shareholders' Equity | 269,186 | 280,073 | 44,081 | (324,154 | ) | 269,186 | ||
| Total Liabilities and Shareholders' Equity | $ 413,602 | $ | 575,257 | $ | 87,596 | $ (331,329 | ) | $ 745,126 |
8
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000
| (Thousands) — Net Sales | Parent — $ 195,067 | $ | 1,085,906 | $ | 226,392 | $ | (231,442 | ) | Consolidated Totals — $ 1,275,923 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Cost of goods sold | 144,254 | 670,025 | 179,957 | (231,442 | ) | 762,794 | ||||
| Gross profit | 50,813 | 415,881 | 46,435 | - | 513,129 | |||||
| Selling and administrative expenses | 52,077 | 375,947 | 28,329 | (968 | ) | 455,385 | ||||
| Interest expense | 13,258 | 3 | 65 | - | 13,326 | |||||
| Intercompany interest (income) expense | (9,940 | ) | 9,973 | (33 | ) | - | - | |||
| Other (income) expense | (2,171 | ) | 18 | (783 | ) | 968 | (1,968 | ) | ||
| Equity in (earnings) of subsidiaries | (33,543 | ) | (15,438 | ) | - | 48,981 | - | |||
| Earnings (Loss) Before Income Taxes | 31,132 | 45,378 | 18,857 | (48,981 | ) | 46,386 | ||||
| Income tax provision (benefit) | (229 | ) | 11,835 | 3,419 | - | 15,025 | ||||
| Net Earnings (Loss) | $ 31,361 | $ | 33,543 | $ | 15,438 | $ | (48,981 | ) | $ 31,361 |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000
| (Thousands) — Net Cash Provided (Used) by Operating Activities | Parent — $ 6,289 | $ | (23,107 | ) | Non-Guarantor Subsidiaries — $ 8,487 | $ | 3,346 | (4,985 | ) | |
|---|---|---|---|---|---|---|---|---|---|---|
| Investing Activities: | ||||||||||
| Capital expenditures | (817 | ) | (21,261 | ) | (1,558 | ) | - | (23,636 | ) | |
| Proceeds from | ||||||||||
| sale of le coq sportif | 906 | - | - | - | 906 | |||||
| Net Cash (Used) Provided by Investing Activities | 89 | (21,261 | ) | (1,558 | ) | - | (22,730 | ) | ||
| Financing Activities: | ||||||||||
| Increase in short-term notes payable | 59,000 | - | - | - | 59,000 | |||||
| Principal payments | ||||||||||
| of long-term debt | (10,000 | ) | - | - | - | (10,000 | ) | |||
| Proceeds from | ||||||||||
| issuance of common stock | 13 | - | - | - | 13 | |||||
| Payments for purchase | ||||||||||
| of Treasury stock | (5,380 | ) | - | - | - | (5,380 | ) | |||
| Dividends paid | (5,442 | ) | - | - | - | (5,442 | ) | |||
| Intercompany financing | (51,962 | ) | 49,853 | 5,455 | (3,346 | ) | - | |||
| Net Cash Provided (Used) by Financing Activities | (13,771 | ) | 49,853 | 5,455 | (3,346 | ) | 38,191 | |||
| Increase (Decrease) in Cash | ||||||||||
| and of Cash Equivalents | (7,393 | ) | 5,485 | 12,384 | - | 10,476 | ||||
| Cash and Cash Equivalents at Beginning of Period | 8,851 | 885 | 24,422 | - | 34,158 | |||||
| Cash and Cash Equivalents at End of Period | $ 1,458 | $ | 6,370 | $ 36,806 | $ | - | $ | 44,634 |
9
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 30, 1999
| (Thousands) | Parent | Eliminations | Consolidated Totals | |||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | ||||||||
| and cash equivalents | $ 6,790 | $ | 6,231 | $ | 34,683 | $ - | $ 47,704 | |
| Receivables, | ||||||||
| net | 34,539 | 12,152 | 21,855 | - | 68,546 | |||
| Inventories | 39,366 | 337,733 | 19,118 | (11,817 | ) | 384,400 | ||
| Other | ||||||||
| current assets | (3,800 | ) | 19,029 | 1,976 | 4,136 | 21,341 | ||
| Total Current Assets | 76,895 | 375,145 | 77,632 | (7,681 | ) | 521,991 | ||
| Other Assets | 51,063 | 19,306 | 5,882 | (45 | ) | 76,206 | ||
| Property and Equipment, | ||||||||
| net | 14,145 | 63,231 | 6,437 | - | 83,813 | |||
| Investment in Subsidiaries | 264,761 | 50,881 | - | (315,642 | ) | - | ||
| Total Assets | $ 406,864 | $ | 508,563 | $ | 89,951 | $ (323,368 | ) | $ 682,010 |
| Liabilities | ||||||||
| & Shareholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Notes | ||||||||
| payable | $ 23,000 | $ | - | $ | - | $ - | $ 23,000 | |
| Accounts | ||||||||
| payable | 6,505 | 99,190 | 14,165 | - | 119,860 | |||
| Accrued | ||||||||
| expenses | 24,261 | 53,949 | 11,063 | 2,817 | 92,090 | |||
| Income | ||||||||
| taxes | 1,522 | 8,756 | 112 | (47 | ) | 10,343 | ||
| Current | ||||||||
| maturities of long-term debt | 10,000 | - | - | - | 10,000 | |||
| Total Current Liabilities | 65,288 | 161,895 | 25,340 | 2,770 | 255,293 | |||
| Long-Term Debt and Capitalized Lease Obligations | 162,033 | 41 | - | (41 | ) | 162,033 | ||
| Other Liabilities | 19,198 | (811 | ) | 206 | - | 18,593 | ||
| Intercompany Payable | ||||||||
| (Receivable) | (85,746 | ) | 77,563 | 13,524 | (5,341 | ) | - | |
| Shareholders' Equate | 246,091 | 269,875 | 50,881 | (320,756 | ) | 246,091 | ||
| Total Liabilities and Shareholders' Equity | $ 406,864 | $ | 508,563 | $ | 89,951 | $ (323,368 | ) | $ 682,010 |
10
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999
| (Thousands) — Net Sales | Parent — $ 192,924 | $ | 990,051 | $ | 253,937 | $ | (200,854 | ) | Consolidated Totals — $ 1,236,058 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Cost of goods sold | 138,569 | 602,428 | 205,189 | (200,854 | ) | 745,332 | ||||
| Gross profit | 54,355 | 387,623 | 48,748 | - | 490,726 | |||||
| Selling and administrative | ||||||||||
| expenses | 52,998 | 345,528 | 32,105 | (1,170 | ) | 429,461 | ||||
| Interest expense | 13,274 | - | 37 | - | 13,311 | |||||
| Intercompany interest (income) expense | (10,179 | ) | 10,208 | (29 | ) | - | - | |||
| Other (income) expense | 531 | (3,460 | ) | (296 | ) | 1,170 | (2,055 | ) | ||
| Equity in (earnings) of subsidiaries | (33,614 | ) | (13,407 | ) | - | 47,021 | - | |||
| Earnings (Loss) | ||||||||||
| Before Income Taxes | 31,345 | 48,754 | 16,931 | (47,021 | ) | 50,009 | ||||
| Income tax provision (benefit) | (251 | ) | 15,140 | 3,524 | - | 18,413 | ||||
| Net Earnings (Loss) | $ 31,596 | $ | 33,614 | $ | 13,407 | $ | (47,021 | ) | $ 31,596 |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999
| (Thousands) — Net Cash Provided (Used) by Operating Activities | Parent — $ 10,596 | $ | (9,211 | ) | Non-Guarantor Subsidiaries — $ 11,997 | $ | 5,918 | $ | 19,300 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Investing Activities: | ||||||||||
| Capital expenditures | (273 | ) | (18,240 | ) | (1,470 | ) | - | (19,983 | ) | |
| Proceeds from | ||||||||||
| the sale of le coq sportif | - | 9,410 | - | - | 9,410 | |||||
| Net Cash (Used) Provided by Investing Activities | (273 | ) | (8,830 | ) | (1,470 | ) | - | (10,573 | ) | |
| Financing Activities: | ||||||||||
| Increase in short-term notes payable | 23,000 | - | - | - | 23,000 | |||||
| Principal payments | ||||||||||
| of long-term debt | (25,000 | ) | - | - | - | (25,000 | ) | |||
| Proceeds from | ||||||||||
| issuance of common stock | 913 | - | - | - | 913 | |||||
| Dividends paid | (5,468 | ) | - | - | - | (5,468 | ) | |||
| Intercompany financing | (9,164 | ) | 19,534 | (4,452 | ) | (5,918 | ) | - | ||
| Net Cash Provided (Used) by | ||||||||||
| of Financing Activities | (15,719 | ) | 19,534 | (4,452 | ) | (5,918 | ) | (6,555 | ) | |
| Increase (Decrease) in Cash | ||||||||||
| and of Cash Equivalents | (5,396 | ) | 1,493 | 6,075 | - | 2,172 | ||||
| Cash and Cash Equivalents at | ||||||||||
| of Beginning of Period | 12,186 | 4,738 | 28,608 | - | 45,532 | |||||
| Cash and Cash Equivalents at End of Period | $ 6,790 | $ | 6,231 | $ 34,683 | $ | - | $ | 47,704 |
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter ended October 28, 2000 compared to the Quarter ended October 30, 1999
Consolidated net sales for the third quarter ended October 28, 2000 were $462.9 million compared to $429.1 million in the quarter ended October 30, 1999. Net earnings of $15.6 million for the third quarter of 2000 compares to net earnings of $14.8 million in the third quarter of 1999.
Famous Footwear achieved a sales increase of 11.3% during the third quarter of 2000 to $292.8 million. The increase was driven by 70 more stores (including 26 stores acquired in August 2000 located primarily in the Milwaukee, Wisconsin area), resulting in a total of 919 stores in operation, partially offset by a 2.0% same-store sales decline. Operating earnings for the third quarter of 2000 decreased 5.4% to $22.3 million from $23.5 million last year, due to the combination of lower same-store sales and competitive pressure on margins.
The Company's wholesale operations - the Brown Branded, Brown Pagoda and Brown Canada divisions - had net sales of $120.1 million during the third quarter of 2000 compared to $116.7 million last year. This sales increase was primarily due to higher sales of Naturalizer and Life Stride branded product as well as private label women's product. Operating earnings of $9.8 million increased from $8.8 million in the third quarter of 1999 primarily as a result of the higher sales.
In the Company's Naturalizer Retail operations, which includes both the United States and Canadian stores, net sales increased 7.2% to $50.0 million in the third quarter of 2000. Same-store sales in the third quarter of 2000 decreased 3.0% in the United States but increased 11.7% in Canada. The Company had 8 more stores in operation in the United Sates in 2000 and had 9 more stores in operation in Canada. At the end of the third quarter of 2000, 498 stores were in operation including 351 stores in the United States and 147 stores in Canada. Total Naturalizer Retail operations reported an operating loss of $1.8 million in the third quarter of fiscal 2000 compared to a loss of $2.0 million in 1999. The improvement was primarily due to the higher sales.
Consolidated gross profit as a percent of sales decreased to 39.7% from 40.0% during the same period last year. This decrease was primarily due to lower margins in both the Company's wholesaling and retailing operations.
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Selling and administrative expenses as a percent of sales decreased to 33.9% from 34.1% during the same period last year. This decrease was due to lower expenses within the wholesale operations partially offset by higher expenses within the retail operations and a higher mix of retail sales, which carry a higher expense rate.
Other income in the third quarter of 2000 primarily represents interest and royalty income, which is basically the same as the third quarter of last year.
The consolidated tax rate was 31.3% of consolidated pre-tax income for the third quarter of 2000 compared to 33.1% last year.
Thirty-nine weeks ended October 28, 2000 compared to the thirty-nine weeks ended October 30, 1999
Consolidated net sales for the first thirty-nine weeks of 2000 were $1.276 billion, an increase of 3.2% from the first thirty-nine weeks of 1999 total of $1.236 billion. Net earnings of $31.4 million for the first thirty-nine weeks of 2000 compare to net earnings of $31.6 million for the first thirty-nine weeks of 1999, a decrease of .6%.
Sales at Famous Footwear for the first thirty-nine weeks of 2000 increased 8.2% from the first thirty-nine weeks of last year to $783.8 million, reflecting the offsetting effect of a 1.5% decrease in same-store sales and 70 more units in operation. Operating earnings for 2000 decreased 4.3% to $46.8 million due to the same-store sales decrease and slightly lower margins.
The Company's wholesale sales for the first thirty-nine weeks of 2000 decreased 6.4% to $340.0 million from the same period last year. Operating earnings of $23.4 million decreased $4.1 million from last year due to the lower sales.
In the Company's Naturalizer Retail operations, net sales increased 8.0% to $152.1 million in the first thirty-nine weeks of 2000. Same-store sales increased 1.4% in the United States and 3.0% in Canada. The Company had 8 more stores in operation in the United States in 2000 and had 9 more stores in operation in Canada. Total Naturalizer retail operations had an operating loss of $1.8 million in the first thirty-nine weeks of 2000 compared to an operating loss of $2.3 million in 1999. The improved operating performance was primarily due to higher sales.
Consolidated gross profit as a percent of sales increased to 40.2% from 39.7% for the same period last year. This increase was primarily due to a higher mix of retail sales, which historically earn a higher gross profit rate.
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Selling and administrative expenses as a percent of sales increased to 35.7% from 34.7% for the same period last year. This increase was primarily due to the lower sales at the Company's wholesale operations and a higher mix of retail sales, which carry a higher expense rate.
Other income for the first thirty-nine weeks of 2000 consisted primarily of interest and royalty income. In 1999, other income included the $2.3 million gain from the sale of the le coq sportif business, partially offset by additional provisions for environmental costs associated with an owned facility in Colorado.
The consolidated tax rate was 32.4% consolidated pre-tax income for the first thirty-nine weeks of 2000 compared to 36.8% for last year. The 1999 tax provision includes $1.2 million of taxes related to the repatriation of foreign cash generated from the sale of the le coq sportif business.
Financial Condition
A summary of key financial data and ratios at the dates indicated is as follows:
| October 28, 2000 | October 30, 1999 | January 29, 2000 | |
|---|---|---|---|
| Working Capital (millions) | $269.5 | $266.7 | $270.0 |
| Current Ratio | 1.9:1 | 2.0:1 | 2.2:1 |
| Total Debt as a Percentage of Total Capitalization | 45.1% | 44.2% | 40.8% |
Cash usage from operating activities for the first thirty-nine weeks of fiscal 2000 was $5.0 million versus generating $19.3 million last year. This decline resulted from increased inventories in the Famous Footwear operations from the increased number of stores (including 26 acquired primarily in the Milwaukee, Wisconsin area) and the opening of larger stores, which required more inventory, partially offset by higher accounts payable and lower accounts receivable, reflecting lower sales, in the Company's wholesale operations.
The increase in the ratio of total debt as a percentage of total capitalization at October 28, 2000, compared to the end of fiscal 1999, is due to the cash usage in the third quarter. At October 28, 2000, $59.0 million was borrowed and $9.2 million of letters of credit were outstanding under the Company's $155.0 million revolving bank Credit Agreement.
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In May 2000, the Company announced a stock repurchase program under which the Company was authorized to repurchase up to 2 million shares of the Company's outstanding common stock. In the nine months of fiscal 2000, the Company purchased 499,000 shares at a cost of $5.4 million under this authorization.
In November 2000, the Company entered into a new $165 million revolving bank Credit Agreement with several banks. This agreement includes various financial covenants and restrictions, which are similar to the previous agreement. See Note F to the Company's Condensed Consolidated Financial Statements.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. In Item 1 of the Company's fiscal 1999 Annual Report on Form 10-K, detailed risk factors that could cause variations in results to occur are listed and further discussed. Such description is incorporated herein by reference.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material developments during the quarter ended October 28, 2000, in the legal proceedings described in the Company's Annual Report on Form 10-K for the period ended January 29, 2000. Item 6 - Exhibits and Reports on Form 8-K
| (a) | (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, incorporated herein by reference to Exhibit 3 to
the Company's report on Form 10-K for the fiscal year ended January 29,
2000. |
| (4) | (b) | Credit Agreement dated as of November
20, 2000, between the Company as Borrower, certain of the Company's wholly
owned subsidiaries as Guarantors, the Lenders named therein, Bank One,
NA as Administrative Agent, and Bank of America, N.A., as Syndication Agent,
filed herewith. |
| | (c) (iii) | Third Supplemental Indenture dated
as of November 20, 2000, between the Company and State Street Bank and
Trust Company, as Trustee, filed herewith. |
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| | (10) | (d) (iii) — (f) | Amendment No. 4, dated November
20, 2000, to the Senior Note Agreement between the Company and Prudential
Insurance Company of America, as amended, filed herewith. — Employment Agreement, dated October
5, 2000 between the Company and Ronald A. Fromm, filed herewith. |
| --- | --- | --- | --- |
| | | (i) | Severance Agreement, dated October
5, 2000, between the Company and Gary M. Rich, filed herewith. |
| | | (j) | Severance Agreement, dated October
5, 2000, between the Company and David H. Schwartz, filed herewith. |
| | | (k) | Severance Agreement, dated October
5, 2000, between the Company and Charles C. Gillman, filed herewith. |
| | (27) | | Financial Data Schedule |
| (b) | Reports on Form 8-K: | | |
| | The Company filed no reports on
Form 8-K during the quarter ended October 28, 2000. | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BROWN SHOE COMPANY, INC. | |
|---|---|
| Date: December 11, 2000 | /s/ Andrew M. Rosen |
| Chief Financial Officer and Treasurer On Behalf of the Corporation as the Principal Financial Officer |
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