1
(Mark One) Form 10-K
/X/ Annual Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the Fiscal Year Ended
January 31, 1994
Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B)
EXCHANGES ON WHICH
TITLE REGISTERED
Common Stock, $1.00 par value New York and Chicago
Preferred Share Purchase Rights New York and Chicago
10 3/8% Senior Notes due 2003 New York
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G)
Subordinated Serial Preferred Stock, Series 1
Employees' Subordinated Convertible Preferred Stock
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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. / /
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the June 22, 1994
annual meeting of shareholders are incorporated into
Part III by reference.
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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 and (2) has been
subject to such filing requirements for the past 90
days. Yes /X/ No
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__________________________________________________
Common Shares Outstanding April 19, 1994 - 24,308,875
Aggregate market value on April 19, 1994 of the voting
stock held by nonaffiliates of the registrant was
approximately $94,000,000.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security
Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 19
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 69
PART III
Item 10. Directors and Executive Officers of the Registrant 69
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners
and Management 69
Item 13. Certain Relationships and Related Transactions 71
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 72
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PART I
ITEM 1, BUSINESS
GENERAL
Genesco Inc. ("Genesco" or the "Company") manufactures, markets and
distributes branded men's and women's shoes and boots and men's tailored
clothing. The Company's owned and licensed footwear brands, sold through both
wholesale and retail channels of distribution include Johnston & Murphy,
Dockers and Nautica shoes, Laredo and Code West boots, Toddler University,
Kids University and Street Hot children's shoes and Mitre athletic shoes.
Its tailored clothing labels, all of which the Company sells at wholesale,
include Perry Ellis and Perry Ellis Portfolio, Kilgour, French & Stanbury,
Mondo di Marco, Grays by Gary Wasserman and, through the fall 1994 season,
Polo University Club by Ralph Lauren and Chaps by Ralph Lauren. See
"Significant Developments in Fiscal 1994 - Tailored Clothing Segment" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of this report ("Management's Discussion and
Analysis") for information regarding the loss of the Ralph Lauren brand
licenses.
Genesco products are sold at wholesale to more than 7,000 retailers, including
a number of leading department, discount and specialty stores, and at retail
through the Company's own network of 518 retail shoe stores and leased shoe
departments. Genesco products are supplied from the Company's own
manufacturing facilities as well as a variety of overseas and domestic sources.
Genesco operates in two business segments, footwear and tailored clothing.
References to Fiscal 1992, 1993, 1994 or 1995 are to the Company's fiscal year
ended or ending on January 31 of each such year. For further information on
the Company's business segments, see Note 19 to the Consolidated Financial
Statements included in Item 8 and Management's Discussion and Analysis. All
information contained in Management's Discussion and Analysis which is referred
to in Item 1 of this report is incorporated by such reference in Item 1.
In the fourth quarter of Fiscal 1994 the Company made a decision to restructure
certain of its footwear and tailored clothing operations. See Note 2 to the
Consolidated Financial Statements and "Significant Developments in Fiscal 1994"
in Management's Discussion and Analysis for information regarding the
restructuring and the financial effects thereof.
FOOTWEAR
Wholesale
The Company distributes its footwear products at wholesale to over 6,900
retailers, including independent shoe merchants, department stores, mail order
houses and other retailers. Approximately 99% of the Company's wholesale
footwear sales are Genesco owned or licensed brands.
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4
Johnston & Murphy. High-quality men's shoes have been sold under the Johnston
& Murphy name for more than 100 years. The Company believes Johnston & Murphy
traditionally-styled dress shoes and contemporary dress casual shoes enjoy a
reputation for quality craftsmanship, durability and comfort. Representative
suggested retail prices for Johnston & Murphy shoes are $90 to $225. Because
the Company believes that the market for casual and contemporary styles will
grow more rapidly than the market for traditional dress styles, in Fiscal 1994
the Company introduced a new J. Murphy line of casual and dress casual men's
shoes aimed at a younger consumer. Representative suggested retail prices for
J. Murphy shoes are $90 to $140. The Company further expanded its high-
quality product offerings in Fiscal 1994 by introducing a new line of
contemporary, European-styled men's dress shoes under the Domani label.
Representative suggested retail prices for Domani shoes are $175 to $225.
Laredo and Code West. Since 1976 the Company has manufactured traditional
western-style boots for men, women and children. Laredo boots are targeted to
people who wear boots for both work and recreation and are sold primarily
through independent retail outlets, predominantly western boot shops.
Representative suggested retail prices for Laredo boots are $50 to $120. In
1988 the Company created the Code West brand to enter the fashion segment of
the boot market. Code West styles are western-influenced fashion and
contemporary boots for men and women and are offered with distinctive detailing
and non-traditional colors. Code West boots, sold primarily through department
stores, boutiques and western boot shops, have representative suggested retail
prices of $90 to $190. See "Results of Operations - Fiscal 1994 Compared to
Fiscal 1993 - Footwear Wholesale and Manufacturing" in Management's Discussion
and Analysis for information regarding the Company's boot operations in Fiscal
1994.
Mitre. Mitre is a leading brand in soccer footwear in the United States and in
soccer balls and footwear in the United Kingdom. Genesco became the exclusive
North American licensee for Mitre products in 1981. In 1992 Genesco purchased
the worldwide rights to the Mitre name. See Note 3 to the Consolidated
Financial Statements included in Item 8 of this report for additional
information regarding the Mitre U.K. acquisition. The Company believes the
increased awareness of soccer in America as a result of the United States'
being the host country of the 1994 World Cup championship games has increased
competition in the United States by both domestic and foreign athletic
footwear companies and may expand the domestic market for soccer products.
The Company also markets Mitre cleated footwear for baseball and softball in
the United States and for cricket and rugby in the United Kingdom. The
majority of Mitre ball and cleated shoe sales come from sporting goods and
athletic specialty stores. Representative suggested retail prices for Mitre
cleated athletic shoes in the United States are $20 to $75.
Dockers. In 1991 Levi Strauss & Co. granted the Company the exclusive license
to market footwear under the Dockers brand name in the United States. Dockers
shoes are marketed through many of the same stores that carry Dockers slacks
and sportswear. In the fall of 1994 the Company redesigned the Dockers line
and lowered price points to broaden the appeal of this line of men's casual
shoes. Representative suggested retail prices of the redesigned shoes are $50
to $90.
Nautica. Genesco acquired the exclusive worldwide license to market Nautica
footwear in 1991. In 1992 the Company introduced a new line of casual footwear
under the Nautica label, targeted at young, active, upper-income consumers and
designed to complement Nautica sportswear. The first shipments of Nautica
footwear were delivered for the spring 1992 season. Representative suggested
retail prices of Nautica footwear are $98 to $115.
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University Brands. In December 1992 the Company acquired the assets of Toddler
U. Inc. and began marketing Toddler University and Kids University brand shoes
for children up to age 12. The Company also sells Street Hot brand children's
court shoes. Representative suggested retail prices are $30 to $40 for Toddler
University, $40 to $45 for Kids University and $35 to $40 for Street Hot. See
"Significant Developments in Fiscal 1994 - Restructuring Charge" in
Management's Discussion and Analysis and Note 2 to the Consolidated Financial
Statements included in Item 8 of this report for information regarding the
Toddler U Inc. acquisition.
Retail
At January 31, 1994 the Company operated 518 stores and leased departments
throughout the United States and Puerto Rico selling footwear for men, women or
both. The following table sets forth certain information concerning the
Company's footwear retailing operations:
RETAIL STORES LEASED DEPARTMENTS
-------------------------- -----------------------
JAN. 31, JAN. 31, JAN. 31, JAN 31,
1993 1994 1993 1994
-------- -------- -------- -------
Johnston & Murphy . . . . . . . . . . . . . . . . . . . . 108 103 7 7
Jarman . . . . . . . . . . . . . . . . . . . . . . . . . 176 160 82 82
Journeys . . . . . . . . . . . . . . . . . . . . . . . . 105 104 - -
Hardy . . . . . . . . . . . . . . . . . . . . . . . . . . 31 18 - -
Boot Factory . . . . . . . . . . . . . . . . . . . . . . 21 28 - -
Factory To You . . . . . . . . . . . . . . . . . . . . . 10 9 - -
University Brands . . . . . . . . . . . . . . . . . . . . - - - 7
--- --- -- --
Total . . . . . . . . . . . . . . . . . . . . . . . 451 422 89 96
=== === == ==
The following table sets forth certain additional information concerning the
Company's retail stores and leased departments during the five most recent
fiscal years:
FISCAL FISCAL FISCAL FISCAL FISCAL
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Retail Stores and Leased Departments
Beginning of year . . . . . . . . . . . . . . . . 635 628 613 575 540
Opened during year . . . . . . . . . . . . . . 40 47 26 24 26
Closed during year . . . . . . . . . . . . . . (47) (62) (64) (59) (48)
--- --- --- --- ---
End of year . . . . . . . . . . . . . . . . . . . 628 613 575 540 518
=== === === === ===
In the fourth quarter of Fiscal 1994 the Company made a decision to close 58
retail stores. See "Significant Developments in Fiscal 1994 - Restructuring
Charge" in Management's Discussion and Analysis. During Fiscal 1994 Genesco
opened 16 stores and 10 leased departments and closed 45 stores, 9 of which
were Hardy stores, and three leased departments. In addition, the Company
converted four Hardy stores to Journeys stores in Fiscal 1994. The Company is
planning to close or convert a majority of the remaining Hardy stores in Fiscal
1995. The Company also is planning to open approximately 24 stores, primarily
Boot Factory and Johnston & Murphy, and close approximately 72 stores in Fiscal
1995, of which 55 stores are included in the restructuring. Future store
closings, store openings and conversions will depend upon store operating
results, the availability of suitable locations, lease negotiations and other
factors.
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Johnston & Murphy. Johnston & Murphy's retail outlets sell a broad range of
men's dress and casual footwear and accessories to affluent business and
professional consumers. Johnston & Murphy stores carry predominantly Johnston
& Murphy brand shoes. Of the 103 Johnston & Murphy stores at January 31, 1994,
15 were factory outlet stores.
Jarman. The Company's Jarman stores and the Jarman leased departments target
male consumers ages 25 to 45 and sell footwear in the middle price ranges.
Most shoes sold in Jarman stores are Company-owned brands. Jarman leased
departments, all of which are located in department stores of a major retail
company, carry primarily branded merchandise of other shoe companies and do not
operate under the Jarman trade name.
Journeys; Hardy. Journeys stores target adolescent shoe buyers with fashion
merchandise, using popular music videos and neon lights to attract their
customer base. Hardy stores sell casual, contemporary shoes to a predominantly
male market. At the beginning of Fiscal 1991 the operation of the Hardy and
Journeys shoe store chains was placed under the direction of a single
management group. Since that time, 57 Hardy stores have been converted to
Journeys stores. Hardy stores converted to Journeys stores have, on average,
enjoyed increased sales upon reopening.
Boot Factory; Factory to You. In Fiscal 1990 the Company opened its first Boot
Factory outlet store to sell the Company's Laredo and Code West lines of boots.
By January 31, 1994 the chain had expanded to 28 outlet stores located
primarily in the southeastern United States. Factory To You stores, located
primarily in the southeastern United States, sell mainly factory damaged,
overrun and close-out footwear products from the Company's own plants as well
as other manufacturers.
Manufacturing and Sourcing
The Company sources its footwear product from its own domestic manufacturing
facilities as well as a variety of overseas and domestic sources. The Company
imports shoes, component parts and raw materials from the Far East, Latin
America and Europe. Genesco manufactures footwear in five facilities in the
southeastern United States and one facility in the United Kingdom. During
Fiscal 1994, approximately 62% of the footwear products manufactured by the
Company were men's, 30% were women's and 8% were children's. Approximately 83%
of the Company-manufactured footwear products were sold at wholesale, and 17%
at retail through stores and leased departments operated by the Company. The
estimated productive capacity of the U.S. footwear plants was approximately 64%
utilized in Fiscal 1994. The Company believes that its ability to manufacture
footwear in its own plants can provide better quality assurance with respect to
certain products and, in some cases, reduce inventory risks and long lead times
associated with imported footwear. The Company balances these considerations
against the cost advantage of importing footwear products. See "Significant
Developments in Fiscal 1994 - International Trade Developments" in Management's
Discussion and Analysis for information regarding recent developments that may
affect the Company's international sourcing. For information regarding the
Company's response to excess productive capacity in its factories, see "Results
of Operations - Fiscal 1994 Compared to Fiscal 1993" in Management's Discussion
and Analysis.
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The Company also conducts leather tanning and finishing operations in two
manufacturing facilities located in Michigan and Tennessee. Approximately 8%
of tanned leather products sold in Fiscal 1994 were for internal use, and the
balance was sold to military boot manufacturers and other unaffiliated
customers.
MEN'S APPAREL
The Greif Companies
The Company, doing business as The Greif Companies ("Greif"), manufactures and
markets quality men's tailored clothing, consisting of suits, sport coats and
slacks, in the United States. Greif's products are sold at wholesale to
department stores and specialty retail stores nationwide through a direct sales
force. Branded lines accounted for approximately 84% of Greif's Fiscal 1994
tailored clothing sales. Greif markets tailored clothing under a variety of
brand names, substantially all of which are licensed from third parties. See
"Licenses" below. The Company's tailored clothing brands include:
Perry Ellis; Perry Ellis Portfolio. The Company has licenses to market and
manufacture contemporary styled tailored clothing in the United States under
the trademarks, Perry Ellis and Perry Ellis Portfolio. Perry Ellis Portfolio
was the Company's best selling tailored clothing brand name in Fiscal 1994.
Perry Ellis brand suits have representative retail prices of $500 to $700.
Perry Ellis Portfolio tailored clothing is more moderately priced
(representative retail prices, $400 to $500).
Polo University Club; Chaps by Ralph Lauren. The Company's exclusive licenses
to market and manufacture traditionally styled tailored clothing in the United
States under both the Polo University Club by Ralph Lauren and Chaps by Ralph
Lauren labels expire in June of 1994. Polo University Club by Ralph Lauren
suits have representative retail prices of $400 to $500, and the Chaps by Ralph
Lauren line was repositioned in Fiscal 1993 at lower prices (representative
retail prices, $300 to $400).
Other Brands. Greif also markets and manufactures men's tailored clothing
under other name brands (representative retail prices $500 to $700).
Traditionally styled suits are marketed under the Grays by Gary Wasserman
label, under an agreement with Mr. Wasserman. Medium to high priced
(representative retail prices, $495 to $650) European styled suits are marketed
and manufactured in the United States under the Mondo di Marco label pursuant
to a license. Greif also has a limited license to market and manufacture
British-styled suits in the United States under the Kilgour, French & Stanbury
brand name (representative retail prices, $495 to $650). Greif has recently
announced its intention to introduce a new traditional line of tailored
clothing under the label Metropolis by Greif in the spring of 1995.
Representative retail prices for the line are expected to range from $325 to
$475.
Greif's unbranded clothing sales, which accounted for 16% of Greif's tailored
clothing sales in Fiscal 1994, include custom-made uniforms for certain
airlines and other career apparel products and garments bearing the private
labels of retail customers.
GCO Apparel Corporation
In Fiscal 1994 a wholly-owned subsidiary of the Company, GCO Apparel
Corporation ("GCO Apparel"), acquired the manufacturing assets of LaMar
Manufacturing Company ("LaMar"). See "Significant Developments in Fiscal 1994
- - Tailored Clothing Segment" and "Results of Operations - Fiscal 1994 Compared
to Fiscal 1993 - Tailored Clothing" in Management's Discussion and Analysis.
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Manufacturing
The Company manufactures tailored clothing in six facilities, the "Greif
facilities" located in Allentown and Shippensburg, Pennsylvania, Verona,
Virginia and the "GCO Apparel facilities" located in Heflin and Woodland,
Alabama and Bowdon, Georgia. During Fiscal 1994 the estimated productive
capacity of the Greif facilities was approximately 92% utilized while the GCO
Apparel facilities were approximately 72% utilized. See "Significant
Developments in Fiscal 1994" in Management's Discussion and Analysis for
information regarding the Company's decision to close certain of its tailored
clothing manufacturing facilities. Greif sources fabrics primarily from
domestic mills. The collective bargaining agreement to which Greif is subject
limits the sale by Greif of tailored clothing purchased from foreign and other
non-union manufacturers. See "Employees" below.
COMPETITION
The Company operates in highly competitive markets in both footwear
and tailored clothing. Retail footwear competitors range from small,
locally-owned shoe stores to regional and national department and discount
stores and specialty chains. The Company competes with hundreds of footwear
and apparel manufacturing operations in the United States and throughout the
world, most of which are relatively smaller, specialized operations but some of
which are larger, more diversified companies.
Competition from imports has grown significantly during the last two decades,
so that by 1993 approximately 86% of all non-rubber footwear sold in the United
States was imported. Manufacturers in foreign countries with lower labor costs
have a significant price advantage. The Company's footwear manufacturing
operations attempt to offset this advantage by offering superior product
quality and customer service or by concentrating on specific markets, such as
western boots, not subject to intense foreign competition.
In the mid-1980's there was an increase in imports of better-grade, tailored
clothing, and the Company believes that it and other domestic producers of such
clothing lost market share to foreign manufacturers during the remainder of the
1980's. Other factors affecting the domestic industry are the shrinking U.S.
market for tailored clothing, reflecting long-term demographic changes, a shift
in preferences toward more casual apparel and the loss or threatened loss of
middle management and professional jobs in recent years. This decline in U.S.
consumption has not adversely affected imports, leading to excess manufacturing
capacity in the U.S. tailored clothing industry. See "Significant
Developments in Fiscal 1994 - International Trade Developments" in Management's
Discussion and Analysis for information regarding the possible effect of
international competition on the Company's tailored clothing business.
The collective bargaining agreement between the Clothing Manufacturers'
Association and the Amalgamated Clothing and Textile Workers' Union, to which
Greif is a party, limits the sale of tailored clothing manufactured in a plant
not covered by such an agreement. See "Employees" below.
The Company believes that Greif must lower its product costs in order to
compete on a long-term basis in the tailored clothing industry and that the
restrictions contained in Greif's current collective bargaining agreement put
the Company and other manufacturers with similar labor agreements at a
disadvantage in competing with foreign and other non-union manufacturers.
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The Company's tailored clothing operations compete on brand recognition, price,
product style, quality and customer service.
LICENSES
Most of the Company's footwear brands are owned by the Company. The
Nautica and Dockers brand footwear lines, introduced in Fiscal 1993, are sold
under license agreements which extend through 2007 and 2001, respectively,
including renewal options. Most of the Company's branded tailored clothing
products are sold pursuant to license agreements with terms, including renewal
options, which expire from 1994 to 2005. Licensed products are generally
designed by the Company and submitted to the licensor for approval.
The Company's renewal options under its license agreements for both footwear
and tailored clothing brands are generally conditioned upon the Company's
meeting certain minimum sales requirements. Sales of Ralph Lauren branded
products (which accounted for $33.8 million of sales in Fiscal 1994) were
manufactured under license agreements which expire June 30, 1994 and will not
be renewed. See "Significant Developments in Fiscal 1994 - Tailored Clothing
Segment" in Management's Discussion and Analysis.
Sales of licensed products were approximately $100 million in Fiscal 1994 and
approximately $96 million in the previous year.
The Company also licenses others to use Mitre and certain of its other footwear
brands, mostly in foreign markets. License royalty income was not material in
Fiscal 1994.
RAW MATERIALS
Genesco is not dependent upon any single source of supply for any
major raw material. In Fiscal 1994 the Company experienced no shortages of raw
materials in its principal businesses. The Company considers its available raw
material sources to be adequate.
BACKLOG
On March 31, 1994 the Company's wholesale operations (which accounted
for 60% of sales in Fiscal 1994) had a backlog of orders, including unconfirmed
customer purchase orders, amounting to approximately $91.1 million, compared to
approximately $110.0 million on March 31, 1993. Of these amounts,
approximately $46.4 million and $57.6 million, respectively, were for footwear
and approximately $44.7 million and $52.4 million, respectively, were for men's
apparel. The backlog of orders is somewhat seasonal, reaching a peak for
footwear in the spring and for tailored clothing in the summer. Tailored
clothing and footwear operations maintain in-stock programs for selected
anticipated high volume styles, but customer orders for tailored clothing are
generally received several months in advance of shipping dates.
The order backlog in dollars on March 31, 1994 for footwear wholesale products,
which includes tanned leather, was 21% lower than on March 31, 1993. This
decrease is attributable to decreases in the order backlog for the Company's
boot and athletic products. The majority of orders for footwear and tanned
leather is for delivery within 90 days. Therefore, the footwear wholesale
products backlog at any one time is not necessarily indicative of a
corresponding change in future sales for an extended period of time.
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Tailored clothing backlog in dollars on March 31, 1994, consisting primarily of
spring 1994 and fall 1994 orders, was 15% lower than on March 31, 1993.
Tailored clothing backlog does not include sales anticipated under the cut,
make and trim agreement between GCO Apparel and LaMar. The Company believes
that the decrease in tailored clothing backlog is attributable to (i) general
market conditions throughout the tailored clothing industry, (ii) product
quality problems in Fiscal 1994 arising out of the Company's efforts to
redesign and manufacture certain products to meet retailer demands for
lower-cost, branded products, (iii) the Company's decision to reduce sales to
off-price retailers and (iv) retailer concerns regarding future pricing of the
Chaps by Ralph Lauren line by the new licensee. The Company expects the lower
level of demand for its tailored clothing products to continue through Fiscal
1995.
Management does not expect cancellations of existing orders for tailored
clothing and footwear to exceed 14%.
EMPLOYEES
Genesco had approximately 6,950 employees at January 31, 1994 including
approximately 770 part-time employees. Retail shoe stores employ a substantial
number of part-time employees during peak selling seasons. Approximately 1,475
employees are covered by collective bargaining agreements, most of whom are
employees of the Company's Greif tailored clothing operations. Of the 6,950
employees, approximately 4,300 were employed in footwear, 2,550 in tailored
clothing and 100 in corporate staff departments. See "Significant Developments
in Fiscal 1994 - Restructuring Charge" included in Management's Discussion and
Analysis for information regarding the Company's elimination of approximately
1,200 jobs.
Most employees of Greif are covered by a collective bargaining agreement with
the Amalgamated Clothing and Textile Workers' Union which expires April 30,
1995. See "Significant Developments in Fiscal 1994 - Tailored Clothing
Segment" and "Results of Operations - Fiscal 1994 Compared to Fiscal 1993 -
Tailored Clothing" included in Management's Discussion and Analysis for
information regarding labor difficulties experienced by Greif in Fiscal 1994.
PROPERTIES
The Company operates 15 manufacturing and 5 warehousing facilities,
substantially all of which are leased, aggregating 2,600,000 square feet. The
20 facilities are located in six states in the United States and in
Huddersfield, England. There are 14 footwear facilities with approximately
1,800,000 square feet and six tailored clothing facilities with approximately
800,000 square feet.
The Greif Companies tailored clothing operation is headquartered in Allentown,
Pennsylvania and maintains a marketing office and showrooms in New York City.
GCO Apparel's headquarters are in Bowdon, Georgia. The Company's executive
offices and the offices of its footwear operations are in a 295,000 square foot
leased building in Nashville, Tennessee.
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See the discussion of the footwear segment for information regarding the
Company's retail stores. New shopping center store leases typically are for a
term of seven to 10 years and new factory outlet leases typically are for a
term of five years and both provide for rent based on a percentage of sales
against a fixed minimum rent based on the square footage leased. The Company's
leased departments are operated under agreements which are generally terminable
by department stores upon short notice.
Leases on the Company's plants, offices and warehouses expire from 1995 to
2018, not including renewal options. The Company's retail stores, plants,
offices, warehouses and machinery and equipment are generally well maintained,
in good operating condition and suitable for their purposes. See Note 11 to
the Consolidated Financial Statements included in Item 8 for information about
commitments under capital and operating leases.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign laws, regulations
and ordinances that (i) govern activities which may have adverse environmental
effects, such as discharges to air or water as well as the handling and
disposal of solid and hazardous wastes, or (ii) impose liability for the costs
of cleaning up, and damages resulting from, past spillage, disposal or other
releases of hazardous substances (together, "Environmental Laws"). The Company
uses and generates, and in the past has used and generated, certain substances
and wastes that are regulated or may be deemed hazardous under applicable
Environmental Laws. The Company is involved in cleanup proceedings at several
sites with respect to which it is alleged that the Company sent certain waste
material in the past. See Item 3 "Legal Proceedings" for a discussion of
certain of such pending matters.
ITEM 2, PROPERTIES
See Item 1.
ITEM 3, LEGAL PROCEEDINGS
CERTAIN ENVIRONMENTAL PROCEEDINGS
As a result of the disposal in a rural area near Nashville, Tennessee of waste
material generated by a former operating division of the Company engaged in the
manufacture of adhesives, eight separate civil actions were filed in 1986 in
the Circuit Court of Williamson County, Tennessee on behalf of a total of 29
individuals against the Company, Emmett N. and Rose S. Kennon and Kennon
Construction Co. The Kennons are owners of the disposal site. An additional
action was filed against the same parties in the same court in 1988 on behalf
of one resident who had recently reached majority. The plaintiffs reside or
own property in the vicinity of the waste disposal site.
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The plaintiffs alleged that the defendants were liable for creating a nuisance,
negligence, trespass, creating an unreasonably hazardous condition (strict
liability) and violating several state and federal environmental statutes and
sought to recover for personal injuries and property damages totaling $17.6
million, punitive damages totaling $19.5 million, and certain costs and
expenses, including attorneys' fees. The Company filed answers to these suits.
In October and November 1992 the Company reached settlement agreements with 20
individual plaintiffs providing for cash payments by the Company aggregating
approximately $550,000 and the purchase of a residence at an appraised value of
$170,000. Damage claims totalling $22.2 million, including $9.1 million in
claimed compensatory damages and $13.1 million in punitive damages, were
dismissed pursuant to the settlement agreements. In light of the settlement
agreements already reached, management believes that the remaining actions
should not have a material adverse effect on the Company's results of
operations or financial condition.
On July 5, 1987 a civil action was filed by the State of New York in the United
States District Court for the Northern District of New York against the City of
Gloversville, New York, and 33 other private defendants, including the Company.
The complaint alleges that the defendants are liable under the U.S.
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"
or "Superfund") and certain common law theories for the costs of investigating
and performing remedial actions required to be taken with respect to a
municipal landfill owned and operated by the City of Gloversville. CERCLA
provides for the cleanup of sites from which there has been a release or
threatened release of hazardous substances. CERCLA authorizes the United
States Environmental Protection Agency (the "EPA") to take any necessary
response actions at Superfund sites, including, in certain circumstances,
ordering potentially responsible parties ("PRPs") liable for the release to
take or pay for such actions. PRPs are broadly defined under CERCLA, and
include past and present owners and operators of a site, as well as generators
and transporters of wastes to a site from which hazardous substances are
released. The landfill was used by a former operating division of the Company
engaged in the leather tanning business. While there is evidence that the
Company was not a material contributor to any hazardous conditions which may be
shown to exist, the liability under CERCLA is joint and several. On March 10,
1988 the Company filed its answer denying the substantive allegations of the
complaint and asserting numerous defenses. On August 30, 1988 the Company and
certain other defendants filed third party complaints against approximately 90
additional entities, alleging in essence that such third party defendants are
liable, in whole or in part, for any damages that may be incurred by the
Company or the other third party plaintiffs. On December 1, 1988 the third
party defendants answered, denying liability and asserting certain
counterclaims and crossclaims against the Company and others based upon the
same substantive allegations.
Also on July 5, 1987 a separate civil action was filed by the State of New York
in the United States District Court for the Northern District of New York
against the City of Johnstown, New York and 14 other defendants (not including
the Company). The allegations of the complaint, which are substantially
similar to those in the Gloversville action referred to above, relate to a
municipal landfill operated by the City of Johnstown which landfill has been
placed on the National Priority List of Superfund sites by the EPA.
12
13
On August 30, 1988 two defendants in the Johnstown action filed third party
complaints against a former division of the Company engaged in the leather
tanning business and approximately 100 other third party defendants. The third
party complaints, filed by Milligan & Higgins, a division of Hudson Industries,
and the Gloversville/Johnstown Joint Sewer Board, allege that the third party
defendants disposed of waste material into the Gloversville/ Johnstown joint
sewer system, which in turn was transported by employees of the sewer system to
the municipal landfill operated by the City of Johnstown. The third party
complaints charge, in essence, that the Company and the other third party
defendants are liable for all or a portion of any damages which may be incurred
by the third party plaintiffs based upon the State's allegations in the initial
complaint. The Company filed an answer asserting numerous defenses.
The EPA has issued records of decision reflecting adoption of remediation plans
an estimated cost of approximately $16.5 million in the case of the Johnstown
site and approximately $28.3 million with respect to the Gloversville site.
The Company has established a provision of $1 million to cover its estimated
share of future remediation costs with respect to both sites, including a
$500,000 charge in the fiscal quarter ended October 31, 1993. Because of
uncertainties related to the ability or willingness of other defendants,
including the municipalities involved, to pay a portion of such costs, the
availability of state funding to pay a portion of such costs, the insurance
coverage available to the various defendants and the basis for contribution
claims among the defendants, management is presently unable to predict the
outcome or to estimate the amount of the Company's liability with respect to
either of the Johnstown or Gloversville actions. The insurance companies from
which the Company purchased liability insurance coverage have agreed to bear a
portion of the cost of the Company's defense in the Johnstown and Gloversville
actions, but have reserved the right to deny coverage of any other liability
which the Company may incur in such actions.
On September 4, 1991 the Company's Whitehall, Michigan tanning facility was
cited by the Muskegon County Wastewater Management System ("MCWMS") for alleged
violations of certain regulations applicable to the facility's wastewater
effluent. Pursuant to administrative orders issued by the MCWMS, the Company
is required to bring the Whitehall facility's wastewater discharges into
compliance with applicable regulations. In May 1992 the EPA requested certain
information from the Company and other entities regarding wastewater discharges
to the MCWMS sewage treatment system at Whitehall, Michigan. In October 1992
the EPA notified the Company that it would recommend that a civil action be
brought against the Company for alleged violations of the Federal Water
Pollution Control Act and the pre-treatment standards for leather tanning and
finishing adopted thereunder. The alleged violations related to the wastewater
effluent from the Company's Whitehall tannery and involved similar violations
as those alleged in the MCWMS proceeding. The Company entered into a
stipulation of settlement with the EPA and the United States Department of
Justice dismissing the civil action. The stipulation of settlement was
approved by the court on December 16, 1993 and the Company has paid a civil
penalty of $550,000 to resolve all claims asserted in the complaint.
13
14
The EPA has also previously investigated soil and groundwater conditions at the
Whitehall facility and the Michigan Department of Natural Resources, acting on
behalf of the EPA, made further investigations of the site in April 1994.
Because the current status of the EPA's investigation is not clear, the Company
presently is unable to determine with certainty what effect such investigation
and any subsequent remedial action may have on the Company's results of
operations or financial condition but does not believe any remedial actions
should have a material adverse effect on such results of operations or
financial condition.
PREFERRED SHAREHOLDERS ACTIONS
On January 6, 1993, 23 holders of the Company's series 2, 3 and 4 subordinated
serial preferred stock filed a civil action against the Company, William S.
Wire II, the Company's chairman, and James S. Gulmi, the Company's vice
president and chief financial officer, in the United States District Court for
the Southern District of New York (the "U.S. District Court Action"). The
plaintiffs allege that the defendants misrepresented the value of the
plaintiffs' shares and failed to disclose material facts to representatives of
the plaintiffs in connection with exchange offers which were made by the
Company to the plaintiffs and other holders of the Company's series 1, 2, 3 and
4 subordinated serial preferred stock from January 23, 1988 to August 1, 1988.
The plaintiffs contend that had they been aware of the misrepresentations and
omissions, they would not have agreed to exchange their shares pursuant to the
exchange offers. The plaintiffs allege breach of fiduciary duty and fraudulent
and negligent misrepresentations and seek damages in excess of $10 million,
costs, attorneys' fees, interest and punitive damages in an unspecified amount.
On March 2, 1993 the defendants filed their answer denying the plaintiffs'
substantive allegations and asserting certain affirmative defenses. On April
22, 1993, the defendants filed a motion for judgement on the pleadings. By
order dated December 2, 1993, the U.S. District Court denied the motion. On
April 20, 1994, the plaintiffs filed a motion for partial summary judgement
asking that the court find that the defendants are bound by the preferred stock
valuation in the Chancery Court Action (as defined below).
The U.S. District Court Action is based, in part, on a judicial determination
on July 29, 1992 of the fair value of the Company's series 2 and 3 subordinated
serial preferred stock in an appraisal action in the Chancery Court for
Davidson County, Tennessee (the "Chancery Court Action"). The Chancery Court
Action was commenced after certain preferred shareholders dissented from the
charter amendments approved by shareholders on February 4, 1988 and demanded
the fair value of their shares.
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15
The Chancery Court Action determined that the fair values of a share of series
2 was $131.32 and of a share of the series 3 was $193.11 (which amounts are in
excess of the mandatory redemption and liquidation values of a share of series
2 subordinated serial preferred stock and of the optional redemption and
liquidation values of a share of series 3 subordinated serial preferred stock),
compared with $91 a share for the series 2 and $46 a share for the series 3
previously paid by the Company as the fair value of such shares. The Chancery
Court ordered the Company to pay to Jacob Landis, the only shareholder who
prosecuted his dissenter's rights, the additional sum of $358,062 plus interest
at 10% from July 29, 1992 and attorneys' fees and costs to be determined in
further proceedings. The Company appealed the Chancery Court's decision and on
September 1, 1993 the Tennessee Court of Appeals affirmed the Chancery Court's
decision and remanded the case to the Chancellor for further proceedings. The
Company filed a petition to the Tennessee Supreme Court to review the case,
which the court denied on January 31, 1994. The Company paid the amount of the
judgement in the Chancery Court Action plus accrued interest on February 4,
1994. The dissenting shareholders have filed a claim for approximately
$780,000 in attorney's fees and expenses.
The Company and the individual defendants intend to vigorously defend the U.S.
District Court Action. The Company is unable to predict if the U.S. District
Court Action will have a material adverse effect on the Company's results of
operations or financial condition.
On May 13, 1993 the landlord of a building in New York City in which the
Company was the sole tenant, filed a civil action in the Supreme Court of the
State of New York claiming that the Company breached the lease for the premises
and negligently allowed the premises to deteriorate. The complaint seeks
compensatory damages of $2.5 million and punitive damages of $5 million. On
June 8, 1993 the Company removed the action to the United States District Court
for the Southern District of New York.
At various times in 1990 and 1991 (i) the Canadian Department of National
Revenue, Taxation (the "Department"), the Alberta Corporate Tax Administration
and the Ontario Ministry of Revenue made tax reassessments relating to the
deductibility of interest expense incurred by one of the Company's Canadian
subsidiaries on funds borrowed from the Company and (ii) the Department made
tax reassessments relating to non-resident withholding tax with respect to the
payment by that subsidiary of its loan from the Company and with respect to
interest on loans by that subsidiary to the Company. These reassessments,
which the Company has calculated to be approximately Canadian $18.7 million
including interest (approximately U.S. $14.1 million) at January 31, 1994, were
made against Agnew Group, Inc., the corporate successor to the purchaser of the
Company's Canadian operations (the "Taxpayer").
The Taxpayer has made indemnification claims with respect to all such
reassessments pursuant to the indemnification provisions in the stock purchase
agreement dated as of January 23, 1987 relating to the sale of the Company's
Canadian operations, and the Company has assumed the defense of the Taxpayer.
On behalf of the Taxpayer, the Company has filed notices of objections to all
of the reassessments and has appealed the confirmation by the Minister of
National Revenue of the Federal interest deductibility reassessments by filing
a statement of claim in the Federal Court of Canada. The Provincial
reassessments will be held in abeyance pending the outcome of the Federal Court
action. The Company has also filed notices of objection to the withholding tax
reassessments on behalf of the Taxpayer.
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Any liability which is finally determined to be owing by the Company as a
result of the indemnification provisions of the share purchase agreement is
subject to an offset of up to Canadian $5,000,000 pursuant to a loan agreement
dated February 6, 1987 among the Company, the purchaser and a former
stockholder of the purchaser.
On February 4, 1994 the Taxpayer filed for protection under the Companies
Creditors Arrangement Act and is seeking approval of a plan of compromise or
arrangement with its creditors. Resolution of the Department's tax claims is a
condition to any such plan.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of Fiscal 1994.
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EXECUTIVE OFFICERS OF GENESCO
The officers of the Company are generally elected at the first meeting
of the board of directors following the annual meeting of shareholders and hold
office until their successors have been chosen and qualify. The name, age and
office of each of the Company's executive officers and certain significant
employees and certain information relating to the business experience of each
are set forth below:
HARRY D. GARBER, 65, Chairman. Mr. Garber has served as a director of Genesco
since 1976 and was elected Chairman effective January 31, 1994. He was
employed by The Equitable Life Assurance Society of the United States, a major
provider of life insurance, health insurance and annuities, from 1950 until
June 1993 and served as its vice chairman since 1984.
E. DOUGLAS GRINDSTAFF, 53, President and Chief Executive Officer of Genesco.
Mr. Grindstaff was elected president and chief operating officer and a director
of Genesco on April 22, 1992 and chief executive officer as of February 1,
1993. In 1962 Mr. Grindstaff joined Procter & Gamble Inc. where he served in
a number of manufacturing, marketing and general management positions until his
election as president of Genesco. From 1987 to 1991 he was president of
Procter & Gamble's Canadian operations and most recently was president of
Procter & Gamble Cellulose Company.
THOMAS B. CLARK, 52, Executive Vice President - Administration and General
Counsel. Mr. Clark was employed by the Company in his present capacity in
January 1994. He was a partner in the law firm of Boult, Cummings, Conners and
Berry from 1987 through 1993. Mr. Clark previously served as vice president
and general counsel of the Company from 1978 to 1987.
JAMES S. GULMI, 48, Vice President - Finance and Chief Financial Officer. Mr.
Gulmi was employed by Genesco in 1971 as a financial analyst, appointed
assistant treasurer in 1974 and named treasurer in 1979. He was elected a vice
president in 1983 and assumed his present responsibilities in 1986.
MICHAEL A. CORBETT, 42, Treasurer. Before joining the Company in November
1993, Mr. Corbett had been a principal in a financial advisory services firm,
Highland Capital Corporation, since 1990. From 1987 to 1990 Mr. Corbett was
treasurer of MacMillan Inc., a diversified publishing company.
ROBERT E. BROSKY, 53, Controller and Chief Accounting Officer. Mr. Brosky
joined the Company in 1963, was named director of consolidated accounting and
financial reporting in 1983 and controller and chief accounting officer in
1986.
ROGER G. SISSON, 30, Secretary and Assistant General Counsel. Mr. Sisson
joined the Company in January 1994 as assistant general counsel and was elected
secretary in February 1994. Before joining the Company, Mr. Sisson was
associated with the firm of Boult, Cummings, Conners and Berry for
approximately six years.
MATTHEW N. JOHNSON, 29, Assistant Treasurer. Mr. Johnson joined the Company in
April 1993 as manager, corporate finance and was elected assistant treasurer in
December 1993. From 1986 until he joined the Company, he held a number of
positions with the First National Bank of Chicago, most recently a vice
president in the corporate and institutional banking division.
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FOWLER H. LOW, 62, Chairman of Johnston & Murphy (a division of Genesco). Mr.
Low has 38 years of experience in the footwear industry, including 31 years
with Genesco. He rejoined Genesco in 1984 after serving as vice president of
sales and marketing for G. H. Bass, a division of Chesebrough-Pond's Inc. He
was appointed president of the footwear manufacturing and wholesale group in
1988 and was appointed to his present post in February 1991.
BEN HARRIS, 50, President of the Jarman Shoe Company (a division of Genesco).
Mr. Harris joined the Company in 1961 and in 1987 was named director of the
leased department division of the Jarman Shoe Company. In November 1991, he
was named president of the Jarman Shoe Company.
HENRY D. SIEGAL, 41, President of The Greif Companies (a division of Genesco).
Before joining the Company in November 1993, Mr. Siegal was president of
Crystal Brands Jewelry, a position he had held since 1993. From 1991 to 1993
Mr. Siegal was president and chief executive officer for Crystal Brands
Tailored Clothing Group. From 1981 to 1991 he was president and chief
executive officer of Calvin Clothing Corporation.
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PART II
ITEM 5, MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
________________________________________________________________________________
The Company's common stock is listed on the New York Stock Exchange (Symbol:
GCO) and the Chicago Stock Exchange. The following table sets forth for the
periods indicated the high and low sales prices of the common stock as shown in
the New York Stock Exchange Composite Transactions listed in the Wall Street
Journal.
Fiscal Year ended January 31 High Low
- ---------------------------- ---- ---
1992 1st Quarter $ 5 1/8 $ 3 3/4
2nd Quarter 6 1/8 3 7/8
3rd Quarter 6 1/2 4 7/8
4th Quarter 6 1/8 4 1/2
Fiscal Year ended January 31
- ----------------------------
1993 1st Quarter 7 5 1/8
2nd Quarter 6 1/4 5
3rd Quarter 7 3/4 5 5/8
4th Quarter 11 1/4 7
Fiscal Year ended January 31
- ----------------------------
1994 1st Quarter 11 1/2 8 3/4
2nd Quarter 11 1/2 6 7/8
3rd Quarter 9 1/4 5 3/4
4th Quarter 6 7/8 4
There were approximately 14,000 common shareholders of record on January 31,
1994.
See Notes 10 and 12 to the Consolidated Financial Statements included in Item 8
for information regarding restrictions on dividends and redemptions of capital
stock.
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ITEM 6, SELECTED FINANCIAL DATA
FINANCIAL SUMMARY
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EXCEPT PER COMMON SHARE DATA, YEARS ENDED JANUARY 31
------------------------------------------------------------
FINANCIAL STATISTICS AND OTHER DATA 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS DATA
Net sales $572,860 $539,867 $471,766 $476,342 $492,248
Depreciation and amortization 10,723 9,719 9,109 8,915 8,190
Operating income (loss)* (25,454) 33,480 16,771 16,977 38,825
Pretax earnings (loss) (51,774) 13,703 570 1,342 19,812
Earnings (loss) before extraordinary loss and
cumulative effect of change in
accounting principle (51,779) 9,693 461 1,282 18,871
Loss on early retirement of debt (net of tax) 240 583 -0- 1,688 -0-
Cumulative effect of change in accounting
for postretirement benefits 2,273 -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(54,292) $ 9,110 $ 461 $ (406) $ 18,871
================================================================================================================================
PER COMMON SHARE DATA
Earnings (loss) from continuing operations
Primary $ (2.16) $ .40 $ .01 $ .04 $ .83
Fully diluted (2.16) .40 .01 .04 .80
Extraordinary loss
Primary (.01) (.02) .00 (.07) .00
Fully diluted (.01) (.02) .00 (.07) .00
Postretirement benefits
Primary (.09) .00 .00 .00 .00
Fully diluted (.09) .00 .00 .00 .00
Net earnings (loss)
Primary (2.26) .38 .01 (.03) .83
Fully diluted (2.26) .38 .01 (.03) .80
================================================================================================================================
BALANCE SHEET DATA
Total assets $309,386 $317,868 $237,244 $251,384 $279,791
Long-term debt 90,000 54,000 14,885 28,921 50,407
Capital leases 15,253 14,901 12,099 10,080 10,585
Non-redeemable preferred stock 8,064 8,305 8,330 14,272 16,757
Common shareholders' equity 90,659 146,746 140,834 134,887 135,794
Additions to plant, equipment and capital leases 8,356 10,132 9,341 11,922 10,685
================================================================================================================================
FINANCIAL STATISTICS
Operating income as a percent of net sales (4.4%) 6.2% 3.6% 3.6% 7.9%
Book value per share $ 3.73 $ 6.33 $ 6.16 $ 5.96 $ 5.96
Working capital $160,094 $168,875 $132,871 $143,538 $169,812
Current ratio 3.3 3.5 3.8 3.7 4.0
Percent long-term debt to total capital 51.6% 30.8% 15.3% 20.7% 28.6%
================================================================================================================================
OTHER DATA (END OF YEAR)
Number of retail outlets 518 540 575 613 628
Number of employees 6,950 6,550 6,150 6,150 6,700
================================================================================================================================
* Represents operating income of business segments.
Included in the loss for Fiscal 1994 was a restructuring charge of $29.4
million. See Note 2 to the Consolidated Financial Statements for additional
information regarding the charge.
Long-term debt and capital leases include current payments. On February 1,
1993, the Company issued $75 million of 10 3/8% senior notes due 2003. The
Company used $54 million of the proceeds to repay all of its outstanding
long-term debt. During Fiscal 1991 the Company paid prior to maturity
approximately $21,288,000 of its long-term debt.
During Fiscal 1990 the Company exchanged approximately 96,000 shares of
preferred stock for 1.9 million shares of common stock.
During Fiscal 1992 the Company acquired and cancelled approximately 712,000
shares of Employees Subordinated Convertible Preferred Stock.
The Company has not paid dividends on its Common Stock since 1973. See Note 12
to the Consolidated Financial Statements for a description of limitations on
the Company's ability to pay dividends.
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ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
____________________________________________________________________________
This discussion should be read in conjunction with the selected financial
information in Item 6 and the business segment information in Note 19 to the
Consolidated Financial Statements included in Item 8.
SIGNIFICANT DEVELOPMENTS IN FISCAL 1994
Senior Debt Financing
In February 1993 the Company completed a public offering of $75 million
principal amount of 10 3/8% senior notes due 2003 (the "10 3/8% Notes").
Proceeds from the sale of these notes were used to repay long-term debt and for
working capital and other general corporate purposes and were used on May 18,
1993 to redeem a minority interest in the Company's subsidiary, Mitre U.K. See
Note 10 to the Consolidated Financial Statements.
Revolving Credit Agreement
In August 1993 the Company entered into a three-year revolving credit agreement
providing for loans or letters of credit up to $100 million. The agreement
replaced a $45 million revolving credit agreement and a $25 million letter of
credit agreement. As a result of the restructuring charge and operating losses
in the fourth quarter, the revolving credit agreement was amended on January
31, 1994 to adjust certain financial covenants. See Notes 2 and 10 to the
Consolidated Financial Statements.
Tailored Clothing Segment
In May 1993 The Greif Companies ("Greif"), a division of the Company, withdrew
from the industry-wide collective bargaining arrangement between the Clothing
Manufacturers Association (the "CMA") and the Amalgamated Clothing and Textile
Clothing Workers Union and its affiliates (the "Union") and notified the Union
of its desire to bargain directly with the Union concerning new collective
bargaining agreements to replace the contracts expiring September 30, 1993.
The Union was the collective bargaining representative for approximately 1,500
Greif employees at September 30, 1993.
In July 1993 Greif notified the Union of its desire to bargain under its
existing contracts over a decision regarding possible closure of Greif's
manufacturing plants in Verona, Virginia and Shippensburg, Pennsylvania and the
effects of any such decision and delivered to the Union its initial bargaining
proposals for the new contract. In response, the Union began organizing
efforts at certain of the Company's footwear manufacturing plants and the
non-union tailored clothing plants recently acquired by a subsidiary of the
Company (see below) and initiated a nationwide consumer boycott campaign
against the Company's footwear and tailored clothing products.
In August 1993 a wholly-owned subsidiary of the Company, GCO Apparel
Corporation ("GCO Apparel"), completed the acquisition of the men's tailored
clothing manufacturing assets of LaMar Manufacturing Company ("LaMar"). LaMar
manufactured moderately-priced tailored clothing primarily for the private
label market and operated plants in Bowdon, Georgia and Heflin and Woodland,
Alabama. In connection with the acquisition, GCO Apparel entered into an
agreement not to sell to LaMar's then-existing customers. The LaMar
acquisition was intended primarily to allow the Company to participate in the
market for more moderately-priced clothing. In addition, the acquisition
provided Greif with a possible temporary alternative source of product in the
event of a strike at Greif's plants. See Note 3 to the Consolidated Financial
Statements.
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22
In connection with the acquisition of the assets of LaMar, GCO Apparel entered
into a two-year cut, make and trim agreement with LaMar which provides that in
Fiscal 1995 LaMar is required to purchase at least approximately 190,000 units,
which represents approximately 50% of GCO Apparel's annual manufacturing
capacity. GCO Apparel currently expects that purchases by LaMar will exceed
the minimum contract requirements. Under a cut, make and trim agreement, the
manufacturer typically cuts, sews and presses garments, using piece goods
furnished by the customer.
On September 30, 1993, Greif and the Union reached an agreement in principle on
a new 19-month collective bargaining agreement. Wages and benefits will
increase approximately 8% by the expiration of that agreement. Greif agreed
to the same wage and benefit increases which were negotiated between the Union
and the CMA and further agreed not to close Greif's Verona and Shippensburg
plants prior to October 1, 1994. Negotiations with the Union on definitive
contracts covering Greif's work force regarding local plant issues are
continuing, but the outcome of such negotiations are not expected to
materially affect the results of Greif's operations.
The Company last year reported that Greif did not expect to meet the minimum
sales requirements necessary to renew its license agreements for the Chaps and
Polo University Club by Ralph Lauren brands which were to expire June 30, 1993.
Sales of products licensed under those agreements accounted for $31.7 million
in Fiscal 1993 and $33.8 million in Fiscal 1994. On June 14, 1993, Greif
entered into a one-year extension of those license agreements. The Company
continued discussions regarding renewal of the licenses, but in the fourth
quarter of Fiscal 1994 the Company was notified that the licenses for these
brands would not be further extended or renewed.
Restructuring Charge
Because of developments in the fourth quarter of Fiscal 1994, the Company
changed operating strategies, made a decision to restructure certain of its
operations and reassessed the recoverability of certain assets. As a result,
the Company recorded a charge of $29.4 million, for which no tax benefit is
currently available. This charge reflects estimated costs of closing certain
manufacturing facilities, effecting permanent work force reductions and closing
58 retail stores. The provision includes $15.8 million in asset write-downs
and $13.6 million of future consolidation costs, of which approximately $12
million is expected to be incurred in Fiscal 1995. The restructuring involves
the elimination of approximately 1,200 jobs (20% of the Company's total work
force in Fiscal 1994). Included in the $15.8 million of asset write-downs is
$7.7 million relating to goodwill, of which $6.9 million relates to the LaMar
acquisition and $800,000 relates to the Toddler U Inc. acquisition. See Note 3
to the Consolidated Financial Statements for information regarding these
business acquisitions. The Company expects to fully implement the
restructuring plan in Fiscal 1995.
As a result of the loss of the Ralph Lauren product lines, as described above,
and the limited rights granted under Greif's new collective bargaining
agreement to source products from GCO Apparel, the Company reassessed the
valuation of the goodwill related to the LaMar acquisition by GCO Apparel. The
Company concluded on the basis of estimated undiscounted future cash flows that
the events in the fourth quarter resulted in a permanent impairment of the
goodwill related to the LaMar acquisition and accordingly determined to write
off the unamortized portion of the goodwill which amounted to $6.9 million.
22
23
During the fourth quarter of Fiscal 1994, the Company also reassessed the
valuation of the goodwill related to the acquisition of the assets of Toddler U
Inc. in light of a recognition during that quarter that there had been a
material erosion of sales to the principal customer of Toddler U Inc. which the
Company believed would not be replaced or recovered. In light of the material
diminution of these sales, which accounted for 36% of the sales of Toddler U
Inc. during the twelve months preceding the acquisition, the Company concluded
on the basis of estimated undiscounted future cash flows that the events in
the fourth quarter resulted in a permanent impairment of the goodwill related
to the acquisition of Toddler U Inc. and accordingly determined to write off
the unamortized portion of the goodwill which amounted to $800,000.
All remaining tangible assets and liabilities of GCO Apparel and University
Brands are valued at the lower of their cost or market. Market value was
determined using estimated undiscounted future cash flows. In developing
estimates of future cash flows, the Company has utilized historical operating
results adjusted for the implementation of a previously announced reduction in
the manufacturing capacity of GCO Apparel.
The tangible asset write-downs include $2.2 million for inventory, to reflect
discounts taken to facilitate the rapid liquidation of merchandise purchased
for sale in stores which are being closed, and $5.9 million for fixed asset
write-downs, of which $1.9 million relates to retail store closings and $4.0
million relates to plant closings.
During the fourth quarter of Fiscal 1994, the Company provided $2.1 million for
severance costs not related to the restructuring, which amount is included in
selling and administrative expenses.
The $29.4 million restructuring charge is comprised of an estimated $13.6
million of cash expenditures, of which $12 million is expected to be incurred
in Fiscal 1995. Although the Company has made a provision to reduce its
footwear manufacturing capacity by more than 10% and its tailored clothing
manufacturing capacity by more than 50%, the Company may not have sufficient
unit volume to fully absorb its fixed manufacturing costs and to thereby avoid
negative manufacturing variances in its remaining factories based on current
sales levels. However, the Company does expect substantial reductions in
manufacturing costs as a result of the restructuring. The retail stores
included in the restructuring had an operating loss of $3.4 million in Fiscal
1994. In addition, due to the corporate and operating division personnel
reductions for which provision was made in the restructuring charge, the
Company expects payroll costs included in selling (excluding selling expenses
included in retail store results) and administrative expense to decrease by
approximately $3.6 million in Fiscal 1995 as compared to Fiscal 1994.
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24
International Trade Developments
Manufacturers in China have become major suppliers to Genesco and other
footwear companies in the United States. In Fiscal 1995 the Company expects to
import footwear products from China having a total cost in the range of $40 to
$45 million. In June 1994 the President of the United States is expected to
decide whether the Chinese government has made overall significant progress on
certain human rights issues as a condition to continuing to grant China most
favored nation's status for bilateral trade purposes. Failure of the United
States government to continue to grant most favored nation's treatment to China
would raise duties and significantly increase the cost of footwear and other
products imported from China into the United States. It could also materially
affect the Company's ability to source those products from other countries,
because the Company would have to compete with other footwear companies, some
of whom buy substantially greater quantities and have substantially greater
resources, for productive capacity in other low-labor cost countries.
In December 1993, the Uruguay round of multilateral trade negotiations under
the General Agreement on Tariffs and Trade ("GATT") were concluded. The new
GATT agreements were signed and submitted to United States Congress for
approval on April 15, 1994, with a tentative effective date of July 1, 1995.
Trade in the textile and clothing sector has been governed by the Multifiber
Arrangement under which the developed nations confer import quotas on textile
products from the developing nations. The new GATT agreements, if approved,
would integrate textile and apparel products back into the GATT scheme by
phasing out these quotas and reducing oversea tariffs by approximately 12% over
a 10-year transition period. The elimination of the Multifiber Arrangement
would gradually remove quotas on piece goods imported from developing countries
and would also phase out quota barriers for imported finished suits, sport
coats and pants into the United States market from low-labor cost developing
countries. Management does not believe that the new GATT agreements, if
approved, will materially impact the Company's tailored clothing operations in
the next two years. The reduction in trade barriers could adversely affect the
realizable value of the Company's tailored clothing manufacturing facilities if
the Company decides to divest those facilities.
RESULTS OF OPERATIONS - FISCAL 1994 COMPARED TO FISCAL 1993
The Company's net sales for the year ended January 31, 1994 increased 6.1% from
the previous year. Total gross margin for the year decreased 6.3% and declined
from 37.7% to 33.3% as a percentage of sales. Selling and administrative
expenses increased 10.9% and increased as a percentage of sales from 33.8% to
35.3%. The pretax loss for Fiscal 1994 was $51.8 million, compared to pretax
earnings of $13.7 million for Fiscal 1993. Included in Fiscal 1994 pretax
earnings is the $29.4 million restructuring charge. See "Significant
Developments in Fiscal 1994 - Restructuring Charge" above. The Company
reported a net loss of $54.3 million ($2.26 per share) for Fiscal 1994,
compared to net earnings of $9.1 million ($.38 per share) in Fiscal 1993. The
net loss in Fiscal 1994 includes a $2.3 million ($.09 per share) loss from the
cumulative effect of changes in the method of accounting for postretirement
benefits due to the implementation of Statement of Financial Accounting
Standards No. 106. See Note 15 to the Consolidated Financial Statements. In
addition, Fiscal 1994's net loss includes an extraordinary loss of $240,000
($.01 per share) from the early retirement of debt. See Note 10 to the
Consolidated Financial Statements.
24
25
Footwear Retail
Fiscal Year
Ended January 31,
-------------------------
1994 1993 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $231,456 $227,741 1.6%
Operating Income . . . . . . . . . . . . . . . . . . . . $ (3,841) $ 9,171 -
Operating Margin . . . . . . . . . . . . . . . . . . . . (1.7%) 4.0%
Net sales from footwear retail operations increased 1.6% in Fiscal 1994 as
compared to the previous year despite operating an average of 5% fewer stores.
The increase in net sales reflects an average price per unit increase of
approximately 2%, partially offset by a unit sales decrease of approximately
1%. Comparable store sales increased approximately 4% from the same period in
Fiscal 1993. Gross margin as a percentage of sales decreased from 50.2% to
49.3% due to increased markdowns. Inventory markdowns not included in the
restructuring charge (see "Significant Developments in Fiscal 1994 -
Restructuring Charge" above) resulted primarily from the purchase of fashion
merchandise for adolescent consumers which did not sell well. Operating
expenses increased 3.5% and increased as a percentage of sales from 46.1% to
47.0%. The increase in operating expenses is due primarily to increased
advertising expense. The decline in operating income, excluding an $8.7
million restructuring charge, is attributable to the increased markdowns and to
the expense increase.
Footwear Wholesale & Manufacturing
Fiscal Year
Ended January 31,
-------------------------
1994 1993 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $236,435 $202,386 16.8%
Operating Income . . . . . . . . . . . . . . . . . . . . $ 373 $ 18,244 (98.0%)
Operating Margin . . . . . . . . . . . . . . . . . . . . .2% 9.0%
Net sales from footwear wholesale and manufacturing operations were $34.0
million (16.8%) higher in Fiscal 1994 than in the previous year, reflecting a
$25.0 million increase in sales from newly introduced products and those that
were acquired in Fiscal 1993, as well as increases in sales of existing product
lines, primarily tanned leather and soccer balls. Sales increased in all of
the Company's wholesale footwear operations except for boots and children's
court shoes.
Gross margin as a percentage of sales decreased from 30.7% to 26.0%, primarily
due to manufacturing variances and price reductions to stimulate sales and, to
a lesser extent, to a lower-margin product mix caused by increased tanned
leather sales.
25
26
As a result of aggressive sales growth plans for Fiscal 1994 which were not
met, several operating divisions entered the last half of Fiscal 1994 with
excess inventory and reduced prices to liquidate excess inventory. Price
reductions related to (i) boot products, (ii) a new line of casual men's shoes,
which had to be repositioned at lower price points, and (iii) children's shoes.
The volume-related negative manufacturing variances occurred in the Company's
boot plants as a result of a decision in the latter part of Fiscal 1994 to
curtail the production of boots in response to lower boot sales.
Sales of western and western influenced fashion products historically have been
cyclical in nature, and in Fiscal 1994 the Company experienced a decline in
wholesale sales of western products compared to the previous year. In
Fiscal 1993 the Company shifted a substantial portion of its manufacturing
capacity formerly utilized in manufacturing products which are now purchased
from foreign resources to the production of boots to meet the sharply rising
demand for those products. As a result of the decline of boot sales in Fiscal
1994 and the expected further decline in Fiscal 1995, the Company made a
decision to close a plant. See "Significant Developments in Fiscal 1994
- -Restructuring Charge" above.
Operating expenses increased 35.0% and increased as a percentage of sales from
21.1% to 24.4%, primarily because of increased divisional administrative and
selling expenses and increased advertising expenses to support aggressive sales
growth plans for Fiscal 1994.
The decline in operating income, excluding a $3.2 million restructuring charge,
is due to the increased expenses and lower margins described above.
Tailored Clothing
Fiscal Year
Ended January 31,
-------------------------
1994 1993 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $104,969 $109,740 (4.3%)
Operating Income . . . . . . . . . . . . . . . . . . . . $(21,986) $ 6,065 -
Operating Margin . . . . . . . . . . . . . . . . . . . . (20.9%) 5.5%
Net sales from tailored clothing operations decreased 4.3% in Fiscal 1994 as
compared to the previous year. Net sales, excluding those of GCO Apparel which
began operations in August 1993, declined by 13.6%. See "Significant
Developments in Fiscal 1994 - Tailored Clothing Segment" above.
Gross margin decreased 43% and declined as a percentage of sales from 24.7% to
14.6%. This decline was the result of industry-wide conditions and the
Company's response in Fiscal 1993 and Fiscal 1994 to those conditions as
described below.
26
27
The United States market for tailored clothing has been shrinking, reflecting a
long-term shift in consumer preferences toward more casual apparel, and the
market share of low-cost foreign and domestic, non-union manufacturers has been
increasing at the expense of traditional domestic manufacturers like Greif. In
addition, changes have occurred in the traditional channels of distribution for
tailored clothing as a result of the consolidation (frequently in leveraged
buyouts) of department stores, the declining number of independent men's
specialty stores and the growth of off-price clothing merchants. All of these
factors have led to increased demands by retailers for lower-priced clothing
and promotional pricing.
In Fiscal 1993 and Fiscal 1994, Greif implemented a plan to reduce its
manufacturing costs in order to become more competitive. Greif reduced its
manufacturing capacity through a reduction in employment and made changes in
product specifications to lower labor and material costs. The products
manufactured to the new specifications, which were shipped for the spring 1993
season, were not well-received by Greif's customers and led to higher than
normal returns, allowances and discounts. Greif has made improvements in the
quality of its products for spring 1994 despite having accepted orders based on
lower-cost product specifications.
In addition to the factors described above, tailored clothing gross margin was
adversely affected by disruptions in Greif's manufacturing operations related
to labor difficulties in the third quarter of Fiscal 1994 and the shift during
that quarter to production of lower-margin products in anticipation of a work
stoppage and by the inclusion of GCO Apparel's low margin cut, make and trim
operations in August 1993.
Operating expenses decreased 4% because of lower advertising and selling
expenses but increased as a percentage of sales from 19.2% to 19.3%. As a
result of a decline in orders for tailored clothing products stemming from the
problems discussed above and the loss of the Ralph Lauren licenses, the Company
decided to reduce manufacturing capacity in Fiscal 1995 by closing plants and
recorded a restructuring charge of $17.1 million. This charge is included in
tailored clothing operating loss for Fiscal 1994. The $11.4 million reduction
in operating income from Fiscal 1993 to Fiscal 1994 (excluding a $400,000
employee reduction charge in Fiscal 1993 and the $17.1 million restructuring
charge in Fiscal 1994) is attributable to lower sales and gross margins and
approximately $1.1 million of costs related to labor difficulties. Total costs
(including legal and security expenses) for Fiscal 1994 arising out of Greif's
labor problems were approximately $2.0 million.
As a result of continuing price pressures, the loss after the fall 1994 season
of the Ralph Lauren licenses and a decline in orders for the spring and fall
1994 seasons for Greif's other branded tailored clothing products, Greif does
not expect to be profitable in Fiscal 1995. Management expects that further
substantial reductions in administrative and selling expenses and in
manufacturing overhead expense may be required. While Greif is not presently
considering a reduction in employment of persons covered by collective
bargaining agreements beyond that provided for in the restructuring charge, a
further reduction in employment of management and other employees not covered
by collective bargaining agreements is possible.
27
28
Any reduction in employment of employees covered by collective bargaining
agreements beyond that anticipated in the restructuring plan provided for in
Fiscal 1994 could result in the incurrence of withdrawal liability for Greif's
portion of accumulated benefits in excess of the assets of the multiemployer
pension plan applicable to Greif's covered employees. The maximum liability,
and the corresponding maximum charge to earnings, that would result from a
permanent cessation of Greif's obligation to contribute to the multiemployer
plan or a cessation of all operations covered by collective bargaining
agreements would have been approximately $15.7 million in Fiscal 1994. A 70%
decline in Greif's contributions to the multiemployer plan or the permanent
cessation of the obligation to contribute to the plan with respect to a
facility could constitute a "partial withdrawal" and result in recognition of a
portion of the withdrawal liability calculated on the basis of the decline in
hours worked. The period over which any such withdrawal liability would have
to be paid is based on the average number of historical hours worked and the
contribution rate per hour but cannot exceed 20 years. The employment of fewer
covered employees in connection with a further reduction in the scope of
Greif's operations or the sale of all or a substantial portion of its business
and assets could result in the recognition of withdrawal liability. Any such
sale could also result in a failure to realize the full value of assets
employed in Greif's business and the recognition of certain lesser liabilities
not included in the restructuring provision. See Note 19 to the Consolidated
Financial Statements for information regarding assets employed in the tailored
clothing segment, most of which are assets of Greif.
Corporate and Interest Expenses
Corporate and other expenses were $15.3 million in Fiscal 1994, compared to
$14.1 million for the previous year, an increase of 8%. Fiscal 1994 expenses
included a net expense in the amount of $1,755,000, comprised of $2,138,000 for
corporate staff severance payments, a provision of $448,000 for an adverse
decision in a lawsuit, $404,000 for corporate restructuring, partially offset
by a $677,000 favorable adjustment to accrued liabilities relating to
previously divested operations and $558,000 gain from the sale of excess real
estate. Fiscal 1993 expenses included a net expense in the amount of $717,000,
comprised of a $350,000 provision for an adverse decision in a lawsuit and a
$367,000 provision from the closing of a printing service department.
Excluding these adjustments, corporate and other expenses increased $119,000 in
Fiscal 1994 as compared to Fiscal 1993, primarily due to higher legal fees.
Interest expense increased $5.4 million, or 95%, in Fiscal 1994 as compared to
Fiscal 1993 because of an increase in the average outstanding indebtedness and
the higher average interest rates as a result of the issuance of the 10 3/8%
Notes. The proceeds of the offering of the 10 3/8% Notes replaced bank
borrowings under the Company's revolving credit agreement and a $20,000,000
term loan, both of which were at lower interest rates. See "Liquidity and
Capital Resources."
RESULTS OF OPERATIONS - FISCAL 1993 COMPARED TO FISCAL 1992
The Company's net sales for the year ended January 31, 1993 increased 14.4%
from Fiscal 1992. Total gross margin for the year increased 19.3% and as a
percentage of sales increased from 36.2% to 37.7%. Selling and administrative
expenses increased 10.0% but decreased as a percentage of sales from 35.1% to
33.8%. Pretax earnings were $13.7 million in Fiscal 1993, compared to $570,000
in Fiscal 1992. Net earnings were $9.1 million ($.38 per share) for Fiscal
1993, compared to $461,000 ($.01 per share) for Fiscal 1992. Net earnings were
reduced in Fiscal 1993 by an extraordinary loss of $583,000 ($.02 per share)
from early retirement of debt.
28
29
Footwear Retail
Fiscal Year
Ended January 31,
-------------------------
1993 1992 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $227,741 $212,942 6.9%
Operating Income . . . . . . . . . . . . . . . . . . . . $ 9,171 $ (47) -
Operating Margin . . . . . . . . . . . . . . . . . . . . 4.0% 0.0%
Net sales from footwear retail operations increased 6.9% from Fiscal 1992
reflecting an average price per unit increase of approximately 8%, offset by a
unit sales decrease of approximately 2%. Management believes that the increase
in average price per unit was caused by lower markdowns and shifts in product
mix to higher-priced, branded merchandise and that the decrease in units sold
was primarily attributable to the Company's operation of approximately 7% fewer
stores than in the previous year. Comparable store sales increased
approximately 8% from the same period in Fiscal 1992. Gross margin as a
percentage of sales increased from 49.3% to 50.2% due to lower markdowns as a
percent of sales. Markdowns were higher in Fiscal 1992 due to efforts to
stimulate sales during the economic downturn. Operating expenses remained
relatively unchanged from the prior period, but declined as a percentage of
sales from 49.0% to 46.1%. The improvement in operating income was
attributable to increased sales.
Footwear Wholesale and Manufacturing
Fiscal Year
Ended January 31,
-------------------------
1993 1992 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $202,386 $139,533 45.0%
Operating Income . . . . . . . . . . . . . . . . . . . . $ 18,244 $ 13,094 39.3%
Operating Margin . . . . . . . . . . . . . . . . . . . . 9.0% 9.4%
Net sales from footwear wholesale and manufacturing operations were $62.9
million (45.0%) higher than Fiscal 1992, reflecting a 17% increase in unit
sales from the Company's existing operations, primarily boots, and $31.6
million in new product sales. The unit sales increase included a sharp
increase in unit sales of boots to existing customers as well as broader
distribution to new customers. Sales increased in most of the Company's
wholesale footwear operations. The $31.6 million of new product sales related
to the Company's Mitre U.K. subsidiary which was acquired in May 1992 and to
its Dockers and Nautica lines of footwear which were new in Fiscal 1993.
Included in the results for Fiscal 1992 were losses of $2.1 million related to
start-up costs of the Dockers and Nautica lines. Gross margin as a percentage
of sales increased from 29.5% in Fiscal 1992 to 30.7% in Fiscal 1993, primarily
due to a higher margin product mix, including Dockers and Nautica footwear.
Operating expenses increased 47.6%, primarily from increased volume related
expenses, and increased as a percentage of sales from 20.7% to 21.1%, primarily
because of bonus accruals based on increased profitability and expenses
relating to the Company's University Brands division acquired on
29
30
December 29, 1992. Most of the operating income improvement was attributable
to the Company's boot business. Operating income for Fiscal 1993 was reduced
by expenses of $981,000 related to environmental matters, primarily litigation
settlements.
Tailored Clothing
Fiscal Year
Ended January 31,
-------------------------
1993 1992 % Change
-------- -------- --------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $109,740 $119,291 (8.0%)
Operating Income . . . . . . . . . . . . . . . . . . . . $ 6,065 $ 3,724 62.9%
Operating Margin . . . . . . . . . . . . . . . . . . . . 5.5% 3.1%
Net sales from tailored clothing operations decreased 8.0% in Fiscal 1993,
reflecting an approximate 11% decrease in unit sales, primarily due to the
Company's decision to reduce the number of suits sold at discount prices. In
an effort to reduce costs and expenses of the tailored clothing operation and
thus reduce the need to absorb overhead by selling suits at discount prices,
the Company reduced employment during Fiscal 1993 by approximately 300
employees, mostly through attrition. As a result of these actions, gross
margin increased 10% and as a percentage of sales improved from 20.6% in Fiscal
1992 to 24.7% in Fiscal 1993. Operating expenses increased 1%, and increased
from 17.4% to 19.2% as a percentage of sales, primarily from increased
advertising and insurance expenses. Fiscal 1993 operating income also included
a $400,000 charge to income in the first quarter in connection with the
employee reduction. The improvement in operating income was due to the margin
improvement.
Corporate and Interest Expenses
Corporate and other expenses were $14.1 million in Fiscal 1993 compared to
$11.6 million for Fiscal 1992, an increase of 22.3%. The increase was
primarily due to a $350,000 provision for an adverse decision in a lawsuit and
$1.4 million of higher bonus accruals.
Interest expense in Fiscal 1993 increased $1.0 million, or 21.5%, from Fiscal
1992 because of an increase in the average outstanding indebtedness.
Approximately $1.1 million of interest expense was attributable to borrowings
related to the Mitre U.K. acquisition, and the remaining interest expense was
attributable to borrowings in response to increased working capital needs
related to the growth of the Company's wholesale business and to its new
wholesale lines. Increased borrowings were offset to some extent by lower
interest rates.
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31
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
January 31
--------------------------------
1994 1993 1992
------ ------ ------
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.6 $ 4.8 $ 7.2
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160.1 $168.9 $132.9
Long-term debt (includes current
maturities)
10 3/8% senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75.0 - -
Refinanced long-term debt* . . . . . . . . . . . . . . . . . . . . . . . . . . . - $ 32.0 $ 14.9
Revolving credit debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.0 $ 22.0 -
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3x 3.5x 3.8x
- ---------------
* The refinanced long-term debt includes $12 million of
9.75% debt and the indebtedness incurred to finance the
Mitre U.K. acquisition. See Note 3 to the Consolidated
Financial Statements.
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable reaching peaks in the spring and fall of each
year. Cash flow from operations is generated principally in the fourth quarter
of each fiscal year.
Cash used by operating activities was $17.4 million in Fiscal 1994 and $5.0
million in Fiscal 1993, and $26.8 million of cash was provided by operating
activities in Fiscal 1992. An additional $12.4 million of cash was used by
operating activities in Fiscal 1994 as compared to the previous year primarily
due to the Company's net loss from operations for the year. The $31.8 million
decrease in cash flow from operating activities from Fiscal 1992 to Fiscal 1993
reflects the additional working capital requirements to support the growth in
the Company's existing businesses and additional working capital investments in
newly acquired or introduced businesses. Most of the cash provided by
operations in Fiscal 1992 was used to reduce long-term debt by $14.6 million
and for capital expenditures of $7.0 million.
A $3.6 million increase in inventories at January 31, 1994 as compared to
January 31, 1993 is from the LaMar acquisition. See Note 3 to the Consolidated
Financial Statements. In the Company's remaining businesses a buildup of
inventory in certain of the Company's wholesale lines resulting from a downturn
in sales was offset by a reduction in retail inventory either by markdowns or
sales. The $40.1 million increase in inventories from January 31, 1992 to
January 31, 1993 was comprised of more units of certain existing lines of
footwear in anticipation of higher sales and $16.0 million of new lines
introduced or acquired in Fiscal 1993. The inventory increase also reflects a
higher-priced inventory mix of branded merchandise in some of the Company's
retail divisions. Inventories at January 31, 1992 reflected an $11.2 million
decrease from January 31, 1991 levels, resulting from tighter inventory
controls in anticipation of lower sales in the economic environment which
existed in Fiscal 1992 and a decline in retail inventory from a net reduction
of 38 retail outlets.
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32
Accounts receivable at January 31, 1994 decreased $5.7 million compared to
January 31, 1993, primarily from decreased boot and tailored clothing sales in
the fourth quarter of Fiscal 1994. Accounts receivable at January 31, 1993
increased $17.4 million compared with January 31, 1992, primarily from
increased footwear wholesale sales (including $7.3 million attributable to the
new wholesale footwear lines that were introduced or acquired in Fiscal 1993)
and increased fourth quarter tailored clothing sales. Accounts receivable at
January 31, 1992 were down $8.8 million from January 31, 1991 levels,
reflecting improved collections and lower sales at the end of the year,
primarily tailored clothing. Also included in Fiscal 1991's accounts
receivable were $3 million of accounts receivable arising out of the Company's
women's branded business divested in February 1991.
Included in the accounts payable and accrued liabilities line in the
Consolidated Statement of Cash Flows are the following increases (decreases):
Years Ended January 31,
-----------------------------------------
(In Thousands) 1994 1993 1992
-------- ------- --------
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ (9,907) $10,128 $(3,763)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . (787) 3,061 1,005
-------- ------- -------
$(10,694) $13,189 $(2,758)
======== ======= =======
The fluctuations in accounts payable were due to changes in buying patterns,
payment terms negotiated with individual vendors and changes in inventory
levels.
The change in accrued liabilities in Fiscal 1994 was due primarily to decreased
bonus and tax accruals relating to the loss in Fiscal 1994. The change in
accrued liabilities in Fiscal 1993 was due primarily to increased bonus and tax
accruals relating to increased profitability in Fiscal 1993. The increase in
accrued liabilities in Fiscal 1992 primarily reflected higher accruals for
insurance.
The $36.0 million increase in long-term debt at January 31, 1994 as compared to
January 31, 1993 reflects $11.4 million of borrowings to fund acquisitions,
$7.9 million of borrowings to fund capital expenditures, $5.0 million of
borrowings to redeem a minority interest in Mitre U.K. and borrowings to
finance operations.
Revolving credit agreement borrowings increased by $22 million during Fiscal
1993 to finance $11.0 million of Fiscal 1993 acquisition costs and increased
working capital requirements. The borrowings under the Company's revolving
credit agreement decreased in Fiscal 1992 by $8 million as the Company managed
down its working capital requirements during the economic downturn.
Capital Expenditures and Acquisitions
Capital expenditures were $7.9 million in Fiscal 1994, $9.2 million in Fiscal
1993 and $7.0 million in Fiscal 1992. The $1.3 million decrease in Fiscal 1994
capital expenditures as compared to Fiscal 1993 resulted from a decrease in
retail store expenditures. The $2.2 million increase in Fiscal 1993 capital
expenditures as compared to Fiscal 1992 resulted from a $1.4 million decline in
the acquisition of fixed assets through capitalized leases and increased
footwear manufacturing machinery purchases related to increased boot
production. The $4.5 million decrease in Fiscal 1992 capital expenditures as
compared to Fiscal 1991 resulted primarily from a $2.0 million increase in the
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33
acquisition of fixed assets under capitalized leases and the opening of fewer
retail stores.
Total capital expenditures in Fiscal 1995 are expected to be approximately
$10.6 million. These include expected retail expenditures of $5.0 million to
open approximately 24 new retail stores and to complete 37 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other operations are expected to be approximately $5.6 million.
On May 6, 1992, the Company completed the acquisition of Mitre U.K. See Note 3
to the Consolidated Financial Statements. The cash portion of the purchase
price and related acquisition costs were partially financed through a $20
million term loan and borrowings under the Company's revolving credit agreement
of approximately $5 million. The term loan was prepaid on February 1, 1993
with a portion of the net proceeds from the issuance of the 10 3/8% Notes.
Part of the purchase price was paid through the issuance by Mitre U.K. of Class
B ordinary shares (the "B Shares"). On May 18, 1993, the Company purchased the
B Shares at a price equal to $5,000,000 plus interest.
On August 12, 1993, GCO Apparel acquired all of the men's clothing
manufacturing assets and assumed certain liabilities of LaMar. See Note 3 to
the Consolidated Financial Statements. The purchase price was approximately
$11.8 million, including $10.9 million of cash and $900,000 of deferred
payments to be completed by August 1995. The acquisition was financed through
revolving credit borrowings.
Future Capital Needs
The Company expects that its cash provided by operations will be sufficient to
fund all of its capital expenditures during Fiscal 1995 and to temporarily pay
down all of its revolving credit indebtedness at January 31, 1995. See Note 10
to the Consolidated Financial Statements for information regarding the
requirement that the Company either maintain a Consolidated Fixed Charge
Coverage Ratio of not less than 1.0 for Fiscal 1995 or reduce loans outstanding
under the Revolving Credit Agreement to no more than $10 million for at least
30 consecutive days. The substantial improvement in cash flow planned for
Fiscal 1995 is based upon expected improved operating results and lower working
capital needs resulting from better footwear inventory management and
substantial liquidation of working capital invested in the Ralph Lauren
tailored clothing business. Approximately $12 million of consolidation costs
that are expected to be incurred in Fiscal 1995 will be offset by cash inflows
from lower asset levels in restructured operations.
The Company believes it will be able to comply with the financial covenants
contained in its revolving credit agreement, as amended on January 31, 1994,
and that the commitments under that agreement will be adequate to meet the
Company's credit needs for Fiscal 1995. See Note 10 to the Consolidated
Financial Statements.
As a result of the Company's consolidated net loss for the 6-month period ended
January 31, 1994, the restricted payment provision in the Company's revolving
credit agreement prohibits the Company from declaring dividends on the
Company's capital stock. See Note 12 to the Consolidated Financial Statements.
The aggregate annual dividend requirement on the Company's Subordinated Serial
Preferred Stock, $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4, and on its
$1.50 Subordinated Cumulative Preferred Stock, is $302,000. The Company is
unable to predict when dividends may be reinstated.
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34
On April 8, 1993 the Company entered into a letter of credit agreement, which
was amended on January 31, 1994 and April 5, 1994, with a foreign bank, under
which up to $10,000,000 in letters of credit are available for issuance to the
Company's suppliers in connection with the importation of foreign goods. The
Agreement provides for the issuance through October 6, 1994 of letters of
credit payable for periods not exceeding 180 days. At January 31, 1994, there
was $8.4 million of credit available under this letter of credit agreement.
The Company's English subsidiary, Mitre U.K., has a credit facility with a
credit limit equal to the lesser of (i) 5.0 million pounds sterling
(approximately U.S. $7.5 million at January 31, 1994) or (ii) the aggregate of
75 percent of the value of current receivables and 50 percent of the value of
inventory of Mitre U.K. The facility, which is guaranteed up to 4.3 million
pounds sterling by the Company, permits borrowings for working capital of up to
2.0 million pounds sterling, the issuance of letters of credit of up to 3.5
million pounds sterling and the issuance of guarantee bonds and indemnities of
up to 500,000 pounds sterling. This credit facility expires on September 14,
1994.
On August 2, 1993 the Company entered into a credit facility with a United
States bank under which it may borrow up to $2,000,000. This facility expires
on June 30, 1994.
On September 29, 1993 the Company entered into a credit facility with a foreign
bank under which it may borrow up to $15,000,000 at the bank's discretion.
This facility, which is payable on demand, expires on August 31, 1994.
On April 27, 1994, Standard & Poor's announced that it had lowered the rating
of the 10 3/8% Notes to B+ from BB- and that, until the Company can demonstrate
improved performance on a consistent basis, the rating will be subject to
further downgrade. Moody's, which presently assigns the 10 3/8% Notes a
rating of Ba3, is considering a downgrade. According to Standard & Poor's, a
debt instrument rated B has a greater vulnerability to default than debt rated
BB, but currently has the capacity to meet interest and principal payments.
The modifier + indicates that the 10 3/8% Notes are at the upper end of the
broad ratings category. Ratings are not a recommendation to purchase, hold or
sell long-term debt of the Company, inasmuch as ratings do not comment as to
market price or suitability for particular investors and may be subject to
revision or withdrawal at any time by the assigning rating agency.
BACKLOG
On January 31, 1994 the Company's wholesale operations (which accounted for 60%
of sales in Fiscal 1994) had a backlog of orders, including unconfirmed
customer purchase orders, amounting to approximately $88.4 million, compared to
approximately $99.9 million on January 31, 1993. Of these amounts,
approximately $37.8 million and $43.7 million, respectively, were for footwear
and approximately $50.6 million and $56.2 million, respectively, were for men's
apparel. The backlog of orders is somewhat seasonal, reaching a peak for
footwear in the spring and for tailored clothing in the summer. Tailored
clothing and footwear operations maintain in-stock programs for selected
anticipated high volume styles, but customer orders for tailored clothing are
generally received several months in advance of shipping dates.
The order backlog in dollars on January 31, 1994 for footwear wholesale
products, which includes tanned leather, was 14% lower than on January 31,
1993. This decrease is attributable to decreases in the order backlog for the
Company's boot and athletic products. The majority of orders for footwear and
tanned leather is for delivery within 90 days. Therefore, the footwear
wholesale products backlog at any one time is not necessarily indicative of a
corresponding change in future sales for an extended period of time.
Tailored clothing backlog in dollars on January 31, 1994, consisting primarily
of spring 1994 and fall 1994 orders, was 10% lower than on January 31, 1993.
Tailored clothing backlog does not include sales anticipated under the cut,
make and trim agreement between GCO Apparel and LaMar. See "Results of
Operations - Fiscal 1994 Compared to Fiscal 1993 - Tailored Clothing" above.
The Company believes that the decrease in tailored clothing backlog is
attributable to (i) general market conditions throughout the tailored clothing
industry, (ii) product quality problems in Fiscal 1994 arising out of the
Company's efforts to redesign and manufacture certain products to meet
34
35
retailer demands for lower-cost, branded products, (iii) the Company's decision
to reduce sales to off-price retailers and (iv) retailer concerns regarding the
pricing of the Chaps by Ralph Lauren line by the new licensee. The Company
expects the lower level of demand for its tailored clothing products to
continue through Fiscal 1995.
FOREIGN CURRENCY
The Company does not believe that its foreign currency risk is material to its
operations. Mitre U.K. is the Company's only material foreign subsidiary. Its
assets and liabilities are translated at the exchange rate on the balance sheet
date. Income and expense accounts are translated at the average exchange rates
prevailing during the period. Unrealized translation adjustments are reported
as a separate component of shareholders' equity. Most purchases by the Company
from foreign sources are denominated in U.S. dollars. To the extent that
import transactions are denominated in other currencies, it is the Company's
practice to hedge its risks through the purchase of forward foreign exchange
contracts. Any gains or losses from such transactions offset gains and losses
from the underlying hedged transactions.
CHANGES IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" was implemented by the Company in
the first quarter of Fiscal 1994. At January 31, 1993, the actuarial present
value of the accumulated benefit obligation was approximately $2,273,000. The
amount of such obligation at the date of implementation could have been
recorded as a loss at the time of adoption of SFAS 106 or charged to earnings
ratably over a period of not more than 20 years. The Company elected to charge
the entire $2,273,000 at the time of adoption and the loss is reflected on the
income statement as a change in accounting principle.
Statement of Financial Accounting Standards 109, "Accounting for Income Taxes"
was also implemented in the first quarter by the Company. Implementation of
SFAS 109 did not affect the Company's results of operations but resulted in
reclassifications in the balance sheet. Because changes in the economic
environment have historically affected the Company's results of operations, the
Company is limiting the amount of deferred tax assets it recognizes to an
amount no greater than the amount of refunds the Company could claim as loss
carrybacks. For additional information, see Note 13 to the Consolidated
Financial Statements.
INFLATION
The Company does not believe inflation during periods covered in this
discussion has had a material impact on sales or operating results.
35
36
ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
________________________________________________________________________________
INDEX TO FINANCIAL STATEMENTS
Page
----
Accountants' Report 37
Consolidated Balance Sheet, January 31, 1994 and January 31, 1993 38
Consolidated Earnings, each of the three years ended
January 31, 1994 39
Consolidated Cash Flows, each of the three years ended
January 31, 1994 40
Consolidated Shareholders' Equity, each of the three years
ended January 31, 1994 41
Notes to Consolidated Financial Statements 42
36
37
February 22, 1994
To the Board of Directors and
Shareholders of Genesco Inc.
Report of Independent Accountants
In our opinion, the accompanying consolidated financial statements listed in
the index appearing under Item 14 as financial statements and financial
statement schedules on page 72 present fairly, in all material respects, the
financial position of Genesco Inc. and its subsidiaries at January 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended January 31, 1994, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 15 to the accompanying financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions during the year ended January 31, 1994.
/s/ Price Waterhouse
- --------------------
Price Waterhouse
Nashville, Tennessee
37
38
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
January 31
In Thousands
- -----------------------------------------------------------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 3,625 $ 4,817
Accounts receivable 66,006 71,743
Inventories 155,120 151,541
Other current assets 5,839 8,384
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 230,590 236,485
- ----------------------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, net 42,909 47,154
Goodwill and other intangibles 18,590 19,156
Other non-current assets 17,297 15,073
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $309,386 $317,868
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current payments on capital leases $ 2,365 $ 1,821
Accounts payable and accrued liabilities 68,131 65,789
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 70,496 67,610
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt 90,000 54,000
Capital leases 12,888 13,080
Other long-term liabilities 37,279 28,127
Contingent liabilities - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 8,064 8,305
Common shareholders' equity:
Par value of issued shares 24,793 23,658
Additional paid-in capital 121,634 114,706
Retained earnings (deficit) (23,241) 31,283
Treasury shares, at cost (17,857) (17,857)
Foreign currency translation adjustments (4,706) (5,044)
Minimum pension liability adjustment (9,964) -0-
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 98,723 155,051
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $309,386 $317,868
============================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
38
39
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
Years Ended January 31
In Thousands
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $572,860 $539,867 $471,766
Cost of sales 382,068 336,323 301,125
Selling and administrative expenses 202,326 182,384 165,756
Restructuring charge 29,379 -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations before
other income and expenses (40,913) 21,160 4,885
- ----------------------------------------------------------------------------------------------------------------------------
Other expenses (income):
Interest expense 11,030 5,644 4,647
Other expenses (income), net (169) 1,813 (332)
- ----------------------------------------------------------------------------------------------------------------------------
Total other expenses, net 10,861 7,457 4,315
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes,
extraordinary loss and cumulative effect
of change in accounting principle (51,774) 13,703 570
Income taxes 5 4,010 109
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary loss
and cumulative effect of change in
accounting principle (51,779) 9,693 461
Extraordinary loss from early retirement
of debt (240) (583) -0-
Cumulative effect of change in accounting for
postretirement benefits (2,273) -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $(54,292) $ 9,110 $ 461
============================================================================================================================
Earnings (loss) per common share:
Before extraordinary loss and
cumulative effect of change in
accounting principle $ (2.16) $ .40 $ .01
Extraordinary loss $ (.01) $ (.02) $ .00
Postretirement benefits $ (.09) $ .00 $ .00
Net earnings (loss) $ (2.26) $ .38 $ .01
============================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
39
40
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
Years Ended January 31
In Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net earnings (loss) $(54,292) $ 9,110 $ 461
Noncash charges (credits) to earnings:
Depreciation and amortization 10,723 9,719 9,109
Deferred income tax provision 2,308 (771) (227)
Restructuring charge 29,379 -0- -0-
Postretirement benefits 2,273 -0- -0-
Loss on retirement of debt 240 546 -0-
Provision for losses on accounts receivable 1,595 1,777 1,368
Other 1,608 1,536 1,136
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations before
working capital and other changes (6,166) 21,917 11,847
Effect on cash of changes in working
capital and other assets and liabilities
net of effect of business acquisitions:
Accounts receivable 4,142 (12,236) 7,410
Inventories (3,955) (27,166) 11,207
Other current assets (168) (198) (129)
Accounts payable and accrued liabilities (10,694) 13,189 (2,758)
Other assets and liabilities (565) (520) (754)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operations (17,406) (5,014) 26,823
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (7,929) (9,162) (6,984)
Proceeds from disposal of plant and equipment 189 175 197
Business acquisitions (11,376) (25,433) -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (19,116) (34,420) (6,787)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term borrowings 77,016 23,275 -0-
Net borrowings (repayments) under
revolving credit agreement (7,000) 22,000 (8,000)
Net change in short-term borrowings 69 (4,240) -0-
Payments of long-term debt (32,000) (3,600) (6,581)
Payments on capital leases (2,090) (1,539) (864)
Dividends paid (232) (312) (296)
Exercise of options and warrants 7,875 2,134 125
Redemption of Mitre U.K. B shares (5,000) -0- -0-
Deferred note expense (3,109) (800) -0-
Other (199) 91 (557)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 35,330 37,009 (16,173)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH (1,192) (2,425) 3,863
Cash and short-term investments at beginning of year 4,817 7,242 3,379
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 3,625 $ 4,817 $ 7,242
====================================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
40
41
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
FOREIGN MINIMUM TOTAL
TOTAL RETAINED CURRENCY PENSION SHARE-
PREFERRED COMMON PAID-IN EARNINGS TREASURY TRANSLATION LIABILITY HOLDERS'
STOCK STOCK CAPITAL (DEFICIT) STOCK ADJUSTMENTS ADJUSTMENT EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1991 $ 14,272 $ 23,163 $107,261 $ 22,320 $(17,857) $ -0- $ -0- $149,159
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange and adjustment offers (5,747) 106 5,641 -0- -0- -0- -0- -0-
Net earnings -0- -0- -0- 461 -0- -0- -0- 461
Preferred dividends -0- -0- -0- (296) -0- -0- -0- (296)
Other (195) 64 (29) -0- -0- -0- -0- (160)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1992 $ 8,330 $ 23,333 $112,873 $ 22,485 $(17,857) $ -0- $ -0- $149,164
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of options and warrants -0- 323 1,811 -0- -0- -0- -0- 2,134
Translation adjustment -0- -0- -0- -0- -0- (5,044) -0- (5,044)
Net earnings -0- -0- -0- 9,110 -0- -0- -0- 9,110
Preferred dividends -0- -0- -0- (312) -0- -0- -0- (312)
Other (25) 2 22 -0- -0- -0- -0- (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1993 $ 8,305 $ 23,658 $114,706 $ 31,283 $(17,857) $ (5,044) $ -0- $155,051
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of options and warrants -0- 1,132 6,743 -0- -0- -0- -0- 7,875
Translation adjustment -0- -0- -0- -0- -0- 338 -0- 338
Net loss -0- -0- -0- (54,292) -0- -0- -0- (54,292)
Preferred dividends -0- -0- -0- (232) -0- -0- -0- (232)
Minimum pension liability adjustment -0- -0- -0- -0- -0- -0- (9,964) (9,964)
Other (241) 3 185 -0- -0- -0- -0- (53)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1994 $ 8,064 $ 24,793 $121,634 $(23,241) $(17,857) $ (4,706) $ (9,964) $ 98,723
===================================================================================================================================
* See Note 12 to the Consolidated Financial Statements for additional
information regarding each series of preferred stock.
The accompanying Notes are an integral part of these Financial Statements.
41
42
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
All subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
FISCAL YEAR
The Company's fiscal year ends January 31. For purposes of these financial
statements, the fiscal year ended January 31, 1994 is referred to as "Fiscal
1994" or "1994". Prior fiscal years are referred to in the same manner.
CASH AND SHORT-TERM INVESTMENTS
There were no short-term investments at January 31, 1994 or January 31, 1993.
Short-term investments are highly-liquid debt instruments having an original
maturity of three months or less.
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, determined principally by the first-in, first-out method.
Retail inventories are determined by the retail method.
PLANT, EQUIPMENT AND CAPITAL LEASES
Plant, equipment and capital leases are recorded at cost and depreciated or
amortized over the estimated useful life of related assets. Depreciation and
amortization expense is computed principally by the straight-line method.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist primarily of the excess of purchase
price over fair value of net assets acquired in acquisitions (see Note 3).
Goodwill is being amortized on a straight-line basis over 40 years. The
Company periodically assesses the realizability of intangible assets taking
into consideration expected undiscounted cash flows and operating strategies.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at the exchange
rate on the balance sheet date. Income and expenses are translated at the
average exchange rates prevailing during the period. Unrealized translation
adjustments are reported as a separate component of shareholders' equity.
HEDGING CONTRACTS
In order to reduce exposure to foreign currency exchange rate fluctuations in
connection with inventory purchase commitments, the Company enters into foreign
currency forward exchange contracts. At January 31, 1994 and 1993, the Company
had approximately $7.1 million and $7.6 million, respectively, of such
contracts outstanding. Gains and losses arising from these contracts offset
gains and losses from the underlying hedged transactions. The Company
continually monitors the credit quality of the major national and regional
financial institutions with whom it enters into such contracts.
42
43
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
POSTRETIREMENT BENEFITS
Substantially all full-time employees are covered by pension plans. For its
defined benefit plan, the Company funds at least the minimum amount required by
the Employee Retirement Income Security Act. The Company expenses the
multiemployer plan contributions required to be funded under collective
bargaining agreements.
The Company implemented Statement of Financial Accounting Standards (SFAS) 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in the
first quarter of Fiscal 1994. This statement requires accrual of
postretirement benefits such as life insurance and health care over the period
the employee provides services to the Company. See Note 15 for additional
information.
ENVIRONMENTAL COSTS
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated and are evaluated independently of any future claims for
recovery. Generally, the timing of these accruals coincides with completion of
a feasibility study or the Company's commitment to a formal plan of action.
INCOME TAXES
Income taxes are accounted for in accordance with SFAS 109, "Accounting for
Income Taxes". SFAS 109, which superseded SFAS 96, was adopted in the first
quarter of Fiscal 1994. SFAS 109 adoption had no effect on earnings and only
resulted in reclassifications of the deferred tax assets in the balance sheet.
Deferred income taxes are provided for the timing differences between reported
earnings and taxable income. See Note 13 for additional information.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing earnings, adjusted for
preferred dividend requirements (1994--$307,000; 1993--$312,000;
1992--296,000), by average common and common equivalent shares outstanding
during the period.
43
44
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURING CHARGE
Because of developments in the fourth quarter of Fiscal 1994, the Company
changed operating strategies and made a decision to restructure certain of its
operations and reassessed the recoverability of certain assets. As a result,
the Company recorded a charge of $29.4 million, for which no tax benefit is
currently available. This charge reflects estimated costs of closing certain
manufacturing facilities, effecting permanent work force reductions and closing
58 retail stores. The provision includes $15.8 million in asset write-downs
and $13.6 million of future consolidation costs, of which approximately $12
million is expected to be incurred in Fiscal 1995. The restructuring involves
the elimination of approximately 1,200 jobs (20% of the Company's total work
force in Fiscal 1994). Included in the $15.8 million of asset write-downs is
$7.7 million relating to goodwill, of which $6.9 million relates to the LaMar
acquisition and $800,000 relates to the Toddler U Inc. acquisition. See Note 3
to the Consolidated Financial Statements for information regarding these
business acquisitions. The Company expects to fully implement the
restructuring plan in Fiscal 1995.
As a result of the loss of licenses in the fourth quarter of Fiscal 1994 under
which the Company manufactured and sold certain branded product lines which
accounted for a material portion of the Company's tailored clothing sales and
the limited rights granted under a new collective bargaining agreement to
source products from GCO Apparel, the Company reassessed the valuation of the
goodwill related to the LaMar acquisition by GCO Apparel. The Company
concluded on the basis of estimated undiscounted future cash flows that the
events in the fourth quarter resulted in a permanent impairment of the goodwill
related to the LaMar acquisition and accordingly determined to write off the
unamortized portion of the goodwill, which amounted to $6.9 million.
During the fourth quarter of Fiscal 1994, the Company also reassessed the
valuation of the goodwill related to the acquisition of the assets of Toddler U
Inc. in light of a recognition during that quarter that there had been a
material erosion of sales to the principal customer of Toddler U Inc. which
the Company believed would not be replaced or recovered. In light of the
material diminution of these sales which accounted for 36% of the sales of
Toddler U Inc. during the twelve months preceding the acquisition, the Company
concluded on the basis of estimated undiscounted future cash flows that the
events in the fourth quarter resulted in a permanent impairment of the
goodwill related to the acquisition of Toddler U Inc. and accordingly
determined to write off the unamortized portion of the goodwill which amounted
to $800,000.
All remaining tangible assets and liabilities of GCO Apparel and University
Brands are valued at the lower of their cost or market. Market value was
determined using estimated undiscounted future cash flows. In developing
estimates of future cash flows, the Company has utilized historical operating
results adjusted for the implementation of a previously announced reduction in
the manufacturing capacity of GCO Apparel.
The tangible asset write-downs include $2.2 million for inventory, to reflect
discounts taken to facilitate the rapid liquidation of merchandise which was
purchased for sale in stores which are being closed, and $5.9 million for fixed
asset write-downs, of which $1.9 million relates to retail store closings and
$4.0 million relates to plant closings.
44
45
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
BUSINESS ACQUISITIONS
MITRE U.K.
On May 6, 1992, Mitre Sports International Limited ("Mitre U.K."), a
newly-formed subsidiary of the Company, acquired substantially all of the Mitre
Sports assets and business from an English company which owned the "Mitre"
name. Mitre Sports manufactured and distributed soccer and rugby balls and
soccer, rugby and cricket footwear and related equipment. Approximately 75% of
Mitre Sports' calendar year 1991 sales were in the United Kingdom. Since 1981
the Mitre Sports division of the Company has marketed products in the United
States and Canada under the Mitre brand pursuant to a license agreement with
Mitre Sports.
The purchase price was $28,236,985, of which $23,236,985 was paid in cash. The
remaining $5,000,000 was paid in the form of 1,500,000 class B ordinary shares
of Mitre U.K. (the "B Shares"). In addition, the Company paid acquisition
expenses of approximately $2.7 million. The acquisition was financed primarily
through a $20,000,000 term loan and revolving credit borrowings. The Company
exercised its right to purchase the B Shares and on May 18, 1993 paid to the
seller the $5,000,000 option price plus interest at LIBOR.
Operating results of Mitre U.K. are included in the Company's financial
statements from May 6, 1992. The following unaudited pro forma summary
presents the consolidated results of operations as if the acquisition had
occurred at the beginning of Fiscal 1992. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made at the beginning of
Fiscal 1992 or of results which may occur in the future.
- --------------------------------------------------------------------------------------------------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
IN THOUSANDS FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
(EXCEPT PER SHARE AMOUNTS) 1993 1993 1992 1992
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $539,867 $545,149 $471,766 $497,994
Net earnings (loss) 9,110 8,510 461 (615)
Net earnings (loss) per common share .38 .35 .01 (.04)
TODDLER U INC.
On December 29, 1992 the Company acquired substantially all of the assets of
Toddler U Inc. ("Toddler") and assumed substantially all of its liabilities (of
which approximately $5.1 million were paid at closing). The Company agreed to
make deferred cash purchase price payments over a three-year period equal to
Toddler's audited net worth (approximately $1.4 million) and contingent
payments based on future operations. Toddler sells children's footwear.
45
46
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
BUSINESS ACQUISITIONS, CONTINUED
LAMAR MANUFACTURING COMPANY
On August 12, 1993, GCO Apparel Corporation, a newly formed subsidiary of the
Company, acquired all of the men's clothing manufacturing assets and assumed
certain liabilities of LaMar Manufacturing Company, a manufacturer of
moderately priced tailored clothing. The purchase price was approximately
$11.8 million. The purchase price included $10.9 million of cash and $900,000
of deferred payments that will be completed by August 1995. In addition, the
Company paid acquisition expenses of approximately $500,000. The acquisition
was financed through revolving credit borrowings.
NOTE 4
ACCOUNTS RECEIVABLE
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable $ 67,174 $ 72,529
Miscellaneous receivables 3,406 2,973
- --------------------------------------------------------------------------------------------------------------------------------
Total receivables 70,580 75,502
Allowance for bad debts (2,065) (2,457)
Other allowances (2,509) (1,302)
- --------------------------------------------------------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $ 66,006 $ 71,743
================================================================================================================================
On January 31, 1994, approximately 4% of the Company's trade receivables are
from retailers who have been acquired in leveraged buy-out transactions. The
Company closely monitors these receivables.
NOTE 5
INVENTORIES
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Raw materials $ 21,305 $ 21,762
Work in process 15,786 13,895
Finished goods 71,981 63,183
Retail merchandise 46,048 52,701
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $155,120 $151,541
================================================================================================================================
46
47
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
- ------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Plant and equipment:
Land $ 485 $ 271
Buildings and building equipment 5,830 3,608
Machinery, furniture and fixtures 45,105 40,599
Construction in progress 1,550 2,801
Improvements to leased property 43,474 44,981
Capital leases:
Land 592 592
Buildings 11,203 11,203
Machinery, furniture and fixtures 10,324 7,952
- ------------------------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 118,563 112,007
Accumulated depreciation and amortization:
Plant and equipment (64,642) (56,649)
Capital leases (11,012) (8,204)
- ------------------------------------------------------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 42,909 $ 47,154
==============================================================================================================================
NOTE 7
OTHER ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Other current assets:
Prepaid expenses $ 5,092 $ 5,043
Deferred taxes 747 3,341
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER CURRENT ASSETS $ 5,839 $ 8,384
==============================================================================================================================
Other non-current assets:
Pension plan asset $ 11,363 $ 11,974
Investments and long-term receivables 2,123 1,985
Deferred taxes 657 371
Deferred note expense 3,154 743
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER NON-CURRENT ASSETS $ 17,297 $ 15,073
==============================================================================================================================
47
48
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable $23,332 $33,239
Accrued liabilities:
Employee compensation 11,560 11,288
Insurance 6,094 5,113
Interest 4,091 705
Taxes other than income taxes 3,028 2,849
Other 20,026 12,595
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $68,131 $65,789
================================================================================================================================
At January 31, 1994 and 1993, outstanding checks drawn on certain domestic
banks exceeded book cash balances by approximately $6,093,000 and $9,429,000,
respectively. These amounts are included in trade accounts payable.
NOTE 9
CREDIT FACILITIES
The Company's English subsidiary, Mitre U.K., has a credit facility with a
credit limit equal to the lesser of (i) 5,000,000 pounds sterling
(approximately U.S. $7,538,000 at January 31, 1994) or (ii) the aggregate of 75
percent of the value of current receivables and 50 percent of the value of
inventory of Mitre U.K. The facility, which is guaranteed up to 4,300,000
pounds sterling by the Company, permits borrowings for working capital of up to
2,000,000 pounds sterling, the issuance of letters of credit of up to 3,500,000
pounds sterling and the issuance of guarantee bonds and indemnities of up to
500,000 pounds sterling. This facility expires on September 14, 1994.
On April 8, 1993 the Company entered into a letter of credit agreement, which
was amended January 31, 1994, with a foreign bank under which up to $10,000,000
in letters of credit are available for issuance to the Company's suppliers in
connection with the importation of foreign goods. The agreement provides for
the issuance through April 6, 1994 of letters of credit payable for periods not
exceeding 180 days. At January 31, 1994, there was $8,386,000 of credit
available under the letter of credit agreement. The financial covenants
contained in the letter of credit agreement are substantially identical to
those contained in the Company's revolving credit agreement. See Note 10 for
the revolving credit agreement covenants.
On August 2, 1993 the Company entered into a credit facility with a United
States bank under which it may borrow up to $2,000,000. This facility expires
on June 30, 1994.
On September 29, 1993 the Company entered into a credit facility with a foreign
bank under which it may borrow up to $15,000,000 at the bank's discretion.
This facility, which is payable on demand, expires on August 31, 1994.
48
49
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
LONG-TERM DEBT
- ----------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowings under revolving credit agreement
(weighted average interest rate:
1994-5.56%; 1993-6.00%) $15,000 $22,000
10 3/8% senior notes due February 2003 75,000 -0-
Refinanced long-term debt -0- 32,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt 90,000 54,000
Current portion -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-CURRENT PORTION OF LONG-TERM DEBT $90,000 $54,000
==================================================================================================================================
REVOLVING CREDIT AGREEMENTS:
On August 2, 1993 the Company entered into a revolving credit agreement, with a
group of seven banks providing for loans or letters of credit of up to $100
million. The agreement expires August 2, 1996. This agreement replaced the
$45 million revolving credit agreement and Genesco's $25 million letter of
credit agreement in effect at July 31, 1993. The repayment of the revolving
credit borrowings under the $45 million credit agreement resulted in an
extraordinary loss recognized in the second quarter of Fiscal 1994 of $240,000.
Loan borrowings for Fiscal 1994 under the revolving credit agreements averaged
$18,211,000 at a rate of 5.21% with a maximum month end borrowing of
$40,000,000. Outstanding letters of credit at January 31, 1994 were
$14,890,000.
As a result of operating losses and the restructuring charge in the fourth
quarter of Fiscal 1994, the revolving credit agreement was amended January 31,
1994 to adjust certain financial covenants.
Under the amended $100 million revolving credit agreement, the Company may
borrow at the prime rate, certificate of deposit rate plus 2.30%, or LIBOR plus
2.25% or may borrow up to $25 million through a competitive bid process.
Commitment fees are 0.3% per annum on the daily unused portion.
The amended credit agreement requires the Company to maintain (i) a ratio of
Consolidated Current Assets to Consolidated Current Liabilities of not less
than 2.5 to 1.0 at the end of any quarter; (ii) a Consolidated Tangible Net
Worth at the end of the 1st, 2nd, 3rd, and 4th quarter of not less than
$73,000,000, $73,000,000, $80,000,000 and $89,000,000, respectively for Fiscal
1995, and not less than $89,000,000 for each quarter of Fiscal 1996 increasing
each fiscal year thereafter, on a cumulative basis, by an amount equal to 50%
of positive Consolidated Net Income for the preceding fiscal year, without
reduction for cumulative net losses; (iii) a Consolidated Fixed Charge Coverage
Ratio of not less than 1.0 with respect to the fiscal year ending January 31,
1995, or less than 1.25 with respect to any fiscal year thereafter, unless
during the fourth fiscal quarter the Company reduces the principal amount of
loans outstanding under the agreement to not more than $10,000,000 for at least
30 consecutive days and (iv) the ratio of Consolidated Senior Funded
Indebtedness to Total Capital of not more than 0.60 to 1.0 during the first
three quarters of each fiscal year and 0.55 to 1.0 at the end of each fiscal
year except at April 30, 1994 and at July 31, 1994 the ratio of not more than
0.63 to 1.0 is permitted. Annual Capital Expenditures may not exceed
$20,000,000, subject to certain exceptions. The Company was not in default
under the amended revolving credit agreement at January 31, 1994. See Note 12
for information regarding the revolving credit agreement restrictions on
Dividends and Redemptions of Capital Stock.
49
50
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
LONG-TERM DEBT, CONTINUED
10 3/8% SENIOR NOTES DUE 2003:
On February 1, 1993, the Company issued $75,000,000 of 10 3/8% senior notes due
February 1, 2003. The Company used $54 million of the proceeds to repay all of
its outstanding long-term debt resulting in an extraordinary loss recognized in
the fourth quarter of Fiscal 1993 of $583,000 (net of income tax benefit of
$37,000). The balance of the proceeds was used to purchase shares of Mitre
U.K. (see Note 3) and for general corporate purposes.
The fair value of the Company's 10 3/8% senior notes, based on the quoted
market price on January 31, 1994, is $73,594,000.
The indenture under which the notes were issued limits the incurrence of
indebtedness, the making of restricted payments, the restricting of subsidiary
dividends, transactions with affiliates, liens, sales of assets and
transactions involving mergers, sales or consolidations.
NOTE 11
COMMITMENTS UNDER LONG-TERM LEASES
CAPITAL LEASES
Future minimum lease payments under capital leases at January 31, 1994,
together with the present value of the minimum lease payments are:
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEARS IN THOUSANDS
- -------------------------------------------------------------------------------------------------------------------------------
1995 $ 4,006
1996 3,953
1997 3,318
1998 2,562
1999 2,019
Later years 7,389
- -------------------------------------------------------------------------------------------------------------------------------
Total minimum payments 23,247
Interest discount amount (7,994)
- -------------------------------------------------------------------------------------------------------------------------------
Total present value of minimum payments 15,253
Current portion (2,365)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-CURRENT PORTION $12,888
================================================================================================================================
OPERATING LEASES
Rental expense under operating leases was:
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
Minimum rentals $20,547 $20,327 $19,637
Contingent rentals 7,798 7,676 7,659
Sublease rentals (480) (514) (106)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RENTAL EXPENSE $27,865 $27,489 $27,190
================================================================================================================================
50
51
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 11
COMMITMENTS UNDER LONG-TERM LEASES, CONTINUED
Minimum rental commitments payable in future years are:
FISCAL YEARS
- ---------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS
- ---------------------------------------------------------------------------------------------------------------------------------
1995 $18,866
1996 17,067
1997 13,687
1998 10,789
1999 8,202
Later years 14,059
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MINIMUM RENTAL COMMITMENTS $82,670
=================================================================================================================================
Most leases provide for the Company to pay real estate taxes and other expenses
and contingent rentals based on sales. Approximately 11% of the Company's
leases contain renewal options.
NOTE 12
SHAREHOLDERS' EQUITY
NON-REDEEMABLE PREFERRED STOCK
NUMBER OF SHARES AMOUNTS IN THOUSANDS
------------------------ ------------------------
JANUARY 31, JANUARY 31, COMMON
SHARES ------------------------ ------------------------ CONVERTIBLE NO. OF
CLASS AUTHORIZED 1994 1993 1992 1994 1993 1992 RATIO VOTES
- ------------------------------------------------------------------------------------------------------------------------------------
Subordinated Serial Preferred (Cumulative)
$2.30 Series 1 64,368 37,283 37,283 37,283 $1,491 $1,491 $1,491 .83 1
$4.75 Series 3 40,449 19,632 19,632 19,632 1,963 1,963 1,963 2.11 2
$4.75 Series 4 53,764 16,412 16,412 16,412 1,641 1,641 1,641 1.52 1
Series 6 400,000 -0- -0- -0- -0- -0- -0- 1
$1.50 Subordinated Cumulative Preferred 5,000,000 29,917 29,617 29,542 898 889 887
Other Preferred Stock -0- 600 600 -0- 60 60
- ------------------------------------------------------------------------------------------------------------------------------------
103,244 103,544 103,469 5,993 6,044 6,042
Employees' Subordinated
Convertible Preferred 5,000,000 84,791 93,648 97,602 2,544 2,810 2,928 1.00*
- ------------------------------------------------------------------------------------------------------------------------------------
Stated Value of Issued Shares 8,537 8,854 8,970
Employees' Preferred Stock Purchase Accounts (473) (549) (640)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-REDEEMABLE PREFERRED STOCK $8,064 $8,305 $8,330
====================================================================================================================================
* Also convertible into one share of $1.50 Subordinated
Cumulative Preferred Stock.
51
52
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
SHAREHOLDERS' EQUITY, CONTINUED
PREFERRED STOCK TRANSACTIONS
- -------------------------------------------------------------------------------------------------------------------------------
EMPLOYEES'
NON-REDEEMABLE PREFERRED
NON-REDEEMABLE EMPLOYEES' STOCK TOTAL
PREFERRED PREFERRED PURCHASE PREFERRED
STOCK STOCK ACCOUNTS STOCK
- -------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1991 $ 5,217 $ 24,293 $ (15,238) $ 14,272
Exchange and adjustment offers 816 (21,080) 14,517 (5,747)
Conversion of employees' preferred into common 9 (285) -0- (276)
Other -0- -0- 81 81
- -------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1992 6,042 2,928 (640) 8,330
- -------------------------------------------------------------------------------------------------------------------------------
Conversion of employees' preferred into common -0- (56) -0- (56)
Other 2 (62) 91 31
- -------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1993 6,044 2,810 (549) 8,305
- -------------------------------------------------------------------------------------------------------------------------------
Conversion of employees' preferred into $1.50 preferred 9 (9) -0- -0-
Conversion of employees' preferred into common -0- (199) -0- (199)
Other (60) (58) 76 (42)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1994 $ 5,993 $ 2,544 $ (473) $ 8,064
===============================================================================================================================
SUBORDINATED SERIAL PREFERRED STOCK (CUMULATIVE):
Stated and redemption values for Series 1 are $40 per share and for Series 3
and 4 are each $100 per share; liquidation value for Series 1--$40 per share
plus accumulated dividends and for Series 3 and 4--$100 per share plus
accumulated dividends.
The Company's shareholders' rights plan grants to common shareholders the right
to purchase, at a specified exercise price, a fraction of a share of
subordinated serial preferred stock, Series 6, in the event of an acquisition
of, or an announced tender offer for, 10% or more of the Company's outstanding
common stock. Upon any such event, each right also entitles the holder (other
than the person making such acquisition or tender offer) to purchase, at the
exercise price, shares of common stock having a market value of twice the
exercise price. In the event the Company is acquired in a transaction in which
the Company is not the surviving corporation, each right would entitle its
holder to purchase, at the exercise price, shares of the acquiring company
having a market value of twice the exercise price. The rights expire in August
2000, are redeemable under certain circumstances for $.01 per right and are
subject to exchange for one share of common stock or an equivalent amount of
preferred stock at any time after the event which makes the rights exercisable
and before a majority of the Company's common stock is acquired.
$1.50 SUBORDINATED CUMULATIVE PREFERRED STOCK:
Stated and liquidation values and redemption price-$30 per share.
EMPLOYEES' SUBORDINATED CONVERTIBLE PREFERRED STOCK:
Stated and liquidation values--$30 per share.
52
53
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
SHAREHOLDERS' EQUITY, CONTINUED
COMMON STOCK:
Common stock-$1 par value. Authorized 40,000,000 shares; issued: January 31,
1994--24,792,641 shares; January 31, 1993--23,657,879 shares. There were
488,464 shares held in treasury at January 31, 1994 and 1993. Each outstanding
share is entitled to one vote. At January 31, 1994, common shares were
reserved as follows: 182,055 shares for conversion of preferred stock; 22,000
shares for the Key Executives Stock Option Plan; 1,562,600 shares for the 1987
Stock Option Plan; 300,000 shares for executive bonus; 46,427 shares for the
Restricted Stock Plan for Directors; and 932,059 shares for the Genesco Stock
Savings Plan.
RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS OF CAPITAL STOCK:
The Company's charter provides that no dividends may be paid and no shares of
capital stock acquired for value if there are dividend or redemption arrearages
on any senior or equally ranked stock. Exchanges of subordinated serial
preferred stock for common stock or other stock junior to such exchanged stock
are permitted.
The revolving credit agreement (see Note 10) limits restricted payments with
respect to the Company's capital stock (i.e., dividends and redemptions), with
certain exceptions, to $5,000,000 plus 50% of Consolidated Net Income or 100%
of consolidated net losses, after July 31, 1993, plus 35% of the cumulative net
cash proceeds from the issuance of new equity securities. The principal
exceptions to the restricted payments covenant are (i) redemptions, purchases
or acquisitions of Shareholder Rights distributed to holders of the Company's
common stock pursuant to a shareholders' rights plan, provided that such
payments not exceed $0.05 per Shareholder Right or $2,000,000 in the aggregate,
(ii) dividends payable solely in capital stock of the Company and (iii)
dividends payable solely through the application of the proceeds of a
substantially concurrent sale of shares of the Company's capital stock. At
January 31, 1994, the Company was in a deficit position of $46,495,000 in its
ability to pay dividends.
The February 1, 1993 indenture, under which the Company's 10 3/8% senior notes
due 2003 were issued, limits the payment of dividends and redemptions of
capital stock to the sum of $10 million plus (i) 50% of consolidated net income
(as defined) after April 30, 1993 and (ii) the aggregate net proceeds (as
defined) received from the issuance or sale of capital stock after February 1,
1993. At January 31, 1994, the Company was in a deficit position of
$38,593,000 in its ability to pay dividends.
Due to the above restrictions, the Company suspended dividends in the fourth
quarter in the amount of $21,438 for Series 1, $23,313 for Series 3, $19,489
for Series 4, and $11,219 for $1.50 Subordinated Cumulative Preferred Stock.
53
54
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
SHAREHOLDERS' EQUITY, CONTINUED
CHANGES IN THE SHARES OF THE COMPANY'S CAPITAL STOCK
- ----------------------------------------------------------------------------------------------------------
NON-
REDEEMABLE REDEEMABLE EMPLOYEES'
COMMON PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK
- ----------------------------------------------------------------------------------------------------------
Issued at January 31, 1991 23,163,110 3,050 75,972 809,764
Conversions of employees' preferred 136,647 -0- -0- (136,647)
Restricted stock plan-directors 27,684 -0- -0- -0-
Employees' preferred exchange offer -0- -0- 27,497 (575,515)
Common stock exchange offer (20,493) -0- -0- -0-
Options exercised 26,725 -0- -0- -0-
Redemptions (100) (998) -0- -0-
- ----------------------------------------------------------------------------------------------------------
Issued at January 31, 1992 23,333,573 2,052 103,469 97,602
- ----------------------------------------------------------------------------------------------------------
Redemptions -0- (1,000) -0- -0-
Exercise of options and warrants 323,163 -0- -0- -0-
Other 1,143 -0- 75 (3,954)
- ----------------------------------------------------------------------------------------------------------
Issued at January 31, 1993 23,657,879 1,052 103,544 93,648
- ----------------------------------------------------------------------------------------------------------
Exercise of options and warrants 1,101,082 -0- -0- -0-
Redemptions -0- (1,052) (600) -0-
Other 33,680 -0- 300 (8,857)
- ----------------------------------------------------------------------------------------------------------
Issued at January 31, 1994 24,792,641 -0- 103,244 84,791
Less treasury shares 488,464 -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------
OUTSTANDING AT JANUARY 31, 1994 24,304,177 -0- 103,244 84,791
==========================================================================================================
54
55
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13
INCOME TAXES
The Company adopted SFAS No. 109, "Accounting For Income Taxes", effective
February 1, 1993. The adoption of SFAS No. 109 had no effect on net earnings
for Fiscal 1994. SFAS No. 109 permits the recognition of a deferred tax asset
if it is more likely than not that the future tax benefit will be realized.
The Company did not recognize a deferred tax asset except to the extent future
years' deductible items would offset future years' taxable items or would, as
loss carrybacks, generate a refund in the current and two previous years.
Previously, under SFAS No. 96, the Company treated future years net tax
deductible items as if they were net operating losses for the years in which
they were expected to occur. The Company reported a tax benefit for these
losses to the extent the losses would generate a tax refund in the current and
two previous years.
Income tax expense (benefit) is comprised of the following:
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Current
U.S. federal $(2,340) $ 3,220 $ 285
Foreign 438 608 36
State (377) 872 15
Deferred
U.S. federal 2,070 (664) (227)
Foreign (24) 81 -0-
State 238 (107) -0-
- ----------------------------------------------------------------------------------------------------------------------------
Income tax before extraordinary benefits 5 4,010 109
Income tax benefits from loss
on the early retirement of debt:
U.S. federal -0- (11) -0-
State -0- (26) -0-
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 5 $ 3,973 $ 109
============================================================================================================================
The current U.S. federal tax credit provision for Fiscal 1994 represents
current taxes receivable arising from the carryback of the current year's loss
to the three previous years and refunds received during the year of $216,000
related to taxes paid for Fiscal 1990. The Fiscal 1993 and 1992 federal tax
provision consists of a regular tax of $3,234,000 and an alternative minimum
tax of $350,000, respectively, less tax refunds received related to prior
years. The Fiscal 1993 current provision reflects the utilization of minimum
tax credits of $1,466,000.
55
56
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13
INCOME TAXES, CONTINUED
Deferred tax liabilities (assets) were comprised of the following:
- ----------------------------------------------------------------------------------------------------------------------------
JANUARY 31, FEBRUARY 1,
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Pensions $ 1,132 $ 2,070
Other 672 418
- ----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 1,804 2,488
- ----------------------------------------------------------------------------------------------------------------------------
Restructuring provisions (11,756) (4,164)
Expense accruals (7,723) (5,773)
Depreciation (2,259) (2,316)
Allowances for bad debts and notes (2,913) (2,592)
Inventory valuation (4,924) (1,722)
Uniform capitalization costs (3,087) (2,608)
Goodwill amortization and writeoff (3,341) (360)
Leases (2,017) (1,890)
Debt issue costs (172) (797)
Other (1,576) (101)
- ----------------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets (39,768) (22,323)
- ----------------------------------------------------------------------------------------------------------------------------
Deferred tax asset valuation allowance 36,560 16,123
- -----------------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ (1,404) $ (3,712)
============================================================================================================================
Deferred tax assets for Fiscal 1993, which were recorded by applying provisions
of SFAS No. 96, were $3,712,000. The decrease in net deferred tax assets to
$1,404,000 at January 31, 1994 results primarily from the carryback of Fiscal
1994 losses to the three prior years. The tax refunds generated by the loss
carryback are classified as current tax receivables.
56
57
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13
INCOME TAXES, CONTINUED
The Company has net tax deductible temporary differences of $88,302,000
available to reduce future years' pretax accounting income. These temporary
differences include transactions relating to restructuring provisions
($27,527,000), expense accruals ($17,998,000), book depreciation in excess of
tax depreciation ($4,897,000), allowances for bad debts and notes ($6,869,000),
inventories ($11,619,000), goodwill ($7,576,000) and other items ($11,816,000).
Reconciliation of the United States federal statutory rate to the Company's
effective tax rate is as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1992 1993
- ----------------------------------------------------------------------------------------------------------------------------------
U. S. federal statutory rate of tax 34.00% 34.00% 34.00%
State income taxes, net of U.S.
federal income tax benefit -0- 4.30 1.58
Effect of foreign operations -0- 2.34 41.40
Operating losses with no current tax benefit (33.27) -0- -0-
Differences between earnings statement
and tax return:
Depreciation and amortization (.56) 1.32 33.50
Valuation reserves -0- (.33) 65.86
Accrued expenses -0- 4.56 (185.08)
Capitalized leases -0- .86 20.28
Tax credits -0- (11.11) (9.65)
Alternative minimum tax -0- -0- 58.25
Foreign taxes paid with no U.S. tax benefit -0- -0- 0.53
Deferred tax expense (benefit) -0- (5.04) (39.82)
Other (.18) (1.64) (1.73)
- ----------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE (.01%) 29.26% 19.12%
==================================================================================================================================
57
58
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
RETIREMENT PLAN
The Company sponsors a non-contributory, defined benefit pension plan which
provides benefits based on years of service, highest consecutive ten-year
average annual earnings and social security contributions and benefit bases.
PENSION EXPENSE
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Service cost of benefits earned during the year $ 1,808 $ 1,624 $ 1,841
Interest on projected benefit obligation 6,141 5,660 5,542
Actual return on plan assets (5,341) (2,618) (5,003)
Deferral of current period asset gains (losses) 451 (1,902) 900
Amortization of prior service cost 463 463 463
Amortization of net loss 345 76 -0-
Amortization of transition obligation 983 983 983
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL PENSION EXPENSE $ 4,850 $ 4,286 $ 4,726
============================================================================================================================
ACTUARIAL ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average discount rate 7.00% 8.25%
Salary progression rate 5.00% 5.00%
Expected long-term rate of return on plan assets 9.50% 9.50%
The weighted average discount rate decreased from 8.25% to 7.00% at January 31,
1994. The reduction of this rate increased the accumulated benefit obligation
by $9,617,000 and increased the projected benefit obligation by $13,382,000.
At January 31, 1993, the weighted average discount rate decreased from 8.50% to
8.25%. The reduction of this rate increased the accumulated benefit obligation
by $1,593,000 and increased the projected benefit obligation by $2,193,000.
FUNDED STATUS
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $75,622 $60,958
Non-vested benefit obligation 1,333 1,143
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $76,955 $62,101
============================================================================================================================
Projected benefit obligation
for services rendered to date $93,868 $74,409
Plan assets at fair value, primarily
cash equivalents, common stock, notes and
real estate 55,581 50,945
- ----------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION IN EXCESS OF
PLAN ASSETS $38,287 $23,464
============================================================================================================================
Plan assets for 1994 and 1993 include Company related assets of $1,844,000 and
$1,782,000, respectively, which consist of properties leased to the Company.
58
59
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
RETIREMENT PLAN, CONTINUED
BALANCE SHEET EFFECT
SFAS 87 requires the Company to recognize a pension liability ($21,374,000 for
1994 and $11,156,000 for 1993) equal to the amount by which the actuarial
present value of the accumulated benefit obligation ($76,955,000 for 1994 and
$62,101,000 for 1993) exceeds the fair value of the retirement plan's assets
($55,581,000 for 1994 and $50,945,000 for 1993). A corresponding amount is
recognized as an intangible asset to the extent of the unamortized prior
service cost and unamortized transition obligation, with the excess charged
directly to shareholders' equity. In 1994, this resulted in the recording of
an intangible asset of $11,363,000 and a reduction in shareholders' equity of
$9,964,000. In 1993, an intangible asset was recorded equal to the amount of
the pension liability ($11,974,000) as the total unamortized prior service cost
and unamortized transition obligation ($12,809,000) was not exceeded.
A reconciliation of the plan's funded status to amounts recognized in the
Company's balance sheet follows:
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets $(38,287) $(23,464)
Unamortized transition obligation 7,863 8,846
Unrecognized net actuarial losses 26,877 11,473
Unrecognized prior service cost 3,500 3,963
- ----------------------------------------------------------------------------------------------------------------------------
Net effect on the Company's balance sheet (47) 818
Amount reflected as an intangible asset* (11,363) (11,974)
Amount reflected as minimum pension liability
adjustment** (9,964) -0-
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT REFLECTED AS PENSION LIABILITY*** $(21,374) $(11,156)
============================================================================================================================
* Included in other non-current assets in the balance sheet.
** Included as a charge to shareholders' equity in the balance sheet.
*** Included in other long-term liabilities in the balance sheet.
59
60
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15
OTHER BENEFIT PLANS
The Company contributes to a multiemployer pension plan applicable to all
hourly-paid employees of its tailored clothing division covered by collective
bargaining agreements. Although the accumulated benefits are substantially in
excess of the plan assets available for such benefits, actuarial calculations
have not been made to determine the Company's portion of such excess. Pension
costs and amounts contributed to the plan during Fiscal 1994, 1993 and 1992
were $2,232,000, $2,298,000, and $2,496,000, respectively.
The Company provides health care benefits for early retirees and life insurance
benefits for certain retirees not covered by collective bargaining agreements.
Under the health care plan, early retirees are eligible for limited benefits
until age 65. Employees who meet certain requirements are eligible for life
insurance benefits upon retirement.
The Company implemented SFAS 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" in the first quarter of 1994. In the past the
Company expensed such costs as incurred. The adoption of SFAS 106, which
requires the accrual of such benefits during the period in which the employee
renders service, resulted in a net charge to income of $2,273,000 for the
cumulative effect of the change in accounting principle for periods prior to
1994, which were not restated. The $2,273,000 represents the actuarial
present value of the accumulated benefit obligation (the "ABO") at February 1,
1993. The ABO is lower than previously estimated as a result of a change in
the method of funding the life insurance plan. The Company elected to charge
the full $2,273,000 ABO in the first quarter of Fiscal 1994.
Postretirement benefit expense was $245,000, $1,307,000, and $1,617,000 for
Fiscal 1994, 1993 and 1992, respectively. The components of expense in 1994
were as follows:
- ----------------------------------------------------------------------------------------------------------------------------
In Thousands 1994
- ----------------------------------------------------------------------------------------------------------------------------
Service cost of benefits earned during the year $ 63
Interest cost on accumulated postretirement benefits obligation 182
- ----------------------------------------------------------------------------------------------------------------------------
NET PERIODIC POSTRETIREMENT BENEFIT COST $245
============================================================================================================================
The funded status of the plan and amounts recognized in the financial
statements at January 31, 1994 were as follows:
- ----------------------------------------------------------------------------------------------------------------------------
In Thousands 1994
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change on February 1, 1993 $2,273
Net periodic postretirement benefit cost 245
Cash expenditures for benefits during 1994 (260)
Additional liability from change in weighted average discount rate 189
- ----------------------------------------------------------------------------------------------------------------------------
Postretirement benefit liability 2,447
Unrecognized net loss (189)
- ----------------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFIT LIABILITY RECOGNIZED IN FINANCIAL STATEMENTS $2,258
============================================================================================================================
The weighted average discount rate used to determine the ABO decreased from 8%,
at the date of adoption, to 7% at January 31, 1994. The unrecognized net loss
generated from the decrease in the rate increased the accumulated
postretirement benefit obligation by $189,000.
60
61
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
SUPPLEMENTAL CASH FLOW INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Net cash paid (received) for:
Interest $ 6,865 $ 4,695 $ 3,997
Income taxes (273) 4,089 720
Noncash investing and financing activities:
Fixed assets acquired under capital leases $ 428 $ 970 $ 2,357
Business acquisitions:
Fair value of assets acquired 13,119 39,306 -0-
Liabilities assumed 1,743 13,287 -0-
- ----------------------------------------------------------------------------------------------------------------------------
Cash paid 11,376 26,019 -0-
Less cash acquired -0- 586 -0-
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PAID FOR ACQUISITION $11,376 $25,433 $ -0-
============================================================================================================================
Issuance of shares to Mitre Sports $ -0- $ 5,000 $ -0-
Obligation from purchase of net assets
of Toddler U Inc. -0- 1,291 -0-
NOTE 17
EMPLOYEE STOCK PLANS
STOCK OPTION PLANS
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of period 1,723,564 1,464,579
Options granted - 1987 Stock Option Plan 266,500 522,050
Options granted - Genesco Stock Savings Plan 40,093 50,156
Options exercised - 1987 Stock Option Plan (466,275) (112,150)
Options exercised - Key Executives Stock Option Plan (44,000) (39,500)
Options exercised - Genesco Stock Savings Plan (32,360) (37,823)
Options expired - Key Executives Stock Option Plan (18,000) (6,000)
Options cancelled - Genesco Stock Savings Plan (13,164) (47,723)
Options cancelled - 1987 Stock Option Plan (93,300) (70,025)
- ----------------------------------------------------------------------------------------------------------------------------
Total options outstanding at end of period 1,363,058 1,723,564
Shares reserved for future options 1,153,601 1,351,488
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES RESERVED 2,516,659 3,075,052
============================================================================================================================
At January 31, 1994, options to purchase 22,000 shares of common stock were
outstanding under the Key Executives Stock Option Plan at a weighted average
exercise price of $6.50 per share. These options, held by 8 individuals,
expire on October 9, 1994. All such options are currently exercisable.
61
62
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17
EMPLOYEE STOCK PLANS, CONTINUED
Under the 1987 Stock Option Plan, options to purchase 1,262,075 shares were
outstanding at a weighted average exercise price of $6.34 per share. These
options, held by 81 individuals, expire between August 17, 1997, and December
8, 2003. Options to purchase 510,356 shares are currently exercisable.
Under the Genesco Stock Savings Plan, options to purchase 78,983 shares were
outstanding at a weighted average exercise price of $8.09 per share. Unless
withdrawn by the participants, these options may be exercised on September 30,
1994 and September 30, 1995. There are approximately 225 employees
participating in the plan.
STOCK PURCHASE PLANS
Stock purchase accounts arising out of sales to employees prior to 1972 under
certain employee stock purchase plans amounted to $481,000 and $557,000 at
January 31, 1994 and 1993, respectively, and were secured at January 31, 1994,
by 22,962 employees' preferred shares and 340 common shares. Payments on stock
purchase accounts under the stock purchase plans have been indefinitely
deferred. No further sales under these plans are contemplated.
NOTE 18
LEGAL PROCEEDINGS
The Company is subject to several administrative orders issued by the Tennessee
Department of Environment and Conservation directing the Company to implement
plans designed to remedy possible ground water contamination and to manage
source area material which was generated by a divested operating division and
which was deposited on a site in a rural area near Nashville, Tennessee.
Substantially all source material and ground water remedial actions have been
implemented. The Company believes that it has fully provided for the costs to
be incurred with respect to these remedial actions.
In addition to the administrative proceedings described above, the Company was
named as a defendant in nine civil actions originally filed on behalf of 29
individuals who reside or own property in the vicinity of the site described
above. The plaintiffs alleged that the Company is liable for creating a
nuisance and a hazardous condition and for negligence based upon the alleged
violation of several state and federal environmental statutes. The plaintiffs
sought recovery for personal injuries and property damages totalling $17.6
million, punitive damages totalling $19.5 million and certain costs and
expenses, including attorneys' fees. The Company has concluded settlement
agreements with 20 individual plaintiffs, providing for payments by the Company
aggregating approximately $550,000 and the purchase of a residence at an
appraised value of approximately $170,000. The claims dismissed pursuant to
the settlement agreements involve approximately $9.1 million in alleged
compensatory damages and $13.1 million in punitive damages. In light of the
settlements already reached, management believes that resolution of the
remaining actions will not have a material adverse effect on either the
Company's results of future operations or on its financial condition.
62
63
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18
LEGAL PROCEEDINGS, CONTINUED
The Company is also a defendant in two separate civil actions filed by the
State of New York; one against the City of Gloversville, New York, and 33 other
private defendants; and the other against the City of Johnstown, New York, and
14 other private defendants. In addition, third party complaints and cross
claims have been filed against numerous other entities, including the Company,
in both actions. These actions arise out of the alleged disposal of certain
hazardous material directly or indirectly in municipal landfills. The
complaints in both cases allege the defendants, together with other
contributors to the municipal landfills, are liable under a federal
environmental statute and certain common law theories for the costs of
investigating and performing remedial actions required to be taken with respect
to the landfills and damages to the natural resources.
The environmental authorities have issued decisions selecting plans of
remediation with respect to the Johnstown and Gloversville sites which have
estimated costs of $16.5 million and $28.3 million, respectively.
The Company has filed answers to the complaints in both the Johnstown and
Gloversville cases denying liability and asserting numerous defenses. The
Company has established a provision in the amount of $1,000,000 to cover its
estimated share of future remediation costs, including a $500,000 charge in the
third quarter ended October 31, 1993. Because of uncertainties related to the
ability or willingness of the other defendants, including the municipalities
involved, to pay a portion of such costs, the availability of State funding to
pay a portion of such costs, the insurance coverage available to the various
defendants, the applicability of joint and several liability and the basis for
contribution claims among the defendants, management is presently unable to
predict the outcome or to estimate the extent of any additional liability the
Company may incur with respect to either of the Johnstown or Gloversville
actions.
The Company has entered into a stipulation of settlement with the United States
Department of Justice and the United States Environmental Protection Agency
("EPA") dismissing a civil action against the Company for alleged violations of
the federal Clean Water Act and the pre-treatment standards for leather tanning
and finishing adopted thereunder in connection with wastewater discharges from
a facility of the Company into the Muskegon County Wastewater Management System
sewage treatment system at Whitehall, Michigan. The stipulation of settlement
was approved by the court on December 16, 1993 and the Company has paid a civil
penalty of $550,000 to resolve all claims asserted in the complaint.
63
64
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18
LEGAL PROCEEDINGS, CONTINUED
On January 7, 1993, 23 former holders of the Company's series 2, 3 and 4
subordinated serial preferred stock filed a civil action against the Company
and certain officers, in the United States District Court for the Southern
District of New York (the "U.S. District Court Action"). The plaintiffs
allege that the defendants misrepresented and failed to disclose material facts
to representatives of the plaintiffs in connection with exchange offers which
were made by the Company to the plaintiffs and other holders of the Company's
series 1, 2, 3 and 4 subordinated serial preferred stock from June 23, 1988 to
August 1, 1988. The plaintiffs contend that had they been aware of the
misrepresentations and omissions, they would not have agreed to exchange their
shares pursuant to the exchange offers. The plaintiffs allege breach of
fiduciary duty and fraudulent and negligent misrepresentations and seek damages
in excess of $10 million, costs, attorneys' fees, interest and punitive damages
in an unspecified amount. By order dated December 2, 1993, the U.S. District
Court denied a motion for judgement on the pleadings filed on behalf of all
defendants. The Company and the individual defendants intend to vigorously
defend the U.S. District Court Action. The Company is unable to predict if the
U.S. District Court Action will have a material adverse effect on the Company's
results of operations or financial condition.
The U.S. District Court Action is based, in part, on a judicial determination
on July 29, 1992 of the fair value of the Company's series 2 and 3 subordinated
serial preferred stock in an appraisal action in the Chancery Court for
Davidson County, Tennessee (the "Chancery Court Action"). The Chancery Court
Action was commenced after certain preferred shareholders dissented from
certain charter amendments approved by shareholders on February 4, 1988 and
demanded the fair value of their shares. The Chancery Court determined that
the fair values of a share of series 2 was $131.32 and of a share of the series
3 was $193.11 (which amounts are in excess of the mandatory redemption and
liquidation values of a share of series 2 subordinated serial preferred stock
and of the optional redemption and liquidation values of a share of series 3
subordinated serial preferred stock), compared with $91 a share for the series
2 and $46 a share for the series 3 previously paid by the Company as the fair
value of such shares. The Chancery Court ordered the Company to pay to Jacob
Landis, the only shareholder who prosecuted his dissenter's rights, the
additional sum of $358,062 plus interest at 10% from July 29, 1992, attorneys'
fees and costs to be determined in further proceedings. The Company appealed
the Chancery Court's decision, and on September 1, 1993 the Tennessee Court of
Appeals affirmed the Chancery Court's decision and remanded the case to the
Chancellor for further proceedings. The Company filed a petition to the
Tennessee Supreme Court to review the case, which the court denied on January
31, 1994. The Company paid the amount of the judgement plus accrued interest
on February 4, 1994.
64
65
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18
LEGAL PROCEEDINGS, CONTINUED
On May 13, 1993 the landlord of a building in New York City in which the
Company was the sole tenant filed a civil action in the Supreme Court of the
State of New York claiming that the Company breached the lease for the premises
and negligently allowed the premises to deteriorate. The complaint seeks
compensatory damages of $2.5 million and punitive damages of $5 million. On
June 8, 1993 the Company removed the action to the United States District Court
for the Southern District of New York.
At various times in 1990 and 1991 (i) the Canadian Department of National
Revenue, Taxation (the "Department"), the Alberta Corporate Tax Administration
and the Ontario Ministry of Revenue made tax reassessments relating to the
deductibility of interest expense incurred by one of the Company's Canadian
subsidiaries on funds borrowed from the Company and (ii) the Department made
tax reassessments relating to non-resident withholding tax with respect to the
payment by that subsidiary of its loan from the Company and with respect to
interest on loans by that subsidiary to the Company. These reassessments,
which the Company has calculated to be approximately Canadian $18.7 million
including interest (approximately U.S. $14.1 million) at January 31, 1994, were
made against Agnew Group, Inc., the corporate successor to the purchaser of the
Company's Canadian operations (the "Taxpayer").
The Taxpayer has made indemnification claims with respect to all such
reassessments pursuant to the indemnification provisions in the stock purchase
agreement dated as of January 23, 1987 relating to the sale of the Company's
Canadian operations, and the Company has assumed the defense of the Taxpayer.
On behalf of the Taxpayer, the Company has filed notices of objections to all
of the reassessments and has appealed the confirmation by the Minister of
National Revenue of the Federal interest deductibility reassessments by filing
a statement of claim in the Federal Court of Canada. The Provincial
reassessments will be held in abeyance pending the outcome of the Federal
Court action. The Company has also filed notices of objection to the
withholding tax reassessments on behalf of the Taxpayer.
Any liability which is finally determined to be owing by the Company as a
result of the indemnification provisions of the share purchase agreement is
subject to an offset of up to Canadian $5,000,000 pursuant to a loan agreement
dated February 6, 1987 among the Company, the purchaser and a former
stockholder of the purchaser.
On February 4, 1994 the Taxpayer filed for protection under the Companies
Creditors Arrangement Act and is seeking approval of a plan of compromise or
arrangement with its creditors. Resolution of the Department's tax claims is a
condition to any such plan.
65
66
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19
BUSINESS SEGMENT INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS:
Footwear (shoes and accessories):
Retail $231,456 $227,741 $212,942
Wholesale and manufacturing 236,435 202,386 139,533
- --------------------------------------------------------------------------------------------------------------------------
Total footwear 467,891 430,127 352,475
Men's apparel 104,969 109,740 119,291
- --------------------------------------------------------------------------------------------------------------------------
TOTAL SALES $572,860 $539,867 $471,766
==========================================================================================================================
PRETAX EARNINGS (LOSS):
Footwear (shoes and accessories):
Retail $ (3,841)* $ 9,171 $ (47)
% of applicable sales (1.7%) 4.0% 0.0%
Wholesale and manufacturing 373* 18,244 13,094
% of applicable sales 0.2% 9.0% 9.4%
- --------------------------------------------------------------------------------------------------------------------------
Total footwear (3,468) 27,415 13,047
% of applicable sales (0.7%) 6.4% 3.7%
Men's apparel (21,986)* 6,065 3,724
% of applicable sales (20.9%) 5.5% 3.1%
- --------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (25,454) 33,480 16,771
% of total sales (4.4%) 6.2% 3.6%
Corporate expenses:
Interest expense (11,030) (5,644) (4,647)
Other corporate expenses (15,290)* (14,133) (11,554)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL PRETAX EARNINGS (LOSS) $(51,774) $ 13,703 $ 570
% OF TOTAL SALES (9.0%) 2.5% 0.1%
==========================================================================================================================
* Includes a restructuring charge as follows: Footwear
Retail $8,673,000, Footwear Wholesale and Manufacturing
$3,242,000, Tailored Clothing $17,060,000 and Corporate
$404,000.
66
67
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19
BUSINESS SEGMENT INFORMATION, CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Footwear:
Retail $ 66,922 $ 77,864 $ 74,506
Wholesale and manufacturing 140,530 134,654 61,881
- ----------------------------------------------------------------------------------------------------------------------------
Total footwear 207,452 212,518 136,387
Men's apparel 73,644 75,570 71,988
Corporate assets 28,290 29,780 28,869
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $309,386 $317,868 $237,244
============================================================================================================================
DEPRECIATION AND AMORTIZATION:
Footwear:
Retail $ 5,027 $ 4,994 $ 4,723
Wholesale and manufacturing 3,339 2,212 1,565
- ----------------------------------------------------------------------------------------------------------------------------
Total footwear 8,366 7,206 6,288
Men's apparel 1,883 1,299 1,591
Corporate 474 1,214 1,230
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 10,723 $ 9,719 $ 9,109
============================================================================================================================
ADDITIONS TO PLANT, EQUIPMENT
AND CAPITAL LEASES:
Footwear:
Retail $ 3,254 $ 4,788 $ 6,349
Wholesale and manufacturing 3,738 3,769 1,614
- ----------------------------------------------------------------------------------------------------------------------------
Total footwear 6,992 8,557 7,963
Men's apparel 993 1,032 1,095
Corporate 371 543 283
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ADDITIONS TO PLANT, EQUIPMENT
AND CAPITAL LEASES $ 8,356 $ 10,132 $ 9,341
============================================================================================================================
67
68
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 20
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1ST QUARTER 2ND QUARTER
----------------------- --------------------------
IN THOUSANDS 1994 1993 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $128,384 $112,853 $146,059 $130,043
Gross margin 46,703 41,442 52,000 48,307
Pretax earnings (loss) (691) (934) 770 2,083
Earnings (loss) before
extraordinary loss and
accounting change (742) (940) 456 1,574
Net earnings (loss) (3,015)(1) (940) 216(2) 1,574
Earnings (loss) per common share:
Before extraordinary loss and
accounting change (.03) (.04) .02 .07
Net earnings (loss) (.13) (.04) .01 .07
- ------------------------------------------------------------------------------------------------------------------------------------
3RD QUARTER 4TH QUARTER FISCAL YEAR
--------------------- ------------------------ ---------------------
IN THOUSANDS 1994 1993 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $154,096 $146,127 $144,321 $150,844 $572,860 $539,867
Gross margin 52,167 55,539 39,922 58,256 190,792 203,544
Pretax earnings (loss) (2,979) 6,852 (48,874)(3) 5,702 (51,774) 13,703
Earnings (loss) before
extraordinary loss and
accounting change (3,084) 4,851 (48,409) 4,208 (51,779) 9,693
Net earnings (loss) (3,084) 4,851 (48,409) 3,625(4) (54,292) 9,110
Earnings (loss) per common share:
Before extraordinary loss and
accounting change (.13) .21 (1.99) .17 (2.16) .40
Net earnings (loss) (.13) .21 (1.99) .15 (2.26) .38
====================================================================================================================================
(1) Reflects the cumulative effect of changes in the
method of accounting for postretirement benefits
due to the implementation of Statement of
Financial Accounting Standards No. 106.
(2) Includes an extraordinary loss of $240,000 from
the early retirement of long-term debt (see Note
10).
(3) Includes a restructuring charge of $29,379,000
(see Note 2).
(4) Includes an extraordinary loss of $583,000 (net
of a tax benefit of $37,000) from the early
retirement of long-term debt (see Note 10).
68
69
ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates by reference the (i) information regarding directors
of the Company appearing under the heading "Information Concerning Nominees" to
be included in the Company's proxy statement relating to the annual meeting of
shareholders scheduled for June 22, 1994 (the "Proxy Statement") and (ii)
information regarding compliance by persons subject to Section 16(a) of the
Securities Exchange Act of 1934 appearing under the heading "Compliance with
Beneficial Ownership Reporting Rules" to be included in the Proxy Statement.
Information regarding the executive officers of the Company appears under the
heading "Executive Officers of Genesco" in this report following Item 4 of Part
I.
ITEM 11, EXECUTIVE COMPENSATION
The Company incorporates by reference the (i) information regarding the
compensation of directors of the Company to appear under the heading "Director
Compensation" in the Proxy Statement and (ii) information regarding the
compensation of the Company's executive officers to appear under the heading
"Executive Compensation" in the Proxy Statement.
ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of the Company's voting securities
by (i) the Company's directors, (ii) certain executive officers and (iii) the
officers and directors of the Company as a group is incorporated by reference
to the Proxy Statement.
The following information regarding beneficial ownership on March 16, 1994
(except as indicated) of the Company's voting securities is furnished with
respect to each person or group of persons acting together who, as of such
date, was known by the Company to be the beneficial owner of more than five
percent of any class of the Company's voting securities. Beneficial ownership
of the shares consists of sole voting and investment power except as otherwise
noted.
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- --------- ------- ----------
Richard C. Blum & Associates, Inc. Common 2,026,600(1) 8.3
909 Montgomery Street
Suite 400
San Francisco, CA 94133
Brinson Partners, Inc. Common 1,229,500(2) 5.1
Brinson Trust Company
Brinson Holdings, Inc.
209 South LaSalle
Chicago, IL 60604-1295
69
70
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- --------- ------- ----------
Jeannie Bussetti Series 1 5,000 13.4
Ronald R. Bussetti
12 Carteret Drive
Pomona, NY 10970
Joseph Bussetti Series 1 2,000 5.4
52 South Lilburn Drive
Garnerville, NY 10923
S. Robert Weltz, Jr. Series 1 2,308 6.2
415 Hot Springs Road
Santa Barbara, CA 93108
Estate of Hyman Fuhrman, Deceased Series 3 1,081 5.5
c/o Sylvia Fuhrman
3801 South Ocean Drive
Hollywood, FL 33020
Goldman Sachs & Co.(3) Series 3 3,184 16.2
85 Broad Street
New York, NY 10004
Clinton Grossman Series 3 1,965(4) 10.0
3200 Park Avenue
Apt. 7A-1
Bridgeport, CT 06604
Hazel Grossman Series 3 1,074 5.5
3589 S. Ocean Blvd.
South Palm Beach, FL 33480
Roselyn Grossman Series 3 1,965(4) 10.0
3200 Park Avenue
Apt. 7A-1
Bridgeport, CT 06604
Stanley Grossman Series 3 1,965(4) 10.0
3200 Park Avenue
Apt. 7A-1
Bridgeport, CT 06604
June E. Kay Series 3 1,126 5.7
1 Washington Square Village
New York, NY 10012
Morgan Stanley Behr Incorporated Series 3 1,097 5.6
One Pierrepont Plaza
Brooklyn, NY 11201
Sigler & Co. Series 3 3,100 15.8
c/o First Chicago Trust Company
of New York
Stockholder Relations
RPO/Escheat Group
30 West Broadway
New York, NY 10007
70
71
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- --------- ------- ----------
Michael Miller, Trustee Series 4 5,605 34.2
Under Will of David Evins
% Bloom Hochberg & Co., Inc.
450 7th Avenue
New York, NY 10123
Dorothy L. Evins Series 4 2,571 15.7
401 East 80th Street
Apt. 28F
New York, NY 10021
Melissa Evins Series 4 2,893 17.6
417 East 57th Street
New York, NY 10022
Reed Evins Series 4 2,418 14.7
417 East 57th Street
Apt. 32B
New York, NY 10022
James H. Cheek, Jr. Subordinated 2,413 8.1
221 Evelyn Avenue Cumulative
Nashville, TN 37205 Preferred
______________
* See Note 12 to the Consolidated Financial Statements included in Item 8 and
under the heading "Voting Securities" included in the Company's Proxy Statement
for a more complete description of each class of stock.
(1) This information is as of July 1, 1993 and is based on statements on
Schedule 13D. These shares are deemed to be beneficially owned by Mr. Richard
C. Blum, who is the majority shareholder of Richard C. Blum & Associates, Inc.
The number of shares shown includes shares owned by (i) two investment
partnerships, BK Capital Partners III, L.P. and BK Capital Partners IV, L.P.,
for each of which Richard C. Blum & Associates, Inc. is the sole general
partner and (ii) the Carpenters Pension Trust of Southern California, for which
Richard C. Blum & Associates, Inc. is the investment advisor.
(2) This information is as of December 31, 1993 and is based on statements on
Schedule 13G.
(3) Goldman Sachs & Co. has indicated that it has no beneficial interest in
the 3,184 shares of Series 3 stock but is holding such shares for three
customers.
(4) Includes 1,965 shares of Series 3 stock owned by a trust of which Roselyn
Grossman, Stanley Grossman and Clinton Grossman are trustees.
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference information appearing under the
heading "Agreements with Management" included in the Company's Proxy Statement.
71
72
PART IV
ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following are included in Item 8.
Report of Independent Accountants
Consolidated Balance Sheet, January 31, 1994 and January 31, 1993
Consolidated Earnings, each of the three years ended January 31, 1994
Consolidated Cash Flows, each of the three years ended January 31, 1994
Consolidated Shareholders' Equity, each of the three years ended
January 31, 1994
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
VIII -Reserves, each of the three years ended January 31, 1994
X -Supplementary income statement information, each of the three years
ended January 31, 1994
All other schedules are omitted because the required information is either not
applicable or is presented in the financial statements or related notes. These
schedules begin on page 78.
EXHIBITS
(3) a. By-laws of Genesco Inc. Incorporated by
reference to Exhibit (3)a to the Company's
Annual Report on Form 10-K for the fiscal year
ended January 31, 1993.
b. Restated Charter of Genesco Inc. Incorporated
by reference to Exhibit (3)b to the Company's
Annual Report on Form 10-K for the fiscal year
ended January 31, 1993.
(4) Indenture dated as of February 1, 1993 between the
Company and United States Trust Company of New York
relating to 10 3/8% Senior Notes due 2003.
Incorporated by reference to Exhibit (4) to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993.
(10) a. Form of Split-Dollar Insurance Agreement with
Executive Officers. Incorporated by reference
to Exhibit (10)b to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 31, 1991.
b. Key Executives Stock Option Plan and Form of
Stock Option Agreement. Incorporated by
reference to Exhibit (10)c to the Company's
Annual Report on Form 10-K for the fiscal year
ended January 31, 1993.
c. Form of Officers and Key Executives
Change-in-Control Employment Agreement.
Incorporated by reference to Exhibit (10)d to
the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993.
d. 1987 Stock Option Plan and Form of Stock
Option Agreement. Incorporated by reference
to Exhibit (10)e to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993.
e. Description of Adjustable Life Insurance Plan
for Key Executive Officers. Incorporated by
reference to pages 23-24 under the heading
"Executive Compensation Life and Medical
Insurance Plans" in the Company's proxy
statement dated May 6, 1992.
72
73
f. 1994 Management Incentive Compensation Plan.
Incorporated by reference to Exhibit (10)h to
the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993.
g. 1995 Management Incentive Compensation Plan.
h. Other Executive Officer Personal Benefits.
Incorporated by reference to pages 10-17 under
the heading "Executive Compensation" in the
Company's proxy statement dated May 6, 1992.
i. National Agreement between Clothing
Manufacturers Association of the United States
of America and Amalgamated Clothing and
Textile Workers Union dated as of October 1,
1993.
j. Lease Agreement dated June 2, 1983 by and
between Corporate Property Associates 4 and
Genesco Inc. Incorporated by reference to
Exhibit (10)p to the Company's Registration
Statement on Form S-4 (No. 33-21688).
k. Restricted Stock Plan For Directors.
Incorporated by reference to Exhibit (10)k to
the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1992.
l. Form of Indemnification Agreement For
Directors. Incorporated by reference to
Exhibit (10)m to the Company's Annual Report
on Form 10-K for the fiscal year ended January
31, 1993.
m. Loan Agreement dated as of August 2, 1993 (1)
and amendment dated as of January 31, 1994
among the Company and NationsBank of North
Carolina, N.A., First National Bank of
Chicago, First American National Bank, CIBC,
Inc., The Hongkong and Shanghai Banking
Corporation Limited, First Union National Bank
of Tennessee, and Third National Bank in
Nashville. (1) Incorporated by reference to
Exhibit (4) to the Company's Quarterly Report
of Form 10-Q for the quarter ended July 31,
1993.
n. Promissory note dated as of September 29, 1993
between the Company and ABN AMRO Bank N.V.,
Atlanta Agency. Incorporated by reference to
Exhibit (4)d to the Company's Quarterly Report
of Form 10-Q for the quarter ended October 31,
1993.
o. Supplemental Pension Agreement dated as of
October 18, 1988 between the Company and
William S. Wire II, as amended January 9,
1993. Incorporated by reference to Exhibit
(10)p to the Company's Annual Report of Form
10-K for the fiscal year ended January 31,
1993.
p. Deferred Compensation Trust Agreement dated as
of February 27, 1991 between the Company and
NationsBank of Tennessee for the benefit of
William S. Wire, II, as amended January 9,
1993. Incorporated by reference to Exhibit
(10)q to the Company's Annual Report of Form
10-K for the fiscal year ended January 31,
1993.
q. Shareholder Rights Agreement dated as of
August 8, 1990 between the Company and Chicago
Trust Company of New York. Incorporated by
reference to Exhibit 1 to the Registration
Statement dated August 25, 1990 on Form 8-A.
First Amendment to the Rights Agreement dated
as of August 8, 1990. Incorporated by
reference to Exhibit (10)s to the Company's
Annual Report on Form 10-K for the fiscal year
ended January 31, 1991.
r. Employment agreement dated as of April 22,
1992 between the Company and E. Douglas
Grindstaff. Incorporated by reference to
Exhibit (10)b to the Company's Quarterly
Report on Form 10-Q for the quarter ended
April 30, 1992. Amendment dated as of
December 8, 1993 to the employment agreement
dated as of April 22, 1992 between the Company
and E. Douglas Grindstaff. Incorporated by
reference to Exhibit (10) to the Company's
Quarterly Report of Form 10-Q for the quarter
ended October 31, 1993.
73
74
s. Employment agreement with William S. Wire, II,
dated January 9, 1993. Incorporated by
reference to Exhibit (10) to the Company's
Registration Statement on Form S-3 (No.
33-52858).
t. Letters of credit agreement dated April 8,
1993 and amendment dated as of January 31,
1994 between the Company and the Bank of Nova
Scotia. Incorporated by reference to Exhibit
(10)u to the Company's Annual Report of Form
10-K for the fiscal year ended January 31,
1993.
u. Master promissory note dated as of August 2,
1993 between the Company and First American
National Bank. Incorporated by reference to
Exhibit (4)e to the Company's Quarterly Report
of Form 10-Q for the quarter ended October 31,
1993.
v. Revolving facilities agreement dated as of
September 15, 1993 between Mitre Sports
International Limited and Barclays Bank PLC.
Incorporated by reference to Exhibit (4)c to
the Company's Quarterly Report of Form 10-Q
for the quarter ended October 31, 1993.
w. Employment agreement dated as of December 8,
1993 between the Company and Thomas B. Clark.
x. Employment agreement dated as of October 26,
1993 between the Company and Michael A.
Corbett.
(11) Computation of earnings per share.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants included
on page 75.
(99) Financial Statements and Report of Independent
Public Accountants with respect to the Genesco Stock
Savings Plan being filed herein in lieu of filing
Form 11-K pursuant to Rule 15d-21.
Exhibits (10)a through (10)h and exhibits (10)k, (10)l, (10)r, (10)s, (10)w and
(10)x are Management Contracts or Compensatory Plans or Arrangements required
to be filed as Exhibits to this Form 10-K.
________________
A copy of any of the above described exhibits will be furnished to the
shareholders upon written request, addressed to Director, Corporate Relations,
Genesco Inc., Genesco Park, Room 498, P.O. Box 731, Nashville, Tennessee
37202-0731, accompanied by a check in the amount of $15.00 payable to Genesco
Inc.
REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the quarter ended January
31, 1994.
74
75
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 2-86509 and
33-52858) and the Registration Statements on Form S-8 (Nos. 2-61487, 2-70824,
33-15835, 33-30828, 33-35328, 33- 35329 and 33-50248) of Genesco Inc. of our
report dated February 22, 1994 appearing on page 37 of this Form 10-K. We
also consent to the incorporation by reference in the Registration Statement
on Form S-8 (No.33-35328) of Genesco Inc. of our report dated April 22, 1994
appearing on page 1 of the January 31, 1994 Genesco Stock Savings Plan
Financial Statements.
/s/ Price Waterhouse
PRICE WATERHOUSE
Nashville, Tennessee
May 2, 1994
75
76
SIGNATURES
Pursuant to the requirements of Section 13 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.
GENESCO INC.
By: /s/ James S. Gulmi
---------------------------------
James S. Gulmi
Vice President - Finance
Date: May 2, 1994
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 2nd day of May 1994.
/s/ E. Douglas Grindstaff President and Chief Executive Officer
- ------------------------------- and a Director
E. Douglas Grindstaff
/s/ James S. Gulmi Vice President - Finance
- ------------------------------- (Principal Financial Officer)
James S. Gulmi
/s/ Robert E. Brosky Controller and Chief Accounting Officer
- -------------------------------
Robert E. Brosky
Directors:
/s/ David M. Chamberlain /s/ Joel C. Gordon
- ------------------------------- ---------------------------------------
David M. Chamberlain Joel C. Gordon
/s/ W. Lipscomb Davis, Jr. /s/ William A. Williamson, Jr.
- ------------------------------- ---------------------------------------
W. Lipscomb Davis, Jr. William A. Williamson, Jr.
/s/ John Diebold /s/ William S. Wire, II
- ------------------------------- ---------------------------------------
John Diebold William S. Wire, II
/s/ Harry D. Garber
- -------------------------------
Harry D. Garber
76
77
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Financial Statement Schedules
January 31, 1994
77
78
SCHEDULE VIII
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Reserves
YEAR ENDED JANUARY 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------
CHARGED CHARGED
BEGINNING TO PROFIT TO OTHER INCREASES ENDING
IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE
- -----------------------------------------------------------------------------------------------------------------------------
Reserves deducted from assets in
the balance sheet:
Allowance for bad debts $2,457 1,396 31 (1) (1,819) (2) $2,065
Allowance for cash discounts 150 -0- -0- 27 (3) 177
Allowance for sales returns 191 -0- -0- 575 (4) 766
Allowance for customer deductions -0- -0- -0- 847 (5) 847
Allowance for co-op advertising 961 -0- -0- (242) (6) 719
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS $3,759 1,396 31 (612) $4,574
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------
CHARGED CHARGED
BEGINNING TO PROFIT TO OTHER INCREASES ENDING
IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE
- -----------------------------------------------------------------------------------------------------------------------------
Reserves deducted from assets in
the balance sheet:
Allowance for bad debts $2,328 2,161 175 (1) (2,207) (2) $2,457
Allowance for cash discounts 166 -0- -0- (16) (3) 150
Allowance for co-op advertising 331 -0- -0- 821 (6) 1,152
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS $2,825 2,161 175 (1,402) $3,759
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1992
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------
CHARGED CHARGED
BEGINNING TO PROFIT TO OTHER INCREASES ENDING
IN THOUSANDS BALANCE AND LOSS ACCOUNTS (DECREASES) BALANCE
- -----------------------------------------------------------------------------------------------------------------------------
Reserves deducted from assets in
the balance sheet:
Allowance for bad debts $2,172 2,102 71 (1) (2,017) (2) $2,328
Allowance for cash discounts 166 -0- -0- -0- (3) 166
Allowance for co-op advertising 400 -0- -0- (69) (6) 331
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS $2,738 2,102 71 (2,086) $2,825
=============================================================================================================================
Note: Most subsidiaries and branches charge credit and collection expense
directly to profit and loss. Adding such charges of $346,000 in 1994,
$268,000 in 1993, and $237,000 in 1992 to the addition above, the total
bad debt expense amounted to $1,742,000 in 1994, $2,429,000 in 1993, and
$2,339,000 in 1992.
________________________________________________________________________________
(1) Bad debt recoveries.
(2) Bad debt charged to reserve.
(3) Adjustment of allowance for estimated discounts to be allowed
subsequent to period end on receivables at same date.
(4) Adjustment of allowance for sales returns to be allowed
subsequent to period end on receivables at same date.
(5) Adjustment of allowance for customer deductions to be
allowed subsequent to period end on receivables at same date.
(6) Adjustment of allowance for estimated co-op advertising
to be allowed subsequent to period end on receivables at same date.
See Note 4 to the Consolidated Financial Statements included in Item 8.
78
79
SCHEDULE X
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Supplementary Profit and Loss Information
Years Ended January 31
- ----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Maintenance and repairs $ 5,356 $ 4,871 $ 4,699
Advertising 28,815 19,933 14,918
============================================================================================================================
79