1
GENESCO
[LOGO]
(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, 1995
/ / 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
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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. / X /
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the June 28, 1995
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 20, 1995 -
24,343,663
Aggregate market value on April 20, 1995 of the
voting stock held by nonaffiliates of the
registrant was approximately $79,000,000.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 66
PART III
Item 10. Directors and Executive Officers of the Registrant 66
Item 11. Executive Compensation 66
Item 12. Security Ownership of Certain Beneficial Owners and Management 66
Item 13. Certain Relationships and Related Transactions 68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 69
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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. The Company's owned and licensed
footwear brands of ongoing operations, sold through both wholesale and retail
channels of distributions include Johnston & Murphy, Dockers and Nautica shoes
and Laredo and Code West boots.
Products of Genesco's ongoing operations are sold at wholesale to more than
5,000 retailers, including a number of leading department, discount and
specialty stores, and at retail through the Company's own network of 498 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's ongoing operations operate in one business segment, footwear.
References to Fiscal 1992, 1993, 1994 or 1995 are to the Company's fiscal year
ended on January 31 of each such year. For further information on the
Company's business segment, see Note 21 to the Consolidated Financial
Statements included in Item 8 and Management's Discussion and Analysis of
Financial Condition and Results of Operations. Prior to its discontinuation
pursuant to the 1995 Restructuring (defined below), the Company's business
included operations in a men's apparel segment. All information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations which is referred to in Item 1 of this report is incorporated by
such reference in Item 1.
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations, on November 3, 1994,
the Company's board of directors approved a plan (the "1995 Restructuring")
designed to focus the Company on its core footwear businesses by selling or
liquidating four businesses, two of which constitute its entire men's apparel
segment.
The 1995 Restructuring provides for the following:
- Liquidation of the University Brands children shoes business;
- sale of the Mitre Sports soccer business;
- facility consolidations and permanent work force reductions;
- liquidation of The Greif Companies men's tailored clothing
business; and
- sale of the GCO Apparel Corporation tailored clothing manufacturing
business.
See Note 2 to the Consolidated Financial Statements and "Significant
Developments" in Management's Discussion and Analysis of Financial Condition
and Results of Operations for information regarding the restructuring and the
financial effects thereof.
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FOOTWEAR
Wholesale
The Company distributes its footwear products at wholesale to more than 5,000
retailers, including independent shoe merchants, department stores, mail order
houses and other retailers. Substantially all of the Company's wholesale
footwear sales are Genesco-owned or -licensed brands.
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 $128. 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 $65 to $180. 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 $110 to $150. See "Results of Operations-Fiscal 1995 Compared to
Fiscal 1994-Footwear Wholesale and Manufacturing" in Management's Discussion
and Analysis of Financial Condition and Results of Operations for information
regarding the Company's boot operations in Fiscal 1995.
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.
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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. Representative suggested retail
prices of Nautica footwear are $98 to $150.
Retail
At January 31, 1995 the Company operated 498 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,
1994 1995 1994 1995
-------- -------- -------- -------
Johnston & Murphy . . . . . . . . . . . 103 109 7 7
Jarman . . . . . . . . . . . . . . . . 160 138 82 83
Journeys . . . . . . . . . . . . . . . 104 89 - -
Hardy . . . . . . . . . . . . . . . . . 18 2 - -
Boot Factory . . . . . . . . . . . . . 28 33 - -
Factory To You . . . . . . . . . . . . 9 10 - -
Suits & Shoes . . . . . . . . . . . . . - 6 - -
University Brands . . . . . . . . . . . - - 7 21(1)
--- --- -- ---
Total . . . . . . . . . . . . . 422 387 96 111
=== === == ===
____________________
(1) The University Brands leased departments have been discontinued as part of
the 1995 Restructuring.
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
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
Retail Stores and Leased Departments
Beginning of year . . . . . . . . . . . . . . . . 628 613 575 540 518
Opened during year . . . . . . . . . . . . . . . 47 26 24 26 52
Closed during year . . . . . . . . . . . . . . . (62) (64) (59) (48) (72)
--- --- --- --- ---
End of year . . . . . . . . . . . . . . . . . . . 613 575 540 518 498
=== === === === ===
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During Fiscal 1995 Genesco opened 34 stores and 18 leased departments and
closed 69 stores, 39 of which were included in a restructuring plan adopted at
January 31, 1994 (the "1994 Restructuring"), and three leased departments. The
Company is planning to open 16 stores and to close 48 stores and leased
departments in Fiscal 1996. Twenty-one of the closings relate to the Company's
University Brands division, which has been divested as part of the 1995
Restructuring. The Company ceased operating the leased departments in February
1995. Actual store closings and store openings will depend upon store
operating results, the availability of suitable locations, lease negotiations
and other factors.
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 109 Johnston & Murphy stores at January 31, 1995,
16 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 branded merchandise of other shoe
companies. Jarman leased departments, all of which are located in department
stores of a major, unaffiliated retail company, carry primarily branded
merchandise of other shoe companies and do not operate under the Jarman trade
name.
Journeys. Journeys stores target shoe buyers in the 13-22 year age group with
fashion merchandise, using popular music videos and youth oriented decor to
attract their customer base. Journeys stores carry predominantly branded
merchandise of other shoe companies.
Boot Factory; Factory to You; Suits & Shoes. The Company's 33 Boot Factory
outlet stores, located primarily in the southeastern United States, sell
primarily the Company's Laredo and Code West lines of boots. Factory To You
and Suits & Shoes stores, located primarily in the southeastern United States,
sell mainly factory damaged, overrun and close-out footwear products and suits
from the Company's own plants as well as other manufacturers.
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Manufacturing and Sourcing
The Company sources its footwear product from its own domestic manufacturing
facilities and from 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 four facilities in the
southeastern United States and one facility in the United Kingdom. During
Fiscal 1995, approximately 66% of the footwear products manufactured by the
Company were men's, 25% were women's and 9% were children's. Approximately 82%
of the Company-manufactured footwear products were sold at wholesale, and 18%
at retail through stores and leased departments operated by the Company. The
estimated productive capacity of the U.S. footwear plants was approximately 75%
utilized in Fiscal 1995. 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. For information
regarding the Company's response to excess productive capacity in its
factories, see "Results of Operations - Fiscal 1995 Compared to Fiscal 1994" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The Company also conducts leather tanning and finishing operations in two
manufacturing facilities located in Michigan and Tennessee. Approximately 9%
of tanned leather products sold in Fiscal 1995 were for internal use, and the
balance was sold to military boot manufacturers and other unaffiliated
customers.
MEN'S APPAREL
On November 3, 1994 the Company's board of directors approved a plan to exit
the entire men's apparel segment. See Note 2 to the Consolidated Financial
Statements and "Significant Developments" in Management's Discussion and
Analysis of Financial Condition and Results of Operations for information
regarding the plan and the financial effects thereof.
COMPETITION
The Company operates in a highly competitive market in footwear. 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 wholesale and 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. Manufacturers in foreign countries with lower labor costs have a
significant price advantage.
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LICENSES
The Company owns its Johnston & Murphy, Laredo and Code West footwear brands.
The Nautica and Dockers brand footwear lines, introduced in Fiscal 1993, are
sold under license agreements whose initial terms expire in 1997 and 1996,
respectively, with renewal options that extend through 2007 and 2001,
respectively. 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 footwear brands
are generally conditioned upon the Company's meeting certain minimum sales
requirements. Management expects to be able to renew the license agreements
upon expiration of the initial terms.
Sales of licensed products of ongoing operations were approximately $31 million
in Fiscal 1995 and approximately $22 million in the previous year.
The Company licenses certain of its footwear brands, mostly in foreign markets.
License royalty income was not material in Fiscal 1995.
RAW MATERIALS
Genesco is not dependent upon any single source of supply for any major raw
material. In Fiscal 1995 the Company experienced no significant shortages of
raw materials in its principal businesses. The Company considers its available
raw material sources to be adequate.
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BACKLOG
On March 31, 1995, the Company's ongoing footwear wholesale operations
(including leather tanning operations but excluding the Mitre and
University Brands operations that are being divested as part of the 1995
Restructuring), which accounted for 40% of continuing operations' sales in
Fiscal 1995, had a backlog of orders, including unconfirmed customer purchase
orders, amounting to approximately $30.0 million, compared to approximately
$23.8 million on March 31, 1994. Most orders are for delivery within 90 days.
Therefore, the backlog at any one time is not necessarily indicative of future
sales for an extended period of time. The backlog is somewhat seasonal,
reaching a peak in the spring. Footwear companies maintain in-stock programs
for selected anticipated high volume styles.
EMPLOYEES
Genesco had approximately 5,400 employees at January 31, 1995 including
approximately 770 part-time employees. Retail shoe stores employ a substantial
number of part-time employees during peak selling seasons. Approximately 70
employees of the Company's tanning operations are covered by a collective
bargaining agreement, which will expire May 31, 1995. Negotiations for renewal
of the contract have begun. The Company does not expect that the labor
negotiations will have a materially adverse effect on the Company's results of
operations or financial condition. Of the Company's 5,400 employees,
approximately 3,900 were employed in footwear, 1,400 in discontinued tailored
clothing operations and 100 in corporate staff departments. See "Significant
Developments - Fiscal 1995 Restructuring" included in Management's
Discussion and Analysis of Financial Condition and Results of Operations for
information regarding the Company's elimination of all the tailored clothing
jobs and the job eliminations in footwear operations to be divested or
consolidated and in staff positions to be eliminated.
PROPERTIES
The Company operates 12 manufacturing and 5 warehousing facilities,
substantially all of which are leased, aggregating 2,300,000 square feet. The
17 facilities are located in six states in the United States and in
Huddersfield, England. The English facility is part of the Mitre operations to
be sold as part of the 1995 Restructuring. There are 13 footwear facilities
with approximately 1,700,000 square feet and four tailored clothing facilities
with approximately 600,000 square feet.
The Company's executive offices and the offices of its footwear operations are
in a 295,000 square foot leased building in Nashville, Tennessee.
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 typically 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 believes that all leases
(other than long-term leases) of properties that are material to its operations
may be renewed on terms not materially less favorable to the Company than
existing leases. See Note 13 to the Consolidated Financial Statements included
in Item 8 for information about commitments under capital and operating leases.
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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 and has been involved in proceedings
regarding 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
Tennessee Environmental 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 resided or owned property in the vicinity of the site described
above. The plaintiffs alleged that the Company was 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. On November 2, 1994, the Company
concluded a settlement agreement disposing of all claims in the litigation
which had not been previously settled, resulting in a charge to earnings of
approximately $659,000 in the third quarter of Fiscal 1995. The Company had
previously concluded settlement agreements with the other plaintiffs providing
for payments by the Company aggregating approximately $675,000 and for the
purchase of a residence at an appraised value of approximately $170,000.
New York State Environmental Proceedings
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.
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The environmental authorities have issued decisions selecting plans of
remediation with respect to the Johnstown and Gloversville sites which have
total 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 $1,500,000 to cover its
estimated share of future remediation costs. 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.
Whitehall Environmental Sampling
The Michigan Department of Natural Resources ("MDNR") has performed sampling
and analysis of soil, sediments, surface water, groundwater, and waste
management areas at the Company's Volunteer Leather Company facility in
Whitehall, Michigan. MDNR has advised the Company that it will review the
results of the analysis for possible referral to the U.S. Environmental
Protection Agency ("EPA") for action under the Comprehensive Environmental
Response Compensation and Liability Act. Neither MDNR nor the EPA has
threatened or commenced any enforcement action or suggested any remediation
activity. The Company is studying the MDNR data and intends to cooperate with
MDNR to identify and implement appropriate responsive action. The Company is
not yet able to estimate the costs associated with this matter or to determine
whether the required actions, if any, will have a material effect on its
financial condition or results of operations.
Preferred Shareholder Action
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. On July 6, 1994, the court denied a motion for partial summary
judgement filed on behalf of the plaintiffs. 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, 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.
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The Chancery Court determined that the fair value of a share of series 2 was
$131.32 and of a share of series 3 was $193.11, compared with $91 a share for
series 2 and $46 a share for 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. In September 1994, the Company paid the dissenter's legal
fees and expenses aggregating approximately $445,000.
FIFA Infringements Action
On February 3, 1995, the Company's subsidiary, Mitre Sports International
Limited, with numerous other manufacturers and marketers of soccer balls, was
served with a complaint filed in the U.S. District Court for the Northern
District of Georgia by Federation Internationale de Football Association
("FIFA"), ISL Marketing A.G. and World Cup U.S.A. 1994, Inc. alleging trademark
infringement, copyright infringement, unfair competition, breach of contract
and other claims arising out of the defendants' use of designations including
the name "FIFA" on balls to denote their conformity to official size and weight
requirements of FIFA-sanctioned soccer competitions. The complaint seeks
injunctive relief and unspecified damages. The subsidiary has answered the
complaint and asserted counterclaims based on federal antitrust law, and
intends to defend the action vigorously. The Company is unable to predict the
outcome of this action but does not believe it will have a materially adverse
effect on its financial condition or results of operations.
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 1995.
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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:
David M. Chamberlain, 51, Chairman, President and Chief Executive Officer of
Genesco. Mr. Chamberlain was elected president and chief executive officer on
October 13, 1994 and chairman as of February 1, 1995. Mr. Chamberlain joined
Shaklee Corporation, a manufacturer and marketer of consumer products, in 1983
as president and chief operating officer, was elected a director in 1983 and
served as chief executive officer from 1985 until 1993. He was chairman of
Shaklee Corporation from 1989 until May 1994, when he became a partner in
Consumer Focus Partners, a California venture capital firm. Prior to 1983 he
was senior vice president and group executive of Nabisco Brands Ltd., Canada.
He has been a director of Genesco since 1989.
James S. Gulmi, 49, Vice President - Finance, Treasurer 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 the responsibilities of chief
financial officer in 1986. He was again elected treasurer in February 1995.
Steven E. Little, 53, Vice President - Administration. Mr. Little has served
in various human resources and operations management roles during his 30 year
tenure with Genesco. Mr. Little was named vice president - human resources in
1994 and assumed his present responsibilities in December 1994.
Roger G. Sisson, 31, Secretary and Legal Counsel. Mr. Sisson joined the
Company in January 1994 as assistant general counsel and was elected secretary
in February 1994 and amended his present responsibility in October 1994.
Before joining the Company, Mr. Sisson was associated with the firm of Boult,
Cummings, Conners & Berry for approximately six years.
Paul D. Williams, 40, Chief Accounting Officer. Mr. Williams joined the
Company in 1977, was named director of corporate accounting and financial
reporting in 1993 and chief accounting officer in April 1995.
Fowler H. Low, 63, Chairman of Johnston & Murphy (a division of Genesco). Mr.
Low has 39 years of experience in the footwear industry, including 32 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, 51, President of Genesco Retail (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. In February 1995, he was named president
of Retail Footwear, which includes the Jarman Shoe Company, Journeys and
Factory to You.
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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
- ---------------------------- ---- ---
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
Fiscal Year ended January 31
- ----------------------------
1995 1st Quarter 4 7/8 3 5/8
2nd Quarter 4 1/8 2 3/4
3rd Quarter 3 3/8 2 1/8
4th Quarter 2 3/8 1 5/8
There were approximately 14,000 common shareholders of record on January 31,
1995.
See Notes 12 and 14 to the Consolidated Financial Statements included in Item 8
for information regarding restrictions on dividends and redemptions of capital
stock.
14
15
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL SUMMARY
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 31
IN THOUSANDS EXCEPT PER COMMON SHARE DATA, ---------------------------------------------------------
FINANCIAL STATISTICS AND OTHER DATA 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS DATA
Net sales $462,901 $467,891 $430,127 $352,475 $355,740
Depreciation and amortization 9,224 10,723 9,719 9,109 8,915
Operating income (loss)* 4,820 (2,968) 27,415 13,047 11,896
Pretax earnings (loss) (17,757) (29,788) 7,638 (3,154) (3,739)
Earnings (loss) before discontinued operations,
extraordinary loss and cumulative effect of
change in accounting principle (18,514) (27,888) 2,640 (4,479) (3,789)
Discontinued operations (62,678) (23,891) 7,053 4,940 5,071
Loss on early retirement of debt (net of tax) -0- 240 583 -0- 1,688
Cumulative effect of change in accounting
for postretirement benefits -0- 2,273 -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(81,192) $(54,292) $ 9,110 $ 461 $ (406)
===============================================================================================================
PER COMMON SHARE DATA
Earnings (loss) before discontinued operations,
extraordinary loss and postretirement benefits
Primary $ (.77) $ (1.17) $ .10 $ (.21) $ (.18)
Fully diluted (.77) (1.17) .10 (.21) (.18)
Discontinued operations
Primary (2.58) (.99) .30 .22 .22
Fully diluted (2.58) (.99) .30 .22 .22
Extraordinary loss
Primary .00 (.01) (.02) .00 (.07)
Fully diluted .00 (.01) (.02) .00 (.07)
Postretirement benefits
Primary .00 (.09) .00 .00 .00
Fully diluted .00 (.09) .00 .00 .00
Net earnings (loss)
Primary (3.35) (2.26) .38 .01 (.03)
Fully diluted (3.35) (2.26) .38 .01 (.03)
===============================================================================================================
BALANCE SHEET DATA
Total assets $243,878 $309,386 $317,868 $237,244 $251,384
Long-term debt 75,000 90,000 54,000 14,885 28,921
Capital leases 12,400 15,253 14,901 12,099 10,080
Non-redeemable preferred stock 7,943 8,064 8,305 8,330 14,272
Common shareholders' equity 21,450 90,659 146,746 140,834 134,887
Additions to plant, equipment and capital leases 5,762 8,356 10,132 9,341 11,922
===============================================================================================================
FINANCIAL STATISTICS
Operating income as a percent of net sales 1.0% (0.6%) 6.4% 3.7% 3.3%
Book value per share $ .87 $ 3.73 $ 6.33 $ 6.16 $ 5.96
Working capital $100,731 $160,094 $168,875 $132,871 $143,538
Current ratio 2.2 3.3 3.5 3.8 3.7
Percent long-term debt to total capital 74.8% 51.6% 30.8% 15.3% 20.7%
===============================================================================================================
OTHER DATA (END OF YEAR)
Number of retail outlets 498 518 540 575 613
Number of employees 5,400 6,950 6,550 6,150 6,150
===============================================================================================================
* Represents operating income of the footwear business segment.
Reflected in the loss for Fiscal 1995 and Fiscal 1994 was a restructuring
charge of $22.1 million and $12.3 million, respectively. See Note 2 to the
Consolidated Financial Statements for additional information regarding these
charges.
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 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 14
to the Consolidated Financial Statements for a description of limitations on
the Company's ability to pay dividends.
15
16
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 21 to the
Consolidated Financial Statements included in Item 8.
SIGNIFICANT DEVELOPMENTS
Fiscal 1995 Restructuring
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations, the Company's board
of directors, on November 3, 1994, approved a plan (the "1995 Restructuring")
designed to focus the Company on its core footwear businesses by selling or
liquidating four businesses, two of which constitute its entire men's apparel
segment. The ongoing businesses, after implementation of the 1995
Restructuring, will include the manufacture or sourcing, marketing and
distribution of footwear under the Johnston & Murphy, J. Murphy, Domani,
Laredo, Code West, Dockers and Nautica brands, the tanning and distribution of
leather by the Volunteer Leather division and the operation of Jarman,
Journeys, Johnston & Murphy, J. Murphy, Boot Factory and Factory To You retail
footwear stores.
The 1995 Restructuring provides for the following:
1995 Restructuring Charge
- Liquidation of the University Brands children's shoe business,
- Sale of the Mitre Sports soccer business, and
- Facility consolidation costs and permanent work force reductions.
1995 Restructuring Provision
- Liquidation of The Greif Companies men's tailored clothing business, and
- Sale of the GCO Apparel Corporation tailored clothing manufacturing
business.
In connection with the 1995 Restructuring, the Company took a combined charge
of $90.7 million in the third quarter of Fiscal 1995, of which $22.1 million
(the "1995 Restructuring Charge") related to University Brands and Mitre and
other costs described below and $68.6 million (the "1995 Restructuring
Provision") related to Greif and GCO Apparel, which constitute the entire men's
apparel segment of the Company's business, and is therefore treated for
financial reporting purposes as a provision for discontinued operations. No
tax benefit is currently available with respect to either the 1995
Restructuring Charge or the 1995 Restructuring Provision.
The 1995 Restructuring Charge included $10.7 million in asset write-downs, $2.6
million of foreign currency translation adjustments realization and $8.8
million of other costs. Other costs include primarily facility shutdown costs
and payments related to the permanent work force reductions. The 1995
Restructuring Charge provides for the elimination of approximately 535 jobs in
footwear operations to be divested or consolidated and in staff positions to be
eliminated of which 36 jobs had been eliminated by January 31, 1995.
The 1995 Restructuring Provision included $27.5 million in asset write-downs
and $41.1 million of other costs. Other costs included primarily union pension
liability, employee severance arrangements, facility shutdown costs and other
contract liabilities.
In the fourth quarter the 1995 Restructuring Provision was adjusted by a
reversal of $10.5 million, reducing the $68.6 million provision for future
losses of discontinued operations to $58.1 million. The reversal reflects the
favorable consequences of a transfer, not anticipated at the time the provision
was recorded, of a licensing agreement for men's apparel to another
manufacturer. The transfer resulted in realization of inventory and
accounts receivable balances on more favorable terms than anticipated,
assumption of piece goods commitments by other
16
17
manufacturers and cancellation of minimum royalty requirements under the
transferred license.
The divestiture of the University Brands business was completed in February
1995. The operations of The Greif Companies have ceased and its inventories
and equipment have been liquidated. The other divestitures anticipated by the
1995 Restructuring are presently in process. The outcome of these divestitures
and other aspects of the 1995 Restructuring may cause adjustments to the 1995
Restructuring Charge and Provision. The Company anticipates that variations in
the timing of these adjustments may affect the results of operations and cash
flows of the Company from quarter to quarter during the remainder of Fiscal
1996 and that some variations may be material. While the Company is unable to
predict with certainty the extent, if any, to which the aggregate cash proceeds
from the 1995 Restructuring will exceed the cash requirements thereof, it
currently anticipates that cash proceeds will exceed requirements by
approximately $10 million. Any excess cash will be reinvested in the Company's
ongoing businesses. Excess cash requirements, if any, from quarter to quarter
during the implementation of the 1995 Restructuring are expected to be funded
from cash flow from operations and, if necessary, from revolving credit
borrowings.
Revolving Credit Agreement
On October 31, 1994, the Company's revolving credit agreement was amended to
adjust certain financial covenants to reflect operating results, including the
charges and provisions associated with the 1995 Restructuring, and to reduce
the facility from $100 million to $65 million (subject to further reductions).
See Notes 2 and 12 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS - FISCAL 1995 COMPARED TO FISCAL 1994
The Company's net sales from continuing operations for the year ended January
31, 1995 decreased 1.1% from the previous year. Total gross margin for the
year decreased 1.4% and declined from 37.5% to 37.4% as a percentage of net
sales. Selling and administrative expenses decreased 8.7% and decreased as a
percentage of net sales from 38.9% to 35.9%. The pretax loss in Fiscal 1995
was $17,757,000, compared to a pretax loss of $29,788,000 for Fiscal 1994. The
Company reported a net loss of $81,192,000 ($3.35 per share) for Fiscal 1995
compared to a net loss of $54,292,000 ($2.26 per share) in Fiscal 1994. The
pretax loss for Fiscal 1995 includes the $22.1 million 1995 Restructuring
Charge and recognition of $4.9 million of additional gain on the sale in 1987
of the Company's Canadian operations, while the pretax loss for Fiscal 1994
includes a $12.3 million restructuring charge in connection with a
restructuring plan adopted at January 31, 1994 (the "1994 Restructuring").
Fiscal 1995 net loss includes, in addition to the 1995 Restructuring Charge,
the adjusted $58.1 million 1995 Restructuring Provision while Fiscal 1994
includes a $17.1 million provision relating to discontinued operations. See
Note 2 to the Consolidated Financial Statements. 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 17 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 12 to the Consolidated Financial
Statements.
17
18
Footwear Retail
Fiscal Year
Ended January 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales $234,448 $231,456 1.3%
Operating Income before
Restructuring Charges $ 17,161 $ 4,832 255%
Restructuring Charges $ 236 $ 8,673 (97.3%)
Operating Income $ 16,925 $ (3,841) -
Operating Margin 7.2% (1.7)%
Led by an increase in comparable store sales of approximately 4%, net sales
from footwear retail operations increased 1.3% in Fiscal 1995 compared to
Fiscal 1994. The average price per pair increased 3%, while unit sales were
flat from Fiscal 1994, primarily from the operation of fewer stores.
Gross margin as a percentage of net sales increased from 49.3% to 50.5%,
primarily from decreased markdowns. Operating expenses decreased 5.8%,
primarily due to the operation of fewer stores as a result of the 1994
Restructuring (see Note 2 to the Consolidated Financial Statements) and lower
advertising expenses, and decreased as a percentage of net sales from 47.0% to
43.7%. Operating income for Fiscal 1995 does not include operating losses of
the 58 retail stores included in the 1994 Restructuring.
Operating income before restructuring charges in Fiscal 1994, adjusted to
exclude results of the stores included in the 1994 Restructuring, was
$8,178,000. Current operating income before restructuring charges of
$17,161,000 in Fiscal 1995 was higher than last year's adjusted operating
income due to improved margins and lower operating expenses.
Footwear Wholesale & Manufacturing
Fiscal Year
Ended January 31,
------------------------ %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales $228,453 $236,435 (3.4)%
Operating Income before
Restructuring Charges $ 8,473 $ 4,115 105.9%
Restructuring Charges $ 20,578 $ 3,242 534.7%
Operating Income $(12,105) $ 873 -
Operating Margin (5.3)% 0.4%
18
19
Net sales from footwear wholesale and manufacturing operations were $8.0
million (3.4%) lower in Fiscal 1995 than in the previous year, reflecting
primarily lower unit sales and selling prices of western boots and, to a lesser
extent, lower sales of tanned leather.
Gross margin as a percentage of net sales decreased from 26.0% to 23.9%,
primarily due to volume-related manufacturing inefficiencies and price
reductions to stimulate sales in the Company's boot operations.
Operating expenses decreased 11.2% and decreased as a percentage of net sales
from 24.2% to 22.2%, primarily because of reduced advertising expenses.
The increase in operating income before restructuring charges is due to lower
operating expenses and a $1.6 million reduction in losses related to the
companies being divested.
Driven by record sales, western boot production in the first quarter of Fiscal
1994 resulted in positive manufacturing variances in the Company's boot plants.
A sharp decline in the sale of western boots led to a decision in the latter
part of Fiscal 1994 to curtail western boot production. Despite the closing of
a western boot plant in the first quarter of Fiscal 1995 pursuant to the 1994
Restructuring, the lower volume of boots manufactured in Fiscal 1995 resulted
in manufacturing inefficiencies which negatively impacted gross margin. The
1995 Restructuring Charge includes a provision to close another boot
manufacturing plant, which closed in January 1995.
The net sales and operating loss before restructuring provision for Fiscal 1994
of the University Brands and Mitre Sports businesses that are being disposed of
in the 1995 Restructuring were $75,972,000 and $1,729,000, respectively. The
net sales for Fiscal 1995 of the divisions being divested were $74,818,000.
The operating loss before restructuring of $167,000 for Fiscal 1995 is for the
nine months ended October 31, 1994 since the operating results subsequent to
October 31, 1994 have been charged against the provision for restructuring.
Discontinued Operations
On November 3, 1994, in response to worsening trends in the Company's men's
apparel business the Company's board of directors approved a plan to exit the
men's apparel business. See "Significant Developments-Fiscal 1995
Restructuring" and Note 2 to the Consolidated Financial Statements for
information regarding the discontinuation of this business segment. Net sales
and operating loss of the men's apparel segment in Fiscal 1995 prior to the
decision to discontinue were $81.8 million and $4.5 million, respectively. In
addition, a $58.1 million provision for discontinued operations was recorded in
Fiscal 1995.
Net sales and operating loss of the segment for Fiscal 1994 were $105 million
and $4.9 million, respectively. In addition, there was a $17.1 million
restructuring charge related to the men's apparel segment taken at January 31,
1994 in connection with the 1994 Restructuring.
19
20
Corporate and Interest Expenses
Corporate and other expenses in Fiscal 1995 were $15.5 million, compared to
$16.5 million for Fiscal 1994, a decrease of approximately 6%. Included in
corporate and other expenses in Fiscal 1995 are provisions of $1.4 million for
environmental litigation compared to only $500,000 of such provisions in Fiscal
1994. Fiscal 1995 expenses also include $2.3 million of severance costs, $1.3
million of which relates to the 1995 Restructuring, while Fiscal 1994 also
includes $2.5 million of severance costs, $404,000 of which relates to the 1994
Restructuring. Fiscal 1994's expenses also include a provision of $448,000 for
an adverse decision in a lawsuit and a $558,000 gain from the sale of excess
real estate. Excluding the provisions for environmental litigation and the
severance costs, corporate expenses in Fiscal 1995 decreased 13% from Fiscal
1994, due primarily to lower compensation expenses due to layoffs related to
the restructurings and other staff reductions that occurred after the first
quarter of Fiscal 1994. It is expected that compensation expense will be
further reduced in Fiscal 1996 as the 1995 Restructuring is fully implemented.
Interest expense increased $925,000, or 8%, from last year, because of an
increase in both average borrowings and average interest rates.
Other Income
Operating results of stores identified for closure and businesses to be
divested pursuant to the 1994 and 1995 Restructurings are included in the
Company's sales, gross margin and selling and administrative expenses. The
net operating losses incurred by these operations subsequent to the decision to
divest are charged against the restructuring reserves established to provide
for such losses. The elimination of these losses from the Company's results of
operations in Fiscal 1995 is presented as other income in the Consolidated
Earnings Statement. Such operating losses totalled $5.5 million.
RESULTS OF OPERATIONS - FISCAL 1994 COMPARED TO FISCAL 1993
The Company's net sales of continuing operations for the year ended January 31,
1994 increased 8.8% from Fiscal 1993. Total gross margin for the year
decreased 0.6% and declined from 41.0% to 37.5% as a percentage of sales.
Selling and administrative expenses increased 12.8% and increased as a
percentage of sales from 37.5% to 38.9%. The pretax loss for Fiscal 1994 was
$29.8 million, compared to pretax earnings of $7.6 million for Fiscal 1993.
Included in Fiscal 1994 pretax loss is a $12.3 million restructuring charge in
connection with the 1994 Restructuring. See Note 2 to the Consolidated
Financial Statements. 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 $17.1 million provision for loss on
discontinued operations and 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 17 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 12 to the
Consolidated Financial Statements.
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%
20
21
Net sales from footwear retail operations increased 1.6% in Fiscal 1994 as
compared to Fiscal 1993 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 1994
Restructuring charge in connection with the 1994 Restructuring 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 expenses. The decline in operating
income, excluding an $8.7 million restructuring charge in Fiscal 1994, is
attributable to the increased markdowns and to the operating expense increase.
Footwear Wholesale & Manufacturing
Fiscal Year
Ended January 31,
------------------------- %
1994 1993 Change
-------- -------- ------
(In Thousands)
Sales . . . . . . . . . . . . . . . . . . . . . . . $236,435 $202,386 16.8%
Operating Income . . . . . . . . . . . . . . . . . . $ 873 $ 18,244 (95.2%)
Operating Margin . . . . . . . . . . . . . . . . . . .4% 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 inefficiencies and price reductions to stimulate sales
and, to a lesser extent, to lower-margin product mix caused by increased tanned
leather sales.
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 boot products, a new line of casual men's shoes, which
had to be repositioned at lower price points, and 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.
21
22
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 when 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 sources 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 one of its manufacturing plants in connection with the 1994
Restructuring.
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
in Fiscal 1994, 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
Corporation, which began operations in August 1993, declined by 13.6%.
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.
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 the
Company's Greif division. 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.
22
23
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 made improvements in the
quality of its products for spring 1994 resulting in increased costs to
manufacture the products 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 Ralph Lauren licenses for Chaps and
Polo University Club which accounted for $33.8 million of sales in Fiscal 1994,
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.
Corporate and Interest Expenses
Corporate and other expenses were $16.5 million in Fiscal 1994, compared to
$14.1 million for the previous year, an increase of 17%. Fiscal 1994 expenses
included a net expense in the amount of $2,932,000, comprised of $2,138,000 for
corporate staff severance payments, a $500,000 provision for environmental
litigation, a provision of $448,000 for an adverse decision in a lawsuit and
$404,000 for corporate restructuring, partially offset by a $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.
23
24
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
January 31
--------------------------------
1995 1994 1993
------ ------ ------
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . $ 10.2 $ 3.6 $ 4.8
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100.7 $160.1 $168.9
Long-term debt (includes current
maturities)
10 3/8% senior notes . . . . . . . . . . . . . . . . . . . . . . . $ 75.0 $ 75.0 -
Refinanced long-term debt* . . . . . . . . . . . . . . . . . . . . - - $ 32.0
Revolving credit debt . . . . . . . . . . . . . . . . . . . . . . . - $ 15.0 $ 22.0
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2x 3.3x 3.5x
_______________
* The refinanced long-term debt includes $12 million of 9.75% debt and $20
million of 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 provided by operating activities was $22.5 million in Fiscal 1995 while
cash used by operating activities was $17.4 million in Fiscal 1994 and $5.0
million in Fiscal 1993. The $39.9 million improvement in cash flow from
operating activities for Fiscal 1995 from Fiscal 1994 reflects factors
including the cash inflows from the disposal of assets included in the 1995
Restructuring, lower footwear wholesale inventory (primarily in the Company's
boot business) lower tailored clothing inventory prior to the decision to
liquidate as a result of anticipated lower Greif sales, reduced raw material
purchases and lower inventories from retail store closings. 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.
24
25
A $25.5 million decrease in inventories reflected in the Consolidated Cash Flow
statement from January 31, 1994 levels was primarily due to liquidation of
inventories in connection with the 1995 Restructuring, lower footwear wholesale
inventory (primarily boot inventory) and lower retail inventory from the store
closings included in the 1994 Restructuring. A $3.6 million increase in
inventories at January 31, 1994 as compared to January 31, 1993 is from the
acquisition by GCO Apparel Corporation of the assets of LaMar Manufacturing
Company. See Note 3 to the Consolidated Financial Statements. In the
Company's remaining businesses in Fiscal 1994 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.
Accounts receivable at January 31, 1995 remained flat with decreases in
operations to be divested receivables offset from increased sales in the men's
branded footwear and extended terms to meet competitive pressures. 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.
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) 1995 1994 1993
-------- -------- --------
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $(2,204) $ (9,907) $10,128
Accrued liabilities . . . . . . . . . . . . . . . . . . . . (4,754) (787) 3,061
------- -------- -------
$(6,958) $(10,694) $13,189
======= ======== =======
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 1995 was due primarily to severance
costs and liabilities and leases related to the restructurings.
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 $15.0 million reduction in long-term debt at January 31, 1995 as compared
to January 31, 1994 reflected the paydown of the revolver primarily from cash
generated by the 1995 Restructuring and the phasedown of the tailored clothing
segment under the 1994 Restructuring.
25
26
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.
Capital Expenditures and Acquisitions
Capital expenditures were $5.8 million in Fiscal 1995, $7.9 million in Fiscal
1994 and $9.2 million in Fiscal 1993. The $2.1 million decrease in Fiscal 1995
capital expenditures as compared to Fiscal 1994 resulted from a decrease in
footwear manufacturing expenditures and tailored clothing expenditures. 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.
Total capital expenditures in Fiscal 1996 are expected to be approximately
$10.6 million. These include expected retail expenditures of $4.0 million to
open 16 new retail stores and to complete 32 major store renovations. Capital
expenditures for wholesale and manufacturing operations and other operations
are expected to be approximately $6.6 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 Manufacturing
Company. 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 cash provided by operations and by the sale of assets
employed in operations to be divested pursuant to the 1995 Restructuring will
be sufficient to fund all of its capital expenditures through Fiscal 1996. The
substantial improvement in cash flow achieved in Fiscal 1995 is based upon
substantial liquidation of working capital from the 1995 Restructuring,
primarily the working capital invested in the tailored clothing business. The
approximately $27.6 million of costs associated with the 1994 Restructuring and
the 1995 Restructuring that are expected to be incurred during the next 12
months are expected to be fully offset by cash inflows from sales of assets
employed in operations to be divested pursuant to the 1995 Restructuring.
26
27
The Company believes it will be able to comply with the financial covenants
contained in its revolving credit agreement, as amended as of October 31, 1994,
and that the commitments under that agreement will be adequate to meet the
Company's credit needs for Fiscal 1996. See Note 12 to the Consolidated
Financial Statements. However, the financial covenants contained in the
revolving credit agreement are restrictive and the Company is considering
various alternatives in meeting its credit needs.
There were $12 million of letters of credit outstanding under the revolving
credit agreement at January 31, 1995.
The restricted payments covenant contained in the Company's revolving credit
agreement prohibits the Company from declaring dividends on the Company's
capital stock. The aggregate of annual dividend requirements 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.
At January 31, 1995, the Company's English subsidiary, Mitre U.K., had a credit
facility with a credit limit equal to the lesser of (i) 5.0 million pounds
sterling (approximately U.S. $7.9 million at January 31, 1995) 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 expired on December 3, 1994
but has been extended by an oral agreement through April 23, 1995. Management
of the Company believes that the financial commitments provided by its
revolving credit agreement will be adequate to replace the commitments provided
by the expired facility, if necessary.
On November 7, 1994, Standard & Poor's announced that it had lowered the rating
of the 10 3/8% Notes to B from B+ based on its concern that Genesco's ongoing
business operations will not provide the earnings and cash flow generation
reflective of a B+ senior credit rating. On November 10, 1994, Moody's
announced that it had lowered its rating of the Notes to B2 from B1 and that
the rating remains under review for potential further 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. According to Moody's, the assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small with respect to a debt instrument rated B.
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.
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. 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.
27
28
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 of Fiscal 1994 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 tax refunds the Company
could claim as loss carrybacks. For additional information, see Note 15 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.
28
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants 30
Consolidated Balance Sheet, January 31, 1995 and January 31, 1994 31
Consolidated Earnings, each of the three years ended
January 31, 1995 32
Consolidated Cash Flows, each of the three years ended
January 31, 1995 33
Consolidated Shareholders' Equity, each of the three years
ended January 31, 1995 34
Notes to Consolidated Financial Statements 35
29
30
February 24, 1995
To the Board of Directors and
Shareholders of Genesco Inc.
Report of Independent Accountants
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 as financial statements and financial statement
schedules on page 69 present fairly, in all material respects, the financial
position of Genesco Inc. and its subsidiaries at January 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1995, 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.
Price Waterhouse LLP
Nashville, Tennessee
30
31
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
January 31
In Thousands
- -----------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 10,235 $ 3,625
Accounts receivable 32,080 66,006
Inventories 82,905 155,120
Other current assets 4,277 5,839
Current assets of operations to be divested 53,891 -0-
- -----------------------------------------------------------------------------------------------------------
Total current assets 183,388 230,590
- -----------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, net 28,073 42,909
Goodwill and other intangibles -0- 18,590
Other noncurrent assets 13,773 17,297
Noncurrent assets of operations to be
divested 18,644 -0-
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 243,878 $309,386
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current payments on capital leases $ 2,343 $ 2,365
Accounts payable and accrued liabilities 61,124 62,723
Provision for discontinued operations 19,190 5,408
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 82,657 70,496
- -----------------------------------------------------------------------------------------------------------
Long-term debt 75,000 90,000
Capital leases 10,057 12,888
Other long-term liabilities 25,746 36,168
Provision for discontinued operations 21,025 1,111
Contingent liabilities - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,943 8,064
Common shareholders' equity:
Par value of issued shares 24,832 24,793
Additional paid-in capital 121,670 121,634
Accumulated deficit (104,582) (23,241)
Minimum pension liability adjustment (2,613) (9,964)
Treasury shares, at cost (17,857) (17,857)
Foreign currency translation adjustments -0- (4,706)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 29,393 98,723
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 243,878 $309,386
===========================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
31
32
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Net sales $462,901 $467,891 $430,127
Cost of sales 289,961 292,474 253,693
Selling and administrative expenses 166,156 182,046 161,338
Restructuring charge 22,114 12,319 -0-
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations before
other income and expenses (15,330) (18,948) 15,096
- ----------------------------------------------------------------------------------------------------------------
Other expenses (income):
Interest expense 11,955 11,030 5,644
Other expense (income), net (4,628) 487 1,814
Gain on divestiture (4,900) (677) -0-
- ----------------------------------------------------------------------------------------------------------------
Total other expenses, net 2,427 10,840 7,458
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, discontinued
operations, extraordinary loss and
cumulative effect of change in
accounting principle (17,757) (29,788) 7,638
Income taxes 757 (1,900) 4,998
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued operations,
extraordinary loss and cumulative
effect of change in accounting
principle (18,514) (27,888) 2,640
Discontinued operations:
Operating income (loss) (4,540) (6,831) 7,053
Provision for loss on discontinued operations (58,138) (17,060) -0-
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary loss and
cumulative effect of change in
accounting principle (81,192) (51,779) 9,693
Extraordinary loss from
early retirement of debt -0- (240) (583)
Postretirement benefits* -0- (2,273) -0-
- ----------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $(81,192) $(54,292) $ 9,110
================================================================================================================
Earnings (loss) per common share:
Before discontinued operations,
extraordinary loss and cumulative
effect of change in accounting
principle $ (.77) $ (1.17) $ .10
Discontinued operations $ (2.58) $ (.99) $ .30
Extraordinary loss $ .00 $ (.01) $ (.02)
Postretirement benefits* $ .00 $ (.09) $ .00
Net earnings (loss) $ (3.35) $ (2.26) $ .38
================================================================================================================
* 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 (see Note 1).
The accompanying Notes are an integral part of these Financial Statements.
32
33
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net earnings (loss) $(81,192) $(54,292) $ 9,110
Noncash charges to earnings:
Provision for loss on discontinued operations 58,138 17,060 -0-
Restructuring charge 22,114 12,319 -0-
Depreciation and amortization 9,254 10,723 9,719
Provision for deferred income taxes 1,404 2,308 (771)
Gain on divestiture (4,900) (677) -0-
Postretirement benefits -0- 2,273 -0-
Provision for losses on accounts receivable 813 1,595 1,777
Loss on retirement of debt -0- 240 546
Other 1,076 1,608 1,536
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations before
working capital and other changes 6,707 (6,843) 21,917
Effect on cash of changes in working
capital and other assets and liabilities
net of effect of business acquisitions:
Accounts receivable 44 4,142 (12,236)
Inventories 25,458 (3,955) (27,166)
Other current assets 100 (168) (198)
Accounts payable and accrued liabilities (6,958) (10,694) 13,189
Other assets and liabilities (2,881) 112 (520)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 22,470 (17,406) (5,014)
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (5,750) (7,929) (9,162)
Business acquisition -0- (11,376) (25,433)
Proceeds from businesses divested and asset sales 8,032 189 175
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,282 (19,116) (34,420)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term borrowings -0- 77,016 23,275
Net borrowings (repayments) under
revolving credit agreement (15,000) (7,000) 22,000
Net change in short-term borrowings (69) 69 (4,240)
Payments of long-term debt -0- (32,000) (3,600)
Payments on capital leases (2,852) (2,090) (1,539)
Exercise of options and warrants 29 7,875 2,134
Redemption of Mitre U.K. B shares -0- (5,000) -0-
Deferred note expense -0- (3,109) (800)
Preferred dividends paid -0- (232) (312)
Other (250) (199) 91
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (18,142) 35,330 37,009
- ------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW 6,610 (1,192) (2,425)
Cash and short-term investments at
beginning of year 3,625 4,817 7,242
- ------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 10,235 $ 3,625 $ 4,817
========================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
33
34
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Shareholders' Equity
In Thousands
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN MINIMUM TOTAL
NON-REDEEMABLE RETAINED CURRENCY PENSION SHARE-
PREFERRED COMMON PAID-IN EARNINGS TREASURY TRANSLATION LIABILITY HOLDERS'
STOCK STOCK CAPITAL (DEFICIT) STOCK ADJUSTMENTS ADJUSTMENT EQUITY
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Exercise of options -0- 2 4 -0- -0- -0- -0- 6
Translation adjustments:
Year-to-date
adjustments -0- -0- -0- -0- -0- 2,136 -0- 2,136
Realized in FY 1995
restructuring -0- -0- -0- -0- -0- 2,570 -0- 2,570
Net loss -0- -0- -0- (81,192) -0- -0- -0- (81,192)
Minimum pension liability
adjustment -0- -0- -0- -0- -0- -0- 7,351 7,351
Other (121) 37 32 (149) -0- -0- -0- (201)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1995 $7,943 $24,832 $121,670 $(104,582) $(17,857) $ -0- $(2,613) $ 29,393
=====================================================================================================================
See Note 14 for additional information regarding each series of preferred stock.
The accompanying Notes are an integral part of these Financial Statements.
34
35
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, 1995 is referred to as "Fiscal
1995" or "1995". Prior fiscal years are referred to in the same manner.
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain reclassifications have been made to conform prior years' data to the
current presentation (see Note 2).
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, with cost 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 relate solely to operations to be divested and
consist primarily of the excess of purchase price over fair value of net assets
acquired in acquisitions. Goodwill is being amortized on a straight-line basis
over 40 years. The Company periodically assesses the realizability of
intangible assets taking into consideration such factors as expected 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.
35
36
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 (principally Dollars and Lira). At January
31, 1995 and January 31, 1994, the Company had approximately $9.7 million and
$7.1 million, respectively, of such contracts outstanding. Forward exchange
contracts have an average term of approximately six months. Gains and losses
arising from these contracts offset gains and losses from the underlying hedged
transactions. The Company monitors the credit quality of the major national
and regional financial institutions with whom it enters into such contracts.
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 17 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". Deferred income taxes are provided for all temporary
differences and operating loss and tax credit carryforwards limited, in the
case of deferred tax assets, to the amount of taxes recoverable from taxes paid
in the current or prior years. See Note 15 for additional information.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing earnings, adjusted for
preferred dividend requirements (1995-$302,000; 1994- $307,000; 1993-$312,000),
by average common and common equivalent shares outstanding during the period.
36
37
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS
FISCAL 1995 RESTRUCTURING
In response to worsening trends in the Company's men's apparel business and in
response to a strategic review of its footwear operations, the Company's board
of directors, on November 3, 1994, approved a plan (the "1995 Restructuring")
designed to focus the Company on its core footwear businesses by selling or
liquidating four businesses, two of which constitute its entire men's apparel
segment.
The 1995 Restructuring provides for the following:
1995 Restructuring Charge
- Liquidation of the University Brands children's shoe business,
- Sale of the Mitre Sports soccer business, and
- Facility consolidation costs and permanent work force reductions.
1995 Restructuring Provision
- Liquidation of The Greif Companies men's tailored clothing business, and
- Sale of the GCO Apparel Corporation tailored clothing manufacturing
business.
In connection with the 1995 Restructuring, the Company took a combined charge
of $90.7 million in the third quarter of Fiscal 1995, of which $22.1 million
(the "1995 Restructuring Charge") related to University Brands and Mitre and
other costs described below and $68.6 million (the "1995 Restructuring
Provision") related to Greif and GCO Apparel, which constitute the entire men's
apparel segment of the Company's business, and is therefore treated for
financial reporting purposes as a provision for discontinued operations. No
tax benefit is currently available with respect to either the 1995
Restructuring Charge or the 1995 Restructuring Provision.
The 1995 Restructuring Charge included $10.7 million in asset write-downs, $2.6
million of foreign currency translation adjustments realization and $8.8
million of other costs. Other costs include primarily facility shutdown costs
and payments related to the permanent work force reductions. The 1995
Restructuring Charge provides for the elimination of approximately 535 jobs in
footwear operations to be divested or consolidated and in staff positions to be
eliminated of which 36 jobs had been eliminated by January 31, 1995.
The 1995 Restructuring Provision included $27.5 million in asset write-downs
and $41.1 million of other costs. Other costs include primarily union pension
liability, employee severance arrangements, facility shutdown costs and other
contract liabilities.
In the fourth quarter the 1995 Restructuring Provision was adjusted by a
reversal of $10.5 million reducing the $68.6 million provision for future
losses of discontinued operations to $58.1 million. The reversal reflects the
favorable consequences of a transfer, not anticipated at the time the provision
was recorded, of a licensing agreement for men's apparel to another
manufacturer. The transfer resulted in realization of inventory and
accounts receivable balances on more favorable terms than anticipated,
assumption of piece goods commitments by other manufacturers and cancellation
of minimum royalty requirements under the transferred license.
The divestiture of the University Brands business was completed in February
1995. The operations of The Greif Companies have ceased and its inventories
and equipment have been liquidated. The other divestitures anticipated by the
1995 Restructuring are presently in process. The outcome of these divestitures
and other aspects of the 1995 Restructuring may cause adjustments to the 1995
Restructuring Charge and Provision. The Company anticipates that variations in
the timing of these adjustments may affect the results of operations and cash
flows of the Company from quarter to quarter during the remainder of Fiscal
1996 and that some variations may be material. While the Company is unable to
predict with certainty the extent, if any, to which the aggregate cash proceeds
from the 1995 Restructuring will exceed the cash requirements thereof, it
currently anticipates that cash proceeds will exceed requirements by
approximately $10 million. Any excess cash will be reinvested in the Company's
ongoing businesses. Excess cash requirements, if any, from quarter to quarter
during the implementation of the 1995 Restructuring are expected to be funded
from cash flow from operations and, if necessary, from revolving credit
borrowings.
37
38
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
The operating results of the men's apparel segment prior to the decision to
discontinue, classified as discontinued operations in the consolidated earnings
statement are shown below:
- -----------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 31,
--------------------------------------
IN THOUSANDS 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Net sales $81,777 $104,969 $109,740
Cost of sales and expenses 86,317 109,895 103,675
- -----------------------------------------------------------------------------------------------------------
Pretax earnings (loss) (4,540) (4,926) 6,065
Income tax expense (benefit) -0- 1,905 (988)
- -----------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $(4,540) $ (6,831) $ 7,053
===========================================================================================================
Discontinued operations' sales subsequent to the decision to discontinue were
$20.4 million in Fiscal 1995.
Net sales for Mitre and University Brands for Fiscal 1995, 1994 and 1993 were
$75,975,000, $76,022,000 and $56,652,000, respectively. Operating income
(loss) for Mitre and University Brands before the restructuring provisions for
Fiscal 1995, 1994 and 1993 was $(304,000), $(1,703,000) and $2,902,000,
respectively.
Operating results of stores identified for closure and businesses to be divested
pursuant to the 1994 and 1995 Restructurings are included in the Company's
sales, gross margin and selling and administrative expenses. The net operating
losses incurred by these operations subsequent to the decision to divest are
charged against the restructuring reserves established to provide for such
losses. The elimination of these losses from the Company's results of
operations in Fiscal 1995 is presented as other income in the Consolidated
Earnings Statement. Such operating losses totalled $5.5 million.
FISCAL 1994 RESTRUCTURING
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 (the "1994
Restructuring"). As a result, the Company recorded a charge of $29.4 million
of which $17.1 million relates to the men's apparel segment and has been
reclassified in the income statement to provision for loss on discontinued
operations. This charge reflects estimated costs of closing certain
manufacturing facilities, effecting permanent work force reductions and closing
58 retail stores. The provision included $15.8 million in asset write-downs
and $13.6 million of future consolidation costs. The restructuring involved
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 was
$7.7 million relating to goodwill, of which $6.9 million related to the LaMar
acquisition and $800,000 related to the Toddler U Inc. acquisition. See Note 3
for information regarding these business acquisitions.
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. The
Company plans to sell the GCO Apparel business in connection with the 1995
Restructuring.
38
39
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
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. The operation
employing the assets acquired from Toddler U Inc. (University Brands) is being
liquidated in connection with the 1995 Restructuring.
Tangible asset write-downs also included $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 related to retail store closings and $4.0
million related to plant closings.
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 $28.2 million, of which $23.2 million was paid in cash.
The remaining $5 million 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 million 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 million option price plus interest at
LIBOR.
39
40
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
BUSINESS ACQUISITIONS, CONTINUED
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 1993. 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 1993 or of results which may occur in the future.
- -------------------------------------------------------------------------------------------------------------
ACTUAL PRO FORMA
IN THOUSANDS FISCAL YEAR FISCAL YEAR
(EXCEPT PER SHARE AMOUNTS) 1993 1993
- -------------------------------------------------------------------------------------------------------------
Net sales $430,127 $435,409
Net earnings 9,110 8,510
Net earnings per common share .38 .35
On November 3, 1994, the board of directors of the Company adopted a plan to
sell Mitre Sports which includes Mitre U.K. (see Note 2).
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). Toddler sold
children's footwear. In January 1994, the Company reassessed the
recoverability of goodwill associated with this acquisition and wrote-off the
unamortized portion of the goodwill of $800,000. On November 3, 1994, the
board of directors of the Company adopted a plan to liquidate the operation
employing the assets acquired from Toddler U Inc. (see Note 2).
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. In January 1994, the Company
reassessed the recoverability of the $6.9 million of goodwill associated with
this acquisition and wrote-off the unamortized portion of the goodwill. On
November 3, 1994, the board of directors of the Company, as part of a decision
to exit the tailored clothing business, adopted a plan to sell GCO Apparel
Corporation (see Note 2).
40
41
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4
ACCOUNTS RECEIVABLE
- --------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995* 1994
- --------------------------------------------------------------------------------------------------------------
Trade accounts receivable $32,401 $67,174
Miscellaneous receivables 2,258 3,406
- --------------------------------------------------------------------------------------------------------------
Total receivables 34,659 70,580
Allowance for bad debts (1,127) (2,065)
Other allowances (1,452) (2,509)
- --------------------------------------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $32,080 $66,006
==============================================================================================================
* Excludes accounts receivable of operations to be divested (see Note 6).
NOTE 5
INVENTORIES
- --------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995* 1994
- --------------------------------------------------------------------------------------------------------------
Raw materials $ 8,856 $ 21,305
Work in process 2,877 15,786
Finished goods 21,992 71,981
Retail merchandise 49,180 46,048
- --------------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $82,905 $155,120
==============================================================================================================
* Excludes inventories of operations to be divested (see Note 6).
NOTE 6
ASSETS OF OPERATIONS TO BE DIVESTED
- ---------------------------------------------------------------------------------------------------------------
1995 1994*
------------------------------------------- ---------
DISCONTINUED** OTHER***
IN THOUSANDS OPERATIONS OPERATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------
Current assets:
Accounts receivable $16,061 $11,018 $27,079 $ 36,975
Inventory 11,723 14,435 26,158 63,142
Other -0- 654 654 773
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $27,784 $26,107 $53,891 $100,890
==============================================================================================================
Noncurrent assets:
Plant and equipment $ 947 $ 1,700 $ 2,647 $ 7,418
Capitalized lease rights 253 46 299 4,782
Goodwill and other intangibles -0- 15,698 15,698 18,590
- --------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT ASSETS $ 1,200 $17,444 $18,644 $ 30,790
==============================================================================================================
* Assets of operations to be divested at January 31, 1994 are shown for
comparative purposes only as the balance sheet for January 31, 1994 has
not been restated.
** Includes the assets of The Greif Companies and GCO Apparel Corporation
comprising the men's apparel segment (see Note 2).
*** Includes the assets of University Brands and Mitre Sports (see Note 2).
41
42
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995* 1994
- -----------------------------------------------------------------------------------------------------------
Plant and equipment:
Land $ 75 $ 485
Buildings and building equipment 2,797 5,830
Machinery, furniture and fixtures 30,682 45,105
Construction in progress 672 1,550
Improvements to leased property 37,776 43,474
Capital leases:
Land 60 592
Buildings 2,195 11,203
Machinery, furniture and fixtures 7,627 10,324
- -----------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 81,884 118,563
Accumulated depreciation and amortization:
Plant and equipment (48,131) (64,642)
Capital leases (5,680) (11,012)
- -----------------------------------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 28,073 $ 42,909
===========================================================================================================
* Excludes plant, equipment and capital leases of operations to be divested
(see Note 6).
NOTE 8
OTHER ASSETS
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------------------------
Other current assets:
Prepaid expenses $ 4,277 $ 5,092
Deferred taxes -0- 747
- -----------------------------------------------------------------------------------------------------------
TOTAL OTHER CURRENT ASSETS $ 4,277 $ 5,839
===========================================================================================================
Other noncurrent assets:
Pension plan asset $ 9,422 $11,363
Investments and long-term receivables 1,696 2,123
Deferred taxes -0- 657
Deferred note expense 2,655 3,154
- -----------------------------------------------------------------------------------------------------------
TOTAL OTHER NONCURRENT ASSETS $13,773 $17,297
===========================================================================================================
NOTE 9
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------------------------
Trade accounts payable $21,128 $23,332
Accrued liabilities:
Employee compensation 10,867 11,560
Insurance 5,166 6,094
Interest 4,173 4,091
Taxes other than income taxes 3,370 3,028
Other 16,420 14,618
- -----------------------------------------------------------------------------------------------------------
TOTAL ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $61,124 $62,723
===========================================================================================================
At January 31, 1995 and 1994, outstanding checks drawn on certain domestic
banks exceeded book cash balances by approximately $3,673,000 and $6,093,000,
respectively. These amounts are included in trade accounts payable.
42
43
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
PROVISION FOR DISCONTINUED OPERATIONS
EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1994 $ 2,660 $ 1,542 $ 250 $ 2,067 $ 6,519
Additional provision for future losses 24,026 7,406 8,372 1,291 41,095
Charges and adjustments, net (1,552) 457 (7,207) 903 (7,399)
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1995 25,134 9,405 1,415 4,261 40,215
Current portion 8,787 4,727 1,415 4,261 19,190
- -------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $16,347 $ 4,678 $ -0- $ -0- $21,025
===================================================================================================================
RESTRUCTURING RESERVES
- -------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1994 $ 1,786 $ 3,854 $ 56 $ 1,364 $ 7,060
Additional restructuring reserves 4,149 1,339 1,076 2,317 8,881
Charges and adjustments, net (1,970) (2,070) (577) (569) (5,186)
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1995 3,965 3,123 555 3,112 10,755
Current portion (included in accounts
payable and accrued liabilities) 3,664 1,964 555 2,588 8,771
- -------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM
LIABILITIES) $ 301 $ 1,159 $ -0- $ 524 $ 1,984
===================================================================================================================
NOTE 11
CREDIT FACILITIES
At January 31, 1995, 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 $7,898,000 at January 31, 1995) or (ii) the aggregate
of 75 percent of the value of current receivables and 50 percent of the value
of inventory of Mitre UK. The facility, which is guaranteed up to 4,300,000
pounds sterling by Genesco Inc., 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. The facility expired on December 31, 1994
but has been extended by an oral agreement through April 23, 1995.
43
44
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
LONG-TERM DEBT
- --------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994
- --------------------------------------------------------------------------------------------------------------
Borrowings under revolving credit agreement
(weighted average interest rate
at January 31, 1994-5.56%) $ -0- $15,000
10 3/8% senior notes due February 2003 75,000 75,000
- --------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 75,000 90,000
Current portion -0- -0-
- --------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PORTION OF LONG-TERM DEBT $75,000 $90,000
==============================================================================================================
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 (subsequently amended to $65 million and subject to further reductions-
see below). The agreement expires August 2, 1996. This agreement replaced a
$45 million revolving credit agreement and a $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 1995 under the revolving credit agreement averaged $28.4
million at a rate of 6.91% with a maximum month end borrowing of $39 million.
Outstanding letters of credit at January 31, 1995 were $12 million.
As of October 31, 1994, the revolving credit agreement was amended in regard to
certain financial covenants to reflect operating results, including the
restructuring charge and the provision for the discontinuation of the men's
apparel segment (see Note 2), and the maximum commitment was reduced to $65
million. The maximum commitment will be further reduced by $15 million on the
earlier of April 30, 1995 or 7 days after the first Designated Asset Sale Date,
defined in the credit agreement as a date when the Company or any of its
subsidiaries sells an operating division, excluding any discontinued
operations, for a purchase price in excess of $15 million. Further commitment
reductions occur in the event Net Cash Proceeds generated on account of any
Designated Asset Sale exceed $40 million.
44
45
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
LONG-TERM DEBT, CONTINUED
Under the amended revolving credit agreement, the Company may borrow at the
prime rate plus .5% or LIBOR plus 2.75%. Commitment fees are 0.5% per annum on
the daily unused portion. In addition, the interest and commitment fee rates
will increase by .15% per month commencing on the earlier of May 1, 1995 or a
Designated Asset Sale Date.
The amended credit agreement requires the Company to maintain:
(i) a ratio of Consolidated Current Assets to the sum of Consolidated Current
Liabilities and Consolidated Senior Funded Indebtedness of not less than 1.0 to
1.0 at the end of any quarter beginning with the quarter ending January 31,
1995;
(ii) a Consolidated Interest Coverage Ratio for respective periods as
follows:
Quarter ended January 31, 1995 1.82 to 1.00
Two quarters ending April 30, 1995 .99 to 1.00
Three quarters ending July 31, 1995 .92 to 1.00
Four quarters ending October 31, 1995 1.24 to 1.00
Four quarters ending January 31, 1996 1.26 to 1.00
Four quarters ending April 30, 1996 and thereafter 1.34 to 1.00
(iii) Consolidated Net Worth, as defined in the credit agreement, at the end of
each quarter as follows:
January 31, 1995 $18,260,000
April 30, 1995 15,760,000
July 31, 1995 15,452,000
October 31, 1995 19,071,000
January 31, 1996 22,264,000
April 30, 1996 20,634,000
July 31, 1996 20,357,000
(iv) a ratio of Consolidated Senior Funded Indebtedness to Total Capital of not
more than 0.80 to 1.0 at the end of any quarter.
The Company is required by the amended credit agreement to reduce the
outstanding principal balance to $20,000,000 or less for 20 consecutive days
during the fourth fiscal quarter of each fiscal year. The Company must also
maintain a balance of zero for 20 consecutive days both during the 45 days
immediately following a Designated Asset Sale Date and, unless such a reduction
has been accomplished during the 45 day period following any Designated Asset
Sale Date in either that quarter or the previous one, during the first fiscal
quarter of each year.
The revolving credit agreement contains other covenants which restrict the
payment of dividends and other payments with respect to capital stock and
annual capital expenditures are limited to $20,000,000, subject to certain
exceptions. The Company was in compliance with the financial covenants
contained in the amended revolving credit agreement at January 31, 1995.
45
46
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12
LONG-TERM DEBT, CONTINUED
10 3/8% SENIOR NOTES DUE 2003:
On February 1, 1993, the Company issued $75 million 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 the B shares of
Mitre U.K. 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, 1995, is $56,531,250.
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.
46
47
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13
COMMITMENTS UNDER LONG-TERM LEASES
CAPITAL LEASES
Future minimum lease payments under capital leases at January 31, 1995,
together with the present value of the minimum lease payments, are:
- ---------------------------------------------------------------------------------------------------------------
FISCAL YEARS IN THOUSANDS
- ---------------------------------------------------------------------------------------------------------------
1996 $ 3,739
1997 3,151
1998 2,453
1999 1,979
2000 1,706
Later years 5,681
- --------------------------------------------------------------------------------------------------------------
Total minimum payments 18,709
Interest discount amount (6,309)
- --------------------------------------------------------------------------------------------------------------
Total present value of minimum payments 12,400
Current portion (2,343)
- --------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PORTION $10,057
===============================================================================================================
OPERATING LEASES
Rental expense under operating leases of continuing operations was:
- ---------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Minimum rentals $18,678 $18,501 $18,520
Contingent rentals 8,234 7,798 7,676
Sublease rentals (478) (480) (514)
- ---------------------------------------------------------------------------------------------------------------
TOTAL RENTAL EXPENSE $26,434 $25,819 $25,682
===============================================================================================================
Minimum rental commitments of continuing operations payable in future years
are:
- ---------------------------------------------------------------------------------------------------------------
FISCAL YEARS IN THOUSANDS
- ---------------------------------------------------------------------------------------------------------------
1996 $16,645
1997 15,218
1998 12,825
1999 9,696
2000 7,772
Later years 10,102
- --------------------------------------------------------------------------------------------------------------
TOTAL MINIMUM RENTAL COMMITMENTS $72,258
==============================================================================================================
Most leases provide for the Company to pay real estate taxes and other expenses
and contingent rentals based on sales. Approximately 12% of the Company's
leases contain renewal options.
47
48
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
SHAREHOLDERS' EQUITY
NON-REDEEMABLE PREFERRED STOCK
NUMBER OF SHARES AMOUNTS IN THOUSANDS
---------------------- ---------------------- COMMON
JANUARY 31, JANUARY 31, CONVERTIBLE
SHARES ---------------------- ---------------------- NO. OF
CLASS AUTHORIZED 1995 1994 1993 1995 1994 1993 RATIO VOTES
- ---------------------------------------------------------------------------------------------------------------------
Subordinated Serial Preferred
(Cumulative)
$2.30 Series 1 64,368 37,233 37,283 37,283 $1,489 $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 30,017 29,917 29,617 901 898 889
Other Preferred Stock -0- -0- 600 -0- -0- 60
- ---------------------------------------------------------------------------------------------------------------------
103,294 103,244 103,544 5,994 5,993 6,044
Employees' Subordinated
Convertible Preferred 5,000,000 80,313 84,791 93,648 2,410 2,544 2,810 1.00* 1
- ---------------------------------------------------------------------------------------------------------------------
Stated Value of Issued Shares 8,404 8,537 8,854
Employees' Preferred Stock Purchase Accounts (461) (473) (549)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NON-REDEEMABLE PREFERRED STOCK $7,943 $8,064 $8,305
=====================================================================================================================
*Also convertible into one share of $1.50 Subordinated Cumulative Preferred
Stock.
PREFERRED STOCK TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EMPLOYEES'
NON-REDEEMABLE PREFERRED TOTAL
NON-REDEEMABLE EMPLOYEES' STOCK NON-REDEEMABLE
PREFERRED PREFERRED PURCHASE PREFERRED
STOCK STOCK ACCOUNTS STOCK
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Conversion of employees' preferred into $1.50 preferred 3 (3) -0- -0-
Conversion of employees' preferred into common -0- (122) -0- (122)
Other (2) (9) 12 1
- ---------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 31, 1995 $5,994 $2,410 $(461) $7,943
=====================================================================================================================
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.
48
49
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
SHAREHOLDERS' EQUITY, CONTINUED
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.
COMMON STOCK:
Common stock-$1 par value. Authorized 40,000,000 shares; issued: January 31,
1995--24,832,127 shares; January 31, 1994--24,792,641 shares. There were
488,464 shares held in treasury at January 31, 1995 and 1994. Each outstanding
share is entitled to one vote. At January 31, 1995, common shares were
reserved as follows: 177,536 shares for conversion of preferred stock;
1,560,725 shares for the 1987 Stock Option Plan; 200,000 shares for executive
stock options; 22,427 shares for the Restricted Stock Plan for Directors; and
922,532 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 12) 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, 1995, the Company was in a deficit position of $127,677,000 in its
ability to pay dividends.
49
50
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14
SHAREHOLDERS' EQUITY, CONTINUED
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, 1995, the Company was in a deficit position of
$119,756,000 in its ability to pay dividends.
Due to the above restrictions, the Company suspended dividends in the fourth
quarter of Fiscal 1994 and now has cumulative dividend arrearages in the amount
of $107,131 for Series 1, $116,565 for Series 3, $97,446 for Series 4, and
$56,170 for $1.50 Subordinated Cumulative Preferred Stock.
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, 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
- --------------------------------------------------------------------------------------------------------------------
Other 39,486 -0- 50 (4,478)
- --------------------------------------------------------------------------------------------------------------------
Issued at January 31, 1995 24,832,127 -0- 103,294 80,313
Less treasury shares (488,464) -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JANUARY 31, 1995 24,343,663 -0- 103,294 80,313
====================================================================================================================
50
51
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15
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 does not recognize a deferred tax asset except to the extent future
years' deductible items will offset future years' taxable items or will, 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 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Current
U.S. federal $(1,693) $(2,962) $ 3,147
Foreign 741 438 608
State 10 (377) 872
Deferred
U.S. federal 1,699 787 397
Foreign -0- (24) 81
State -0- 238 (107)
- -----------------------------------------------------------------------------------------------------------
Income tax before discontinued operations
and extraordinary loss 757 (1,900) 4,998
Income tax benefits from:
Discontinued operations -0- 1,905 (988)
Extraordinary loss on the
early retirement of debt -0- -0- (37)
- -----------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 757 $ 5 $ 3,973
===========================================================================================================
The Fiscal 1995 U.S. federal tax provision reflects the realization of the
Company's net deferred tax assets due to the carryback of the current year's
loss. At January 31, 1995, approximately $750,000 of current taxes receivable,
related to the carryback, remain.
The current U.S. federal tax provision for Fiscal 1994 represents current taxes
receivable (collected in Fiscal 1995) arising from the carryback of the Fiscal
1994 loss to the three previous years and refunds received of $216,000 related
to taxes paid for Fiscal 1990. The Fiscal 1993 federal tax provision consists
of a regular tax of $3,234,000 less tax refunds received related to prior
years. The Fiscal 1993 current provision reflects the utilization of minimum
tax credits of $1,466,000.
51
52
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15
INCOME TAXES, CONTINUED
Deferred tax assets and liabilities are comprised of the following:
- ----------------------------------------------------------------------------------------------------------
JANUARY 31, JANUARY 31,
IN THOUSANDS 1995 1994
- ----------------------------------------------------------------------------------------------------------
Pensions $ (965) $ (1,132)
Other (403) (672)
- ----------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (1,368) (1,804)
- ----------------------------------------------------------------------------------------------------------
Net operating loss carryforwards 32,641 -0-
Provisions for discontinued operations
and restructurings 27,213 11,756
Inventory valuation 7,736 4,924
Expense accruals 7,694 7,723
Goodwill amortization and writeoff 3,856 3,341
Allowances for bad debts and notes 2,679 2,913
Uniform capitalization costs 2,425 3,087
Depreciation 2,099 2,259
Pensions 2,052 -0-
Leases 1,969 2,017
Other 1,784 1,748
Tax credit carryforwards 1,496 2,003
- ----------------------------------------------------------------------------------------------------------
Gross deferred tax assets 93,644 41,771
- ----------------------------------------------------------------------------------------------------------
Deferred tax asset valuation allowance (92,276) (38,563)
- ----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ -0- $ 1,404
==========================================================================================================
Due to the carryback of the current years' loss to the previous year, the
Company will recoup the maximum amount refundable for taxes it paid and, as a
result, no net deferred tax assets are recognized at January 31, 1995. The
Company has net operating loss carryfowards available to offset future U.S.
taxable income of $32,641,000 expiring in 2009 and 2010.
52
53
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15
INCOME TAXES, CONTINUED
Reconciliation of the United States federal statutory rate to the Company's
effective tax rate is as follows:
- -------------------------------------------------------------------------------------------------------------
1995 1994 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- -0- 4.30
Effect of foreign operations -0- -0- 2.34
Operating losses with no current tax benefit (34.00) (33.27) -0-
Differences between earnings statement
and tax return:
Depreciation and amortization -0- (.56) 1.32
Valuation reserves -0- -0- (.33)
Accrued expenses -0- -0- 4.56
Capitalized leases -0- -0- .86
Tax credits -0- -0- (11.11)
Deferred tax expense (benefit) -0- -0- (5.04)
Other -0- (.18) (1.64)
- -------------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE .00% (.01%) 29.26%
=============================================================================================================
53
54
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
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 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Service cost of benefits earned during the year $ 2,309 $ 1,808 $ 1,624
Interest on projected benefit obligation 6,430 6,141 5,660
Actual return on plan assets (933) (5,341) (2,618)
Deferral of current period asset gains (losses) (4,256) 451 (1,902)
Amortization of prior service cost 388 463 463
Amortization of net loss 1,385 345 76
Amortization of transition obligation 983 983 983
- -----------------------------------------------------------------------------------------------------------
TOTAL PENSION EXPENSE $ 6,306 $ 4,850 $ 4,286
===========================================================================================================
ACTUARIAL ASSUMPTIONS
- -----------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
Weighted average discount rate 8.50% 7.00%
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 increased from 7.00% to 8.50% at January 31,
1995. The increase in the rate decreased the accumulated benefit obligation
by $11,867,000 and decreased the projected benefit obligation by $16,217,000.
At January 31, 1994, the weighted average discount rate decreased from 8.25%
to 7.00%. The reduction of this rate increased the accumulated benefit
obligation by $9,617,000 and increased the projected benefit obligation by
$13,382,000.
FUNDED STATUS
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $68,500 $75,622
Non-vested benefit obligation 1,031 1,333
- -----------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $69,531 $76,955
===========================================================================================================
Projected benefit obligation
for services rendered to date $82,097 $93,868
Plan assets at fair value, primarily
cash equivalents, common stock, notes and
real estate 53,760 55,581
- -----------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION IN EXCESS OF
PLAN ASSETS $28,337 $38,287
===========================================================================================================
Plan assets for 1995 and 1994 include Company related assets of $575,000 and
$1,844,000, respectively, which consist of properties leased to the Company.
54
55
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16
RETIREMENT PLAN, CONTINUED
BALANCE SHEET EFFECT
SFAS No. 87 requires the Company to recognize a pension liability ($15,771,000
for 1995 and $21,374,000 for 1994) equal to the amount by which the actuarial
present value of the accumulated benefit obligation ($69,531,000 for 1995 and
$76,955,000 for 1994) exceeds the fair value of the retirement plan's assets
($53,760,000 for 1995 and $55,581,000 for 1994). A corresponding amount is
recognized as an intangible asset to the extent of the unamortized prior
service cost and unamortized transition obligation. Any excess of the pension
liability above the intangible pension asset is recorded as a separate
component and reduction of shareholders' equity. In 1995, this resulted in the
recording of an intangible asset of $9,422,000 and a reduction to shareholders'
equity of $2,613,000. In the prior year, an intangible asset of $11,363,000
and a reduction to shareholders' equity of $9,964,000 was recorded in the
Company's balance sheet. The reduction in the charge to shareholders' equity
from $9,964,000 in Fiscal 1994 to $2,613,000 in Fiscal 1995 results primarily
from the increase in the weighted average discount rate.
A reconciliation of the plan's funded status to amounts recognized in the
Company's balance sheet follows:
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets $(28,337) $(38,287)
Unamortized transition obligation 6,880 7,863
Unrecognized net actuarial losses 15,179 26,877
Unrecognized prior service cost 2,542 3,500
- -----------------------------------------------------------------------------------------------------------
Accrued pension cost (3,736) (47)
Amount reflected as an intangible asset* (9,422) (11,363)
Amount reflected as minimum pension liability
adjustment** (2,613) (9,964)
- -----------------------------------------------------------------------------------------------------------
AMOUNT REFLECTED AS PENSION LIABILITY*** $(15,771) $(21,374)
===========================================================================================================
* Included in other non-current assets in the balance sheet.
** Included as a component of shareholders' equity in the balance sheet.
*** Included in other long-term liabilities in the balance sheet.
55
56
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17
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. Because of the Company's decision to liquidate The
Greif Companies men's tailored clothing business, the Company provided for its
estimated union pension withdrawal liability (see Note 2). Pension costs and
amounts contributed to the plan during Fiscal 1995, 1994 and 1993 were
$1,831,000, $2,232,000, and $2,298,000, 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 No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" in the first quarter of 1994. In the past the
Company expensed the cost of postretirement benefits as incurred. The adoption
of SFAS No. 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 which the Company elected to charge in the first quarter of
Fiscal 1994.
Postretirement benefit expense was $217,000, $245,000, and $1,307,000 for
Fiscal 1995, 1994 and 1993, respectively. The components of expense in 1995
and 1994 were as follows:
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------------------------
Service cost of benefits earned during the year $ 70 $ 63
Interest cost on accumulated postretirement
benefits obligation 147 182
- -----------------------------------------------------------------------------------------------------------
NET PERIODIC POSTRETIREMENT BENEFIT COST $ 217 $ 245
===========================================================================================================
The funded status of the plan and amounts recognized in the financial
statements at January 31, 1995 and 1994 were as follows:
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994
- -----------------------------------------------------------------------------------------------------------
Postretirement benefit liability at beginning
of year $2,447 $ -0-
Cumulative effect of accounting change on
February 1, 1993 -0- 2,273
Net periodic postretirement benefit cost 217 245
Cash expenditures for benefits (164) (260)
(Gain) loss due to actual experience (317) -0-
Increase (decrease) in liability due to change in
discount rate (254) 189
- -----------------------------------------------------------------------------------------------------------
Postretirement benefit liability 1,929 2,447
Unrecognized net (loss) gain 381 (189)
- -----------------------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFIT LIABILITY RECOGNIZED
IN FINANCIAL STATEMENTS $2,310 $2,258
===========================================================================================================
At January 31, 1995, the weighted average discount rate used to determine the
ABO increased from 7.00% to 8.50% resulting in an unrecognized net gain of
$254,000. 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 this decrease in the rate increased the
accumulated postretirement benefit obligation by $189,000.
56
57
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18
SUPPLEMENTAL CASH FLOW INFORMATION
- -----------------------------------------------------------------------------------------------------------
IN THOUSANDS 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Net cash paid (received) for:
Interest $11,227 $ 6,865 $ 4,695
Income taxes (2,457) (273) 4,089
Noncash investing and financing activities:
Fixed assets acquired under capital leases $ -0- $ 428 $ 970
Issuance of shares to Mitre Sports -0- -0- 5,000
Obligation from purchase of net assets
of Toddler U Inc. -0- -0- 1,291
Business acquisitions:
Fair value of assets acquired $ -0- $13,119 $39,306
Liabilities assumed -0- 1,743 13,287
- -----------------------------------------------------------------------------------------------------------
Cash paid -0- 11,376 26,019
Less cash acquired -0- -0- 586
- -----------------------------------------------------------------------------------------------------------
NET CASH PAID FOR ACQUISITIONS $ -0- $11,376 $25,433
===========================================================================================================
NOTE 19
EMPLOYEE STOCK PLANS
STOCK OPTION PLANS
- -----------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
Options outstanding at beginning of period 1,363,058 1,723,564
Options granted - 1987 Stock Option Plan 991,375 266,500
Options granted - Genesco Stock Savings Plan 66,158 40,093
Options exercised - 1987 Stock Option Plan (1,875) (466,275)
Options exercised - Key Executives Stock Option Plan -0- (44,000)
Options exercised- Genesco Stock Savings Plan (9,527) (32,360)
Options expired - Key Executives Stock Option Plan (22,000) (18,000)
Options cancelled - Genesco Stock Savings Plan (55,185) (13,164)
Options cancelled - 1987 Stock Option Plan (1,070,100) (93,300)
- -----------------------------------------------------------------------------------------------------------
Total options outstanding at end of period 1,261,904 1,363,058
Shares reserved for future options 1,221,353 1,153,601
- -----------------------------------------------------------------------------------------------------------
TOTAL SHARES RESERVED 2,483,257 2,516,659
===========================================================================================================
57
58
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19
EMPLOYEE STOCK PLANS, CONTINUED
Under the 1987 Stock Option Plan, options to purchase 1,181,475 shares were
outstanding at a weighted average exercise price of $3.42 per share. These
options, held by 65 individuals, expire between August 21, 1999 and December 7,
2004. Options to purchase 225,225 shares are currently exercisable.
Under the Genesco Stock Savings Plan, options to purchase 80,429 shares were
outstanding at a weighted average exercise price of $3.78 per share. Unless
withdrawn by the participants, these options may be exercised on September 30,
1995 and September 30, 1996. There are approximately 300 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 $469,000 and $481,000 at
January 31, 1995 and 1994, respectively, and were secured at January 31, 1995,
by 22,437 employees' preferred shares and 325 common shares. Payments on stock
purchase accounts under the stock purchase plans have been indefinitely
deferred. No further sales under these plans are contemplated.
58
59
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 20
LEGAL PROCEEDINGS
Tennessee Environmental 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 resided or owned property in the vicinity of the site described
above. The plaintiffs alleged that the Company was 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. On November 2, 1994, the Company
concluded a settlement agreement disposing of all claims in the litigation
which had not been previously settled, resulting in a charge to earnings of
approximately $659,000 in the third quarter of Fiscal 1995. The Company had
previously concluded settlement agreements with the other plaintiffs providing
for payments by the Company aggregating approximately $675,000 and for the
purchase of a residence at an appraised value of approximately $170,000.
New York State Environmental Proceedings
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
total estimated costs of $16.5 million and $28.3 million, respectively.
59
60
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 20
LEGAL PROCEEDINGS, CONTINUED
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 $1,500,000 to cover its
estimated share of future remediation costs. 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.
Whitehall Environmental Sampling
The Michigan Department of Natural Resources ("MDNR") has performed sampling
and analysis of soil, sediments, surface water, groundwater, and waste
management areas at the Company's Volunteer Leather Company facility in
Whitehall, Michigan. MDNR has advised the Company that it will review the
results of the analysis for possible referral to the U.S. Environmental
Protection Agency ("EPA") for action under the Comprehensive Environmental
Response Compensation and Liability Act. Neither MDNR nor the EPA has
threatened or commenced any enforcement action or suggested any remediation
activity. The Company is studying the MDNR data and intends to cooperate with
MDNR to identify and implement appropriate responsive action. The Company is
not yet able to estimate the costs associated with this matter or to determine
whether the required actions, if any, will have a material effect on its
financial condition or results of operations.
Preferred Shareholder Action
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. On July 6, 1994, the court denied a motion for partial summary
judgement filed on behalf of the plaintiffs. 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.
60
61
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 20
LEGAL PROCEEDINGS, CONTINUED
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, 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 value of a share of series 2 was $131.32 and of a
share of series 3 was $193.11, compared with $91 a share for series 2 and $46 a
share for 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. In September 1994, the Company paid the dissenter's legal fees and
expenses aggregating approximately $445,000.
Canadian Tax Litigation
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 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 Company entered into a settlement agreement, dated as of May 4, 1994, with
the Taxpayer and the Department and paid, in full satisfaction of the
Department's and the Taxpayer's claims against it, $1.3 million. The
settlement became effective with Canadian government approval on August 10,
1994. The Company had previously made a provision for its liability to the
Taxpayer in an amount greater than its payment under the settlement agreement,
resulting in $4.9 million of additional gain on the divestiture of the
Company's Canadian operations, recognized in the second quarter ended July 31,
1994.
61
62
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 20
LEGAL PROCEEDINGS, CONTINUED
FIFA Infringements Action
On February 3, 1995, the Company's subsidiary, Mitre Sports International
Limited, with numerous other manufacturers and marketers of soccer balls, was
served with a complaint filed in the U.S. District Court for the Northern
District of Georgia by Federation Internationale de Football Association
("FIFA"), ISL Marketing A.G. and World Cup U.S.A. 1994, Inc. alleging trademark
infringement, copyright infringement, unfair competition, breach of contract
and other claims arising out of the defendants' use of designations including
the name "FIFA" on balls to denote their conformity to official size and weight
requirements of FIFA-sanctioned soccer competitions. The complaint seeks
injunctive relief and unspecified damages. The subsidiary answered the
complaint and asserted counterclaims based on federal antitrust law, and
intends to defend the action vigorously. The Company is unable to predict the
outcome of this action but does not believe it will have a materially adverse
effect on its financial condition or results of operations.
62
63
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 21
BUSINESS SEGMENT INFORMATION
IN THOUSANDS 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
SALES TO UNAFFILIATED CUSTOMERS:
Footwear (shoes and accessories):
Retail $234,448 $231,456 $227,741
Wholesale and manufacturing 228,453 236,435 202,386
- ---------------------------------------------------------------------------------------------------------
TOTAL SALES $462,901 $467,891 $430,127
=========================================================================================================
PRETAX EARNINGS (LOSS):
Footwear (shoes and accessories):
Retail $ 16,925* $ (3,841)** $ 9,171
% of applicable sales 7.2% (1.7%) 4.0%
Wholesale and manufacturing (12,105)* 873** 18,244
% of applicable sales (5.3%) 0.4% 9.0%
- ---------------------------------------------------------------------------------------------------------
Operating income (loss) 4,820 (2,968) 27,415
% of total sales 1.0% (0.6%) 6.4%
Corporate expenses:
Interest expense (11,955) (11,030) (5,644)
Other corporate expenses (15,522)* (16,467)** (14,133)
Gain on divestiture 4,900 677 -0-
- ---------------------------------------------------------------------------------------------------------
TOTAL PRETAX EARNINGS (LOSS) $(17,757) $(29,788) $ 7,638
% OF TOTAL SALES (3.8%) (6.4%) 1.8%
=========================================================================================================
* Includes a restructuring charge in Fiscal 1995 as follows: Footwear
Retail $236,000, Footwear Wholesale and Manufacturing $20,578,000 and
Corporate $1,300,000.
** Includes a restructuring charge in Fiscal 1994 as follows: Footwear
Retail $8,673,000, Footwear Wholesale and Manufacturing $3,242,000 and
Corporate $404,000.
63
64
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 21
BUSINESS SEGMENT INFORMATION, CONTINUED
IN THOUSANDS 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
ASSETS:
Footwear:
Retail $ 69,287 $ 66,922 $ 77,864
Wholesale and manufacturing 115,601 140,530 134,654
- -----------------------------------------------------------------------------------------------------------
Total footwear 184,888 207,452 212,518
Men's apparel 28,984 73,644 75,570
Corporate assets 30,006 28,290 29,780
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $243,878 $309,386 $317,868
===========================================================================================================
DEPRECIATION AND AMORTIZATION:
Footwear:
Retail $ 4,735 $ 5,027 $ 4,994
Wholesale and manufacturing 2,759 3,339 2,212
- -----------------------------------------------------------------------------------------------------------
Total footwear 7,494 8,366 7,206
Men's apparel 1,305 1,883 1,299
Corporate 455 474 1,214
- -----------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 9,254 $ 10,723 $ 9,719
===========================================================================================================
ADDITIONS TO PLANT, EQUIPMENT
AND CAPITAL LEASES:
Footwear:
Retail $ 3,181 $ 3,254 $ 4,788
Wholesale and manufacturing 2,141 3,738 3,769
- -----------------------------------------------------------------------------------------------------------
Total footwear 5,322 6,992 8,557
Men's apparel 198 993 1,032
Corporate 242 371 543
- -----------------------------------------------------------------------------------------------------------
TOTAL ADDITIONS TO PLANT, EQUIPMENT
AND CAPITAL LEASES $ 5,762 $ 8,356 $ 10,132
===========================================================================================================
64
65
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 22
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1ST QUARTER 2ND QUARTER 3RD QUARTER
----------------------- ------------------------ ------------------------
IN THOUSANDS 1995 1994 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Net sales $100,221 $103,243 $114,166 $121,036 $123,199 $123,689
Gross margin 38,176 40,443 42,887 46,425 46,357 47,288
Pretax earnings (loss) (2,393) (1,877) 2,657(2) (267) (22,750)(4) (2,264)
Earnings (loss) before
discontinued operations (2,534) (1,928) 2,285 (581) (22,973) (2,369)
Earnings (loss) before
extraordinary loss and
accounting change (2,673) (742) (516) 456 (93,160)(5) (3,084)
Net earnings (loss) (2,673) (3,015)(1) (516) 216(3) (93,160) (3,084)
Earnings (loss) per common share:
Before discontinued operations (.11) (.08) .09 (.03) (.95) (.10)
Before extraordinary loss and
accounting change (.11) (.03) (.02) .02 (3.83) (.13)
Net earnings (loss) (.11) (.13) (.02) .01 (3.83) (.13)
===============================================================================================================================
4TH QUARTER FISCAL YEAR
---------------------- ------------------------
IN THOUSANDS 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------
Net sales $125,315 $119,923 $462,901 $467,891
Gross margin 45,520 41,261 172,940 175,417
Pretax earnings (loss) 4,729 (25,380)(7) (17,757) (29,788)
Earnings (loss) before
discontinued operations 4,708 (23,010) (18,514) (27,888)
Earnings (loss) before
extraordinary loss and
accounting change 15,157(6) (48,409)(8) (81,192) (51,779)
Net earnings (loss) 15,157 (48,409) (81,192) (54,292)
Earnings (loss) per common share:
Before discontinued operations .19 (.95) (.77) (1.17)
Before extraordinary loss and
accounting change .62 (1.99) (3.35) (2.16)
Net earnings (loss) .62 (1.99) (3.35) (2.26)
================================================================================================
(1) Reflects the cumulative effect of $2,273,000 for change in the method of
accounting for postretirement benefits due to the implementation of
Statement of Financial Accounting Standards No. 106 (see Note 17).
(2) Includes $4,900,000 of additional gain on the divestiture of the
Company's Canadian operations (see Note 20).
(3) Includes an extraordinary loss of $240,000 from the early retirement of
long-term debt (see Note 12).
(4) Includes a restructuring charge of $22,114,000 (see Note 2).
(5) Includes a provision for discontinued operations of $68,587,000
(see Note 2).
(6) Includes $10,449,000 gain from excess provision for discontinued
operations (see Note 2).
(7) Includes a restructuring charge of $12,319,000 (see Note 2).
(8) Includes a provision for discontinued operations of $17,060,000
(see Note 2).
65
66
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 28, 1995 (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 31, 1995
(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
- ---------------- --------- ------- ----------
Fisher Investments, Inc. Common 1,449,900(1) 6.0
13100 Skyline Boulevard
Woodside, CA 94062
Richard C. Blum & Associates, Inc. Common 1,358,300(2) 5.6
Richard C. Blum & Associates, L.P.
The Carpenters Pension Trust for
Southern California
909 Montgomery Street
Suite 400
San Francisco, CA 94133
66
67
CLASS OF NO. OF PERCENT OF
NAME AND ADDRESS STOCK* SHARES CLASS
- ---------------- --------- ------- ----------
Jeannie Bussetti Series 1 3,000 8.1
Ronald R. Bussetti
12 Carteret Drive
Pomona, NY 10970
Joseph Bussetti Series 1 2,000 5.4
52 South Lilburn Drive
Garnerville, NY 10923
Ronald R. Bussetti Series 1 2,000 5.4
12 Carteret Drive
Pomona, NY 10970
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
Clinton Grossman Series 3 1,965(3) 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(3) 10.0
3200 Park Avenue
Apt. 7A-1
Bridgeport, CT 06604
Stanley Grossman Series 3 1,965(3) 10.0
3200 Park Avenue
Apt. 7A-1
Bridgeport, CT 06604
67
68
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 8.0
221 Evelyn Avenue Cumulative
Nashville, TN 37205 Preferred
______________
* See Note 14 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 from a Schedule 13G dated February 1, 1995.
(2) This information is from an amendment to Schedule 13D dated December 16,
1994. These shares are deemed to be beneficially owned by Mr. Richard C.
Blum, who is the majority shareholder of Richard C. Blum & Associates,
Inc.
(3) 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
"Certain Relationships and Related Transactions" included in the Company's
Proxy Statement.
68
69
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, 1995 and January 31, 1994
Consolidated Earnings, each of the three years ended January 31, 1995
Consolidated Cash Flows, each of the three years ended January 31, 1995
Consolidated Shareholders' Equity, each of the three years ended
January 31, 1995
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
II - Reserves, each of the three years ended January 31, 1995
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 76.
EXHIBITS
(3) a. By-laws of Genesco Inc.
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.
69
70
f. 1996 Management Incentive Compensation Plan.
g. 1995 Management Incentive Compensation Plan. Incorporated by
reference to Exhibit (10)g to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1994.
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), amendment dated
as of January 31, 1994 (2) and amendment dated as of October
28, 1994 (3) 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. (2)
Incorporated by reference to Exhibit (10)m to the Company's
Annual Report on Form 10-K for the fiscal year ended January
31, 1994. (3) Incorporated by reference to the Company's
Current Report on Form 8-K dated November 7, 1994.
n. 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.
o. 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.
p. 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.
70
71
q. 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.
r. 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).
s. 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.
t. Employment agreement dated as of December 8, 1993 between the
Company and Thomas B. Clark. Incorporated by reference to
Exhibit (10)w to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1994.
u. Severance Agreement dated as of October 12, 1994, between the
Company and E. Douglas Grindstaff. Incorporated by reference
to Exhibit (10)y to the Company's Quarterly Report of Form 10-Q
for the quarter ended October 31, 1994.
v. Severance Agreement dated as of October 12, 1994, between the
Company and Thomas B. Clark. Incorporated by reference to
Exhibit (10)z to the Company's Quarterly Report of Form 10-Q
for the quarter ended October 31, 1994.
w. Form of Employment Continuation Agreement between the Company
and certain executive officers. Incorporated by reference to
Exhibit (10)aa to the Company's Quarterly Report of Form 10-Q
for the quarter ended October 31, 1994.
x. Nonqualified Stock Option Agreement as amended and restated
through December 21, 1994 between the Company and David M.
Chamberlain.
y. Nonqualified Stock Option Agreement dated as of December 21,
1994 between the Company and David M. Chamberlain.
(11) Computation of earnings per share.
(21) Subsidiaries of the Company.
(23) Consent of Independent Public Accountants included on page 73.
(24) Power of Attorney
(27) Financial Data Schedule
(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)q, (10)r and (10)t
through (10)y 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.
71
72
REPORTS ON FORM 8-K
On November 7, 1994 the Company filed a Current Report on Form 8-K announcing
the adoption of a restructuring plan and an amendment to its revolving credit
facility agreement with a group of seven banks.
72
73
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 24, 1995 appearing on page 30 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 7, 1995 appearing
on page 1 of the January 31, 1995 Genesco Stock Savings Plan Financial
Statements.
/s/PRICE WATERHOUSE LLP
Nashville, Tennessee
May 1, 1995
73
74
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 and Treasurer
Date: May 1, 1995
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 1st day of May, 1995.
/s/ David M. Chamberlain Chairman, President and Chief Executive
- --------------------------------- Officer
David M. Chamberlain
/s/ James S. Gulmi Vice President - Finance and Treasurer
- --------------------------------- (Principal Financial Officer)
James S. Gulmi
/s/ Paul D. Williams Chief Accounting Officer
- ---------------------------------
Paul D. Williams
Directors:
W. Lipscomb Davis, Jr.* Joel C. Gordon*
John Diebold* William A. Williamson, Jr.*
Harry D. Garber* William S. Wire, II*
* By /s/ Roger G. Sisson
-----------------------------
Roger G. Sisson
Attorney-In-Fact
74
75
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Financial Statement Schedules
January 31, 1995
75
76
SCHEDULE 2
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Reserves
YEAR ENDED JANUARY 31, 1995
- ---------------------------------------------------------------------------------------------------------------
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 $2,065 1,222 117(1) (2,277)(2) $1,127
Allowance for cash discounts 177 -0- -0- (60)(3) 117
Allowance for sales returns 766 -0- -0- (226)(4) 540
Allowance for customer deductions 847 -0- -0- (589)(5) 258
Allowance for co-op advertising 719 -0- -0- (182)(6) 537
- ---------------------------------------------------------------------------------------------------------------
TOTALS $4,574 1,222 117 (3,334) $2,579
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
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
===============================================================================================================
Note: Most subsidiaries and branches charge credit and collection expense
directly to profit and loss. Adding such charges of $248,000 in
1995, $346,000 in 1994, and $268,000 in 1993 to the addition above,
the total bad debt expense amounted to $1,470,000 in 1995, $1,742,000
in 1994, and $2,429,000 in 1993.
- --------------------------------------------------------------------------------
(1) Bad debt recoveries.
(2) Bad debt charged to reserve and transfers to operations to be divested.
(3) Adjustment of allowance for estimated discounts to be allowed subsequent to
period end on receivables at same date and transfers to operations to be
divested.
(4) Adjustment of allowance for sales returns to be allowed subsequent to
period end on receivables at same date and transfers to operations to be
divested.
(5) Adjustment of allowance for customer deductions to be allowed subsequent
to period end on receivables at same date and transfers to operations to
be divested.
(6) Adjustment of allowance for estimated co-op advertising to be allowed
subsequent to period end on receivables at same date and transfers to
operations to be divested.
See Note 4 to the Consolidated Financial Statements included in Item 8.
76