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GENESCO
[LOGO]
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(Mark One) Form 10-Q
/x/ Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
April 30, 1995
/ / Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
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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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the registrant was required to file
such reports with the Commission) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Common Shares Outstanding June 2, 1995 - 24,343,663
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INDEX
PAGE
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Part 1 - Financial Information 3
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Consolidated Balance Sheet - April 30, 1995, January 31, 1995 and
April 30, 1994 3
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Consolidated Earnings - Three Months Ended
April 30, 1995 and 1994 4
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Consolidated Cash Flows - Three Months Ended
April 30, 1995 and 1994 5
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Consolidated Shareholders' Equity - Year Ended
January 31, 1995 and Three Months Ended April 30, 1995 6
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Notes to Consolidated Financial Statements 7
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Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
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Part II - Other Information 26
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Signature 27
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PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
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APRIL 30, JANUARY 31, APRIL 30,
1995 1995 1994
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ASSETS
CURRENT ASSETS
Cash and short-term investments $ 11,224 $ 10,235 $ 4,135
Accounts receivable 31,919 32,080 75,621
Inventories 86,219 82,905 158,544
Other current assets 4,020 4,277 6,753
Current assets of operations to be divested 46,392 53,891 -0-
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Total current assets 179,774 183,388 245,053
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Plant, equipment and capital leases, net 27,533 28,073 42,080
Goodwill and other intangibles -0- -0- 18,513
Other noncurrent assets 13,652 13,773 16,939
Noncurrent assets of operations to be
divested 1,781 18,644 -0-
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TOTAL ASSETS $222,740 $243,878 $322,585
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes payable $ 1,743 $ -0- $ 1,832
Current payments on capital leases 2,211 2,343 2,402
Accounts payable and accrued liabilities 56,763 61,124 60,462
Provision for discontinued operations 11,499 19,190 5,424
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Total current liabilities 72,216 82,657 70,120
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Long-term debt 75,000 75,000 106,000
Capital leases 9,432 10,057 12,233
Other long-term liabilities 22,356 25,746 37,433
Provision for discontinued operations 15,013 21,025 892
Contingent liabilities - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,944 7,943 7,979
Common shareholders' equity:
Par value of issued shares 24,832 24,832 24,797
Additional paid-in capital 121,677 121,670 121,630
Accumulated deficit (105,260) (104,582) (26,063)
Minimum pension liability adjustment (2,613) (2,613) (9,964)
Treasury shares, at cost (17,857) (17,857) (17,857)
Foreign currency translation adjustments -0- -0- (4,615)
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Total shareholders' equity 28,723 29,393 95,907
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $222,740 $243,878 $322,585
===================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
Three Months Ended April 30
In Thousands
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1995 1994
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Net sales $ 93,225 $100,221
Cost of sales 57,688 62,045
Selling and administrative expenses 36,366 38,278
Restructuring charge 14,113 -0-
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Loss from operations before
other income and expenses (14,942) (102)
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Other expenses (income):
Interest expense 2,228 2,806
Other income (3,848) (515)
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Total other expenses, net (1,620) 2,291
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Loss before income taxes and discontinued
operations (13,322) (2,393)
Income taxes 9 141
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Loss before discontinued operations (13,331) (2,534)
Discontinued operations:
Operating loss -0- (139)
Excess provision for future losses 12,653 -0-
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NET LOSS $ (678) $ (2,673)
==============================================================================================================
Loss per common share:
Before discontinued operations $ (.55) $ (.11)
Discontinued operations $ .52 $ .00
Net loss $ (.03) $ (.11)
==============================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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Genesco Inc.
and Consolidated Subsidiaries
Consolidated Cash Flows
Three Months Ended April 30
In Thousands
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1995 1994
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OPERATIONS:
Net loss $ (678) $ (2,673)
Noncash charges to earnings:
Restructuring charge 14,113 -0-
Depreciation and amortization 1,836 2,493
Excess provision for future losses (12,653) -0-
Provision for losses on accounts receivable 531 417
Other 178 63
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Net cash provided by operations before
working capital and other changes 3,327 300
Effect on cash of changes in working
capital and other assets and liabilities
net of effect of business acquisitions:
Accounts receivable 1,637 (10,081)
Inventories 3,500 (3,424)
Other current assets 320 (914)
Accounts payable and accrued liabilities (6,069) (2,177)
Other assets and liabilities (2,729) 1,310
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Net cash used in operations (14) (14,986)
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INVESTING ACTIVITIES:
Capital expenditures (1,085) (1,564)
Proceeds from businesses divested and asset sales 1,103 156
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Net cash provided by (used in) investing activities 18 (1,408)
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FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit agreement -0- 16,000
Net change in short-term borrowings 1,743 1,763
Payments on capital leases (758) (617)
Other -0- (242)
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Net cash provided by financing activities 985 16,904
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Net Cash Flow
989 510
Cash and short-term investments at
beginning of period 10,235 3,625
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Cash and short-term investments at end of period $ 11,224 $ 4,135
=====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 4,296 $ 4,529
Income taxes (22) (269)
=====================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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Genesco Inc.
and Consolidated Subsidiaries
Consolidated Shareholders' Equity
In Thousands
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Total Foreign Minimum Total
Non-Redeemable Currency Pension Share-
Preferred Common Paid-In Accumulated Treasury Translation Liability holders'
Stock Stock Capital Deficit Stock Adjustments Adjustment Equity
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Balance January 31, 1994 $ 8,064 $ 24,793 $ 121,634 $ (23,241) $ (17,857) $ (4,706) $ (9,964) $ 98,723
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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)
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Balance January 31, 1995 $ 7,943 $ 24,832 $ 121,670 $(104,582) $ (17,857) $ -0- $ (2,613) $ 29,393
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Net loss -0- -0- -0- (678) -0- -0- -0- (678)
Other 1 -0- 7 -0- -0- -0- -0- 8
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Balance April 30, 1995 $ 7,944 $ 24,832 $ 121,677 $(105,260) $ (17,857) $ -0- $ (2,613) $ 28,723
==========================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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Genesco Inc.
and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Interim Statements
The consolidated financial statements contained in this report are
unaudited but reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the
results for the interim periods of the fiscal year ending January 31,
1996 ("Fiscal 1996") and of the fiscal year ended January 31, 1995
("Fiscal 1995"). The results of operations for any interim period
are not necessarily indicative of results for the full year. The
financial statements should be read in conjunction with the financial
statements and notes thereto included in the annual report on Form
10-K.
Certain reclassifications have been made to conform prior years' data
to the current presentation. (See Note 2).
Basis of Consolidation
All subsidiaries are included in the consolidated financial
statements. All significant intercompany transactions and accounts
have been eliminated.
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.
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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 April 30, 1995, the Company had approximately $9.7 million and
$9.6 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.
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.
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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.
In the fourth quarter of Fiscal 1995 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.
In the first quarter of Fiscal 1996 the Company took an additional
restructuring charge of $14.1 million relating to the 1995 Restructuring. The
additional restructuring charge reflects the lowering of anticipated proceeds
from the sale of Mitre Sports soccer business. In addition, the 1995
Restructuring Provision was adjusted by an additional reversal of $12.7
million. The reversal reflects primarily (1) an agreement during the quarter
providing for the resolution of a long-term lease liability on terms more
favorable than were anticipated when the 1995 Restructuring Provision was
established, (2) better than anticipated realization of inventories and
accounts receivable as the remaining Greif inventory was liquidated in the
first quarter of Fiscal 1996 and (3) lower than anticipated union pension
liability, which the pension fund determined and announced to the Company
during the quarter. The 1995 Restructuring Charge, as adjusted, provides for
the elimination of 464 jobs in footwear operations to be divested or
consolidated and in staff positions to be eliminated, of which 287 jobs had
been eliminated as of April 30, 1995.
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GENESCO INC .
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
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 and the Company has entered into an
agreement providing for the resolution of the remaining long-term lease
liability. The Company's GCO Apparel Corporation was sold effective June 9,
1995. The remaining divestiture anticipated by the 1995 Restructuring is
presently in process. The outcome of this divestiture and other aspects of the
1995 Restructuring may cause further 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.
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:
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THREE MONTHS ENDED APRIL 30,
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IN THOUSANDS 1994
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Net sales $30,411
Cost of sales and expenses 30,550
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Pretax loss (139)
Income tax expense (benefit) -0-
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Net Loss $ (139)
===========================================================================================================
Discontinued operations' sales subsequent to the decision to discontinue were
$17.9 million for the three months ended April 30, 1995.
Operating results of stores identified for closure and businesses to be
divested pursuant to the 1995 Restructuring and the 1994 Restructuring referred
to below 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 for the three months ended
April 30, 1995 is presented as other income in the Consolidated Earnings
Statement. Such operating losses totalled $2.0 million for the three months
ended April 30, 1995.
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GENESCO INC .
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
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.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE*
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APRIL 30, JANUARY 31,
IN THOUSANDS 1995 1995
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Trade accounts receivable $ 32,033 $ 32,401
Miscellaneous receivables 2,465 2,258
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Total receivables 34,498 34,659
Allowance for bad debts (1,399) (1,127)
Other allowances (1,180) (1,452)
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NET ACCOUNTS RECEIVABLE $ 31,919 $ 32,080
==========================================================================================================
* Excludes accounts receivable of operations to be divested (see Note 5).
NOTE 4
INVENTORIES*
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APRIL 30, JANUARY 31,
IN THOUSANDS 1995 1995
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Raw materials $ 8,590 $ 8,856
Work in process 3,037 2,877
Finished goods 20,471 21,992
Retail merchandise 54,121 49,180
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TOTAL INVENTORIES $ 86,219 $ 82,905
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* Excludes inventories of operations to be divested (see Note 5).
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5
ASSETS OF OPERATIONS TO BE DIVESTED
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JANUARY 31,
APRIL 30, 1995 1995
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DISCONTINUED* OTHER**
IN THOUSANDS OPERATIONS OPERATIONS TOTALS
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Current assets:
Accounts receivable $ 13,727 $ 11,845 $ 25,572 $ 27,079
Inventory 2,441 17,788 20,229 26,158
Other -0- 591 591 654
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TOTAL CURRENT ASSETS $ 16,168 $ 30,224 $ 46,392 $ 53,891
===============================================================================================================
Noncurrent assets:
Plant and equipment $ -0- $ 1,751 $ 1,751 $ 2,647
Capitalized lease rights -0- 30 30 299
Goodwill and other intangibles -0- -0- -0- 15,698
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TOTAL NONCURRENT ASSETS $ -0- $ 1,781 $ 1,781 $ 18,644
==============================================================================================================
* 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).
NOTE 6
PLANT, EQUIPMENT AND CAPITAL LEASES, NET*
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APRIL 30, JANUARY 31,
IN THOUSANDS 1995 1995
- ---------------------------------------------------------------------------------------------------------------
Plant and equipment:
Land $ 75 $ 75
Buildings and building equipment 2,515 2,797
Machinery, furniture and fixtures 31,098 30,682
Construction in progress 1,082 672
Improvements to leased property 37,749 37,776
Capital leases:
Land 60 60
Buildings 2,126 2,195
Machinery, furniture and fixtures 7,674 7,627
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Plant, equipment and capital leases, at cost 82,379 81,884
Accumulated depreciation and amortization:
Plant and equipment (48,851) (48,131)
Capital leases (5,995) (5,680)
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NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 27,533 $ 28,073
==============================================================================================================
* Excludes plant, equipment and capital leases of operations to be divested
(see Note 5).
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
- -------------------------------------------------------------------------------------------------------------------
PROVISION FOR DISCONTINUED OPERATIONS
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EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1995 $25,134 $ 9,405 $1,415 $4,261 $ 40,215
Charges and adjustments, net (5,822) (8,383) 221 281 (13,703)
- -------------------------------------------------------------------------------------------------------------------
Balance April 30, 1995 19,312 1,022 1,636 4,542 26,512
Current portion 4,299 1,022 1,636 4,542 11,499
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TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $15,013 $ -0- $ -0- $ -0- $15,013
===================================================================================================================
RESTRUCTURING RESERVES
- -------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1995 $ 3,965 $ 3,123 $ 555 $3,112 $10,755
Charges and adjustments, net (1,632) (868) 169 (620) (2,951)
- -------------------------------------------------------------------------------------------------------------------
Balance April 30, 1995 2,333 2,255 724 2,492 7,804
Current portion (included in accounts
payable and accrued liabilities) 2,255 1,983 724 2,484 7,446
- -------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM
LIABILITIES) $ 78 $ 272 $ -0- $ 8 $ 358
===================================================================================================================
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
CREDIT FACILITIES
At April 30, 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 $8,060,000 at April 30, 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 in December 1994 and
has been extended by an oral agreement through July 31, 1995.
NOTE 9
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.
New York State Environmental Proceedings
The Company is 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.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
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.
16
17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
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 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.
17
18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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.
In the fourth quarter of Fiscal 1995 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.
18
19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
In the first quarter of Fiscal 1996 the Company took an additional
restructuring charge of $14.1 million relating to the 1995 Restructuring. The
additional restructuring charge reflects the lowering of anticipated proceeds
from the sale of Mitre Sports soccer business. In addition, the 1995
Restructuring Provision was adjusted by an additional reversal of $12.7
million. The reversal reflects primarily (1) an agreement during the quarter
providing for the resolution of a long-term lease liability on terms more
favorable than were anticipated when the 1995 Restructuring Provision was
established, (2) better than anticipated realization of inventories and
accounts receivable as the remaining Greif inventory was liquidated in the
first quarter of Fiscal 1996 and (3) lower than anticipated union pension
liability, which the pension fund determined and announced to the Company
during the quarter. The 1995 Restructuring Charge, as adjusted, provides for
the elimination of 464 jobs in footwear operations to be divested or
consolidated and in staff positions to be eliminated, of which 287 jobs had
been eliminated as of April 30, 1995.
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 and the Company has entered into an
agreement providing for the resolution of the remaining long-term lease
liability. The Company's GCO Apparel Corporation was sold effective June 9,
1995. The remaining divestiture anticipated by the 1995 Restructuring is
presently in process. The outcome of this divestiture and other aspects of the
1995 Restructuring may cause further 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 and to $50 million at April 30,
1995.
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS - FIRST QUARTER FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales from continuing operations in the first quarter ended
April 30, 1995 decreased 7.0% from the previous year. Total gross margin for
the quarter decreased 6.9% but remained constant as a percentage of net sales.
Selling and administrative expenses decreased 5.0% but increased as a
percentage of net sales from 38.2% to 39.0%. The pretax loss in the first
quarter ended April 30, 1995 was $13,322,000, compared to a pretax loss of
$2,393,000 for the quarter ended April 30, 1994. The pretax loss for the first
quarter ended April 30, 1995 includes a $14.1 million increase in the 1995
Restructuring Charge and recognition of a $1.8 million gain discussed below.
The Company reported a net loss of $678,000 ($0.03 per share) for the first
quarter ended April 30, 1995 compared to a net loss of $2,673,000 ($0.11 per
share) in the first quarter ended April 30, 1994. The first quarter ended
April 30, 1995 net loss includes, in addition to the 1995 Restructuring Charge
adjustment, a positive adjustment of $12.7 million to the 1995 Restructuring
Provision. See Note 2 to the Consolidated Financial Statements and
"Significant Developments - Fiscal 1995 Restructuring."
Footwear Retail
Three Months
Ended April 30,
------------------------ %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . $47,758 $47,772 0.0%
Operating Income . . . . . . . . . . . . . . . . . $ 1,221 $ 1,308 (6.7)%
Operating Margin . . . . . . . . . . . . . . . . . 2.6% 2.7%
Despite an increase in comparable store sales of approximately 4%, net sales
from footwear retail operations were flat in the quarter ended April 30, 1995
compared to the previous year due to the operation of 5% fewer stores in the
first quarter ended April 30, 1995. As part of a restructuring plan adopted in
the fourth quarter of Fiscal 1994 (the "1994 Restructuring"), the Company
completed the closing of 27 retail stores in the first quarter of Fiscal 1995,
which resulted in increased discounting. Because of last year's discounting
associated with the store closings, the average price per pair increased 12%,
while unit sales were down 11%.
Gross margin as a percentage of net sales decreased from 51.6% to 50.0%,
primarily from price pressures on branded products as well as increased
markdowns to stimulate sales in the Company's boot outlets. Operating expenses
decreased 4.0%, primarily due to the operation of fewer stores as a result of
the 1994 Restructuring (see Note 2 to the Consolidated Financial Statements)
and decreased as a percentage of net sales from 49.8% to 47.8%.
20
21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Operating income in the first quarter ended April 30, 1995 was down slightly
compared to the same period last year due to softness in sales from the
Company's boot outlets.
Footwear Wholesale & Manufacturing
Three Months
Ended April 30,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . $ 45,467 $52,449 (13.3)%
Operating Income before
Restructuring Charges . . . . . . . . . . . . . $ 3,797 $ 1,925 97.2%
Restructuring Charges . . . . . . . . . . . . . . $ 14,113 $ -0- 100.0%
Operating Income . . . . . . . . . . . . . . . . $(10,316) $ 1,925
Operating Margin . . . . . . . . . . . . . . . . (22.7)% 3.7%
Net sales from footwear wholesale and manufacturing operations were $7.0
million (13.3%) lower in the first quarter ended April 30, 1995 than in the
same period last year, reflecting primarily lower sales from operations
included in the 1995 Restructuring. Sales from ongoing operations were down
1.4%, reflecting primarily lower unit sales and selling prices of western
boots, which more than offset increased sales of men's branded products,
primarily attributable to higher unit sales.
Gross margin as a percentage of net sales decreased from 25.8% to 25.7%.
Operating expenses decreased 1.3% but increased as a percentage of net sales
from 22.3% to 25.3%, primarily because of the lower sales in operations to be
divested.
Included in the operating income before Restructuring Charge for the three
months ended April 30, 1995 is a one-time gain of $1.8 million from the
favorable resolution of a claim relating to import duties. The increase in
operating income before Restructuring Charge and the import duty claim is due
primarily to increased sales of men's branded products.
The net sales and operating income before Restructuring Provision for the three
months ended April 30, 1994 of the University Brands and Mitre Sports
businesses that are being disposed of in the 1995 Restructuring were
$16,820,000 and $135,000, respectively. The operating results subsequent to
October 31, 1994 have been charged against the Restructuring Provision.
21
22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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 for the three months ended
April 30, 1994, which was prior to the decision to discontinue, were $30.4
million and $139,000, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the first three months ended April 30, 1995
were $2.0 million, compared to $2.8 million last year, a decrease of
approximately 29%. The decrease in corporate expenses is attributable
primarily to lower professional fees and to lower compensation expenses due to
layoffs related to the Restructurings and other staff reductions.
Interest expense decreased $578,000, or 21%, from last year, because of a
decrease in borrowings. There were no borrowings under the Company's Revolving
Credit Facility during the three months ended April 30, 1995.
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 for the three months ended April 30, 1995 is presented as other
income in the Consolidated Earnings Statement. Such operating losses totalled
$2.0 million for the three months ended April 30, 1995. Also included in other
income for the three months ended April 30, 1995 is a $1.8 million gain from
the favorable resolution of a claim relating to import duties.
22
23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
April 30,
---------------
1995 1994
---------------
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.2 $ 4.1
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107.6 $174.9
Long-term debt (includes current
maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75.0 $106.0
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5x 3.5x
_______________
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable normally reaching peaks in the spring and
fall of each year. Cash flow from operations is ordinarily generated
principally in the fourth quarter of each fiscal year.
Cash used by operating activities was $14,000 in the first three months of
Fiscal 1996 compared to $15.0 million used by operating activities last year.
The $15.0 million improvement in cash flow from operating activities between
the first quarter of Fiscal 1996 and the first quarter of Fiscal 1995 reflects
primarily cash inflows from the disposal of assets included in the 1995
Restructuring.
A $3.5 million decrease in inventories from January 31, 1995 levels reflected
in the Consolidated Statement of Cash Flows was due primarily to liquidation of
inventories in connection with the 1995 Restructuring, which more than offset
planned seasonal increases, while the $6.9 million decrease in inventories
compared with April 30, 1994 reflects lower inventory levels in the Company's
boot business.
As reflected in the Consolidated Statement of Cash Flows, accounts receivable
at April 30, 1995 decreased $1.6 million compared to January 31, 1995,
primarily from collection of receivables in the operations being divested in
the 1995 Restructuring. Accounts receivable at April 30, 1995 were $1.3
million greater than at April 30, 1994, primarily due to increased sales in the
men's branded footwear and extended terms to meet competitive pressures.
23
24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Statement of Cash Flows at April 30, 1995 and
1994 is as follows:
Three Months Ended April 30,
----------------------------------
(In Thousands) 1995 1994
------- -------
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 3,693 $ 3,498
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . (9,762) (5,675)
------- -------
$(6,069) $(2,177)
======= =======
The fluctuations in accounts payable are due to changes in buying patterns,
payment terms negotiated with individual vendors and changes in inventory
levels.
The change in accrued liabilities was due primarily to payment of severance
costs and liabilities related to the Restructurings.
There were no revolving credit borrowings during the three months ended April
30, 1995 as cash generated from the 1995 Restructuring more than offset
seasonal working capital increases in the remaining operations. Revolving
credit agreement borrowings increased by $16 million during the three months
ended April 30, 1994 to finance seasonal working capital increases, to finance
operations and to fund approximately $2.8 million of costs associated with the
Company's 1994 Restructuring.
Capital Expenditures
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 approximately 16 new retail stores and to complete 32 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other purposes are expected to be approximately $6.6 million.
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
approximately $18.9 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.
24
25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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. 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 $11.8 million of letters of credit outstanding under the revolving
credit agreement at April 30, 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 April 30, 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. $8.1 million at April 30, 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 in December 1994 and
has been extended by an oral agreement through July 31, 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 not further extended.
25
26
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At April 30, 1995 Genesco was in arrears with respect to dividends payable on
the following classes of preferred stock:
ARREARAGE
-------------------------------------------
DATE DIVIDENDS BEGINNING THIS END OF
CLASS OF STOCK PAID TO OF QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------
$2.30 Series 1 October 31, 1993 $107,102 $ 21,409 $128,511
$4.75 Series 3 October 31, 1993 116,565 23,313 139,878
$4.75 Series 4 October 31, 1993 97,446 19,489 116,935
$1.50 Subordinated Cumulative
Preferred October 31, 1993 56,207 11,257 67,464
- -----------------------------------------------------------------------------------------------------------
TOTALS $377,320 $ 75,468 $452,788
===========================================================================================================
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(11) Computation of earnings per common and common share equivalent.
(27) Financial Data Schedule (for SEC use only)
______________
REPORTS ON FORM 8-K
None
26
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genesco Inc.
/s/ James S. Gulmi
James S. Gulmi
Chief Financial Officer
June 14, 1995
27