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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
July 31, 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 September 8, 1995 - 24,343,663
2
INDEX
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PAGE
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Part 1 - Financial Information 3
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Consolidated Balance Sheet - July 31, 1995, January 31, 1995 and
July 31, 1994 3
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Consolidated Earnings - Three Months Ended and Six Months Ended
July 31, 1995 and 1994 4
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Consolidated Cash Flows - Three Months Ended and Six Months Ended
July 31, 1995 and 1994 5
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Consolidated Shareholders' Equity - Year Ended
January 31, 1995 and Six Months Ended July 31, 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 28
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Signature 30
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3
PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
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JULY 31, JANUARY 31, JULY 31,
1995 1995 1994
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ASSETS
CURRENT ASSETS
Cash and short-term investments $ 5,388 $ 10,235 $ 5,015
Accounts receivable 33,916 32,080 84,796
Inventories 89,427 82,905 153,513
Other current assets 4,133 4,277 7,228
Current assets of operations to be divested 35,482 53,891 -0-
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Total current assets 168,346 183,388 250,552
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Plant, equipment and capital leases, net 28,126 28,073 41,177
Goodwill and other intangibles -0- -0- 18,517
Other noncurrent assets 13,533 13,773 16,802
Noncurrent assets of operations to be
divested 1,629 18,644 -0-
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TOTAL ASSETS $ 211,634 $ 243,878 $ 327,048
===================================================================================================================
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LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Notes payable $ 3,034 $ -0- $ 3,095
Current payments on capital leases 1,614 2,343 2,375
Accounts payable and accrued liabilities 57,957 61,124 60,714
Provision for discontinued operations 4,806 19,190 5,666
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Total current liabilities 67,411 82,657 71,850
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Long-term debt 75,000 75,000 114,000
Capital leases 2,065 10,057 11,367
Other long-term liabilities 23,310 25,746 33,168
Provision for discontinued operations 14,604 21,025 1,046
Contingent liabilities - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,944 7,943 7,954
Common shareholders' equity:
Par value of issued shares 24,832 24,832 24,822
Additional paid-in capital 121,684 121,670 121,634
Accumulated deficit (104,746) (104,582) (26,579)
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- (4,393)
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Total shareholders' equity 29,244 29,393 95,617
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 211,634 $ 243,878 $ 327,048
===================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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4
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
In Thousands
--------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------- -----------------------
1995 1994 1995 1994
--------------------------------------------------------------------------------------------------------------
Net sales $109,600 $114,166 $202,825 $214,387
Cost of sales 67,101 71,279 124,789 133,324
Selling and administrative expenses 37,823 42,034 74,189 80,312
Restructuring charge 2,216 -0- 16,329 -0-
--------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations before
other income and expenses 2,460 853 (12,482) 751
--------------------------------------------------------------------------------------------------------------
Other expenses (income):
Interest expense 2,549 3,093 4,777 5,899
Gain on divestiture -0- (4,900) -0- (4,900)
Other expense (income) 1,090 3 (2,758) (512)
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Total other (income) expenses, net 3,639 (1,804) 2,019 487
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Earnings (loss) before income taxes
and discontinued operations (1,179) 2,657 (14,501) 264
Income taxes 6 372 15 513
--------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued
operations (1,185) 2,285 (14,516) (249)
Discontinued operations:
Operating loss -0- (2,801) -0- (2,940)
Excess provision for future losses 1,699 -0- 14,352 -0-
--------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 514 $ (516) $ (164) $ (3,189)
==============================================================================================================
Earnings (loss) per common share:
Before discontinued operations $ (.05) $ .09 $ (.60) $ (.02)
Discontinued operations $ .07 $ (.11) $ .59 $ (.12)
Net earnings (loss) $ .02 $ (.02) $ (.01) $ (.14)
==============================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Cash Flows
In Thousands
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------- ----------------------
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net earnings (loss) $ 514 $ (516) $ (164) $ (3,189)
Noncash charges to earnings:
Depreciation and amortization 1,751 2,454 3,587 4,947
Restructuring charge 2,216 -0- 16,329 -0-
Excess provision for future losses (1,699) -0- (14,352) -0-
Gain on divestiture -0- (4,900) -0- (4,900)
Provision for losses on accounts receivable 192 838 723 1,255
Other 83 535 261 598
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Net cash provided by (used in) operations before
working capital and other changes 3,057 (1,589) 6,384 (1,289)
Effect on cash of changes in working
capital and other assets and liabilities:
Accounts receivable 1,897 (9,964) 3,534 (20,045)
Inventories (134) 5,031 3,366 1,607
Other current assets 84 (475) 404 (1,389)
Accounts payable and accrued liabilities (2,413) (206) (8,482) (2,383)
Other assets and liabilities 402 (269) (2,327) 1,041
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Net cash provided by (used in) operations 2,893 (7,472) 2,879 (22,458)
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INVESTING ACTIVITIES:
Capital expenditures (2,443) (1,631) (3,528) (3,195)
Proceeds from businesses divested and asset sales 387 1,614 1,490 1,770
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Net cash used in investing activities (2,056) (17) (2,038) (1,425)
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FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit agreement -0- 8,000 -0- 24,000
Net change in short-term borrowings 1,291 1,263 3,034 3,026
Payments on capital leases (7,964) (894) (8,722) (1,511)
Other -0- -0- -0- (242)
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Net cash provided by (used in) financing activities (6,673) 8,369 (5,688) 25,273
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NET CASH FLOW (5,836) 880 (4,847) 1,390
Cash and short-term investments at
beginning of period 11,224 4,135 10,235 3,625
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 5,388 $ 5,015 $ 5,388 $ 5,015
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 225 $ 814 $ 4,520 $ 5,343
Income taxes (745) 135 (767) (134)
========================================================================================================================
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
------------------------------------------------------------------------------------
TOTAL
NON-REDEEMABLE
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT
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Balance January 31, 1994 $ 8,064 $24,793 $ 121,634 $ (23,241)
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Exercise of options -0- 2 4 -0-
Translation adjustments:
Year-to-date adjustments -0- -0- -0- -0-
Realized in FY 1995 restructuring -0- -0- -0- -0-
Net loss -0- -0- -0- (81,192)
Minimum pension liability adjustment -0- -0- -0- -0-
Other (121) 37 32 (149)
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Balance January 31, 1995 $ 7,943 $24,832 $ 121,670 $(104,582)
------------------------------------------------------------------------------------
Net loss -0- -0- -0- (164)
Other 1 -0- 14 -0-
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BALANCE JULY 31, 1995 $ 7,944 $24,832 $ 121,684 $(104,746)
====================================================================================
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FOREIGN MINIMUM TOTAL
CURRENCY PENSION SHARE-
TREASURY TRANSLATION LIABILITY HOLDERS'
STOCK ADJUSTMENTS ADJUSTMENT EQUITY
------------------------------------------------------------------------------------------
Balance January 31, 1994 $ (17,857) $ (4,706) $ (9,964) $ 98,723
-----------------------------------------------------------------------------------------
Exercise of options -0- -0- -0- 6
Translation adjustments:
Year-to-date adjustments -0- 2,136 -0- 2,136
Realized in FY 1995 restructuring -0- 2,570 -0- 2,570
Net loss -0- -0- -0- (81,192)
Minimum pension liability adjustment -0- -0- 7,351 7,351
Other -0- -0- -0- (201)
-----------------------------------------------------------------------------------------
Balance January 31, 1995 $ (17,857) $ -0- $ (2,613) $ 29,393
-----------------------------------------------------------------------------------------
Net loss -0- -0- -0- (164)
Other -0- -0- -0- 15
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BALANCE JULY 31, 1995 $ (17,857) $ -0- $ (2,613) $ 29,244
=========================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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7
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial
Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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. 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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8
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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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 July 31, 1995, 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 five 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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9
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS
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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
facility consolidation costs and permanent work force reductions 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
positively adjusted by $10.5 million reducing the $68.6 million provision for
future losses of discontinued operations to $58.1 million. The adjustment
reflected 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 reflected 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 reflected 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.
9
10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
--------------------------------------------------------------------------------
In the second quarter of Fiscal 1996 the Company took an additional
restructuring charge of $2.2 million relating to the 1995 Restructuring. This
addition to the 1995 Restructuring Charge reflects the actual proceeds received
from the sale on August 14, 1995 of the Mitre Sports soccer business. In
addition, the Company made an additional positive adjustment of $1.7 million to
the 1995 Restructuring Provision. The adjustment reflects primarily the
reversal of reserves in connection with the final settlement of a long-term
lease liability, based on the resolution of certain contingencies at the
closing of the transaction in the second quarter more favorably than the
Company had anticipated and lower than anticipated severance payments.
The transactions provided for in the 1995 Restructuring are substantially
complete. The 1995 Restructuring Charge, as adjusted, provided for the
elimination of 464 jobs in footwear operations to be divested or consolidated
and in staff positions to be eliminated, of which 302 jobs had been eliminated
as of July 31, 1995. The divestiture of the University Brands business was
completed in February 1995. The operations of The Greif Companies have ceased,
its inventories and equipment have been liquidated and its last major remaining
long-term lease liability was resolved in June 1995. The Company's GCO Apparel
Corporation was sold effective June 9, 1995. The Company's Mitre Sports soccer
business was sold effective August 14, 1995 with cash proceeds to the Company
of approximately $19.1 million, including repayment of intercompany balances,
subject to the outcome of certain contingencies, principally a post-closing
audit. The outcome of these contingencies may require further adjustments to
the 1995 Restructuring Charge and Provision. There can be no assurance that
variations in the timing of any further adjustments will not affect the results
of operations and cash flows of the Company in the third fiscal quarter or that
some variations will not 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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SIX MONTHS ENDED JULY 31,
--------------------------
IN THOUSANDS 1994
-----------------------------------------------------------------------------------------------------------
Net sales $57,198
Cost of sales and expenses 60,138
-----------------------------------------------------------------------------------------------------------
Pretax loss (2,940)
Income tax expense (benefit) -0-
-----------------------------------------------------------------------------------------------------------
Net Loss $(2,940)
===========================================================================================================
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11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
--------------------------------------------------------------------------------
Discontinued operations' sales subsequent to the decision to discontinue were
$20.0 million for the six months ended July 31, 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 six months ended July
31, 1995 is presented as other income in the Consolidated Earnings Statement.
Such operating losses totalled $0.9 million for the six months ended July 31,
1995.
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 related to the men's apparel segment. 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.
11
12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE*
--------------------------------------------------------------------------------
JULY 31, JANUARY 31,
IN THOUSANDS 1995 1995
----------------------------------------------------------------------------------------------------------
Trade accounts receivable $33,657 $32,401
Miscellaneous receivables 2,835 2,258
----------------------------------------------------------------------------------------------------------
Total receivables 36,492 34,659
Allowance for bad debts (1,294) (1,127)
Other allowances (1,282) (1,452)
----------------------------------------------------------------------------------------------------------
NET ACCOUNTS RECEIVABLE $33,916 $32,080
==========================================================================================================
* Excludes accounts receivable of operations to be divested (see Note 5).
NOTE 4
INVENTORIES*
--------------------------------------------------------------------------------
JULY 31, JANUARY 31,
IN THOUSANDS 1995 1995
----------------------------------------------------------------------------------------------------------
Raw materials $ 9,534 $ 8,856
Work in process 3,612 2,877
Finished goods 23,651 21,992
Retail merchandise 52,630 49,180
----------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $89,427 $82,905
==========================================================================================================
* Excludes inventories of operations to be divested (see Note 5).
12
13
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5
ASSETS OF OPERATIONS TO BE DIVESTED
--------------------------------------------------------------------------------------------------------------
JANUARY 31,
JULY 31, 1995 1995
-------------------------------------------- ----------
DISCONTINUED* OTHER**
IN THOUSANDS OPERATIONS OPERATIONS TOTALS
--------------------------------------------------------------------------------------------------------------
Current assets:
Accounts receivable $ 3,628 $ 16,975 $ 20,603 $ 27,079
Inventory -0- 14,484 14,484 26,158
Other -0- 395 395 654
--------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $ 3,628 $ 31,854 $ 35,482 $ 53,891
==============================================================================================================
Noncurrent assets:
Plant and equipment $ -0- $ 1,611 $ 1,611 $ 2,647
Capitalized lease rights -0- 18 18 299
Goodwill and other intangibles -0- -0- -0- 15,698
--------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT ASSETS $ -0- $ 1,629 $ 1,629 $ 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*
--------------------------------------------------------------------------------------------------------------
JULY 31, JANUARY 31,
IN THOUSANDS 1995 1995
--------------------------------------------------------------------------------------------------------------
Plant and equipment:
Land $ 75 $ 75
Buildings and building equipment 2,517 2,797
Machinery, furniture and fixtures 32,135 30,682
Construction in progress 1,756 672
Improvements to leased property 37,316 37,776
Capital leases:
Land 60 60
Buildings 2,126 2,195
Machinery, furniture and fixtures 7,650 7,627
--------------------------------------------------------------------------------------------------------------
Plant, equipment and capital leases, at cost 83,635 81,884
Accumulated depreciation and amortization:
Plant and equipment (49,214) (48,131)
Capital leases (6,295) (5,680)
--------------------------------------------------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 28,126 $ 28,073
==============================================================================================================
* Excludes plant, equipment and capital leases of operations to be divested
(see Note 5).
13
14
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7
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, 1995 $ 25,134 $ 9,405 $ 1,415 $ 4,261 $ 40,215
Charges and adjustments, net (8,311) (9,229) 74 (3,339) (20,805)
-------------------------------------------------------------------------------------------------------------------
Balance July 31, 1995 16,823 176 1,489 922 19,410
Current portion 2,219 176 1,489 922 4,806
-------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $ 14,604 $ -0- $ -0- $ -0- $ 14,604
===================================================================================================================
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 (1,788) (1,235) 694 (1,777) (4,106)
-------------------------------------------------------------------------------------------------------------------
Balance July 31, 1995 2,177 1,888 1,249 1,335 6,649
Current portion (included in accounts
payable and accrued liabilities) 2,177 1,614 1,249 1,332 6,372
-------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM
LIABILITIES) $ -0- $ 274 $ -0- $ 3 $ 277
===================================================================================================================
14
15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
CREDIT FACILITIES
--------------------------------------------------------------------------------
At July 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 $7,985,000 at July 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, 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. The facility was
cancelled in connection with the sale of Mitre U.K. as of August 14, 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.
15
16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
LEGAL PROCEEDINGS, CONTINUED
--------------------------------------------------------------------------------
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 advised the Company that it would review the results
of the analysis for possible referral to the EPA for action under the
Comprehensive Environmental Response Compensation and Liability Act. However,
the Company is cooperating with MDNR and has been advised by MDNR that no EPA
referral is presently contemplated. Neither MDNR nor the EPA has threatened or
commenced any enforcement action. In response to the testing data, the Company
has submitted a conceptual work plan for approval by MDNR. The plan provides,
among other things, for fencing a waste disposal area to reduce the likelihood
of human contact with any hazardous substances which may be in the area,
installing an erosion barrier along a portion of the shore of White Lake
adjoining the facility, and performing additional testing and analysis to
determine what additional remediation may be necessary. The Company does not
believe that the installation of an erosion barrier and fencing and the
additional testing anticipated by the conceptual work plan will have a material
effect on its financial condition or results of operations, but is unable to
determine whether additional remediation activities, if any, would have a
material effect on its financial condition or results of operations.
16
17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9
LEGAL PROCEEDINGS, CONTINUED
--------------------------------------------------------------------------------
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.
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, 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
positively adjusted by $10.5 million, reducing the $68.6 million provision for
future losses of discontinued operations to $58.1 million. The adjustment
reflected 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 reflected the lowering of anticipated proceeds
from the sale of the Mitre Sports soccer business. In addition, the 1995
Restructuring Provision was adjusted by an additional reversal of $12.7
million. The reversal reflected 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.
In the second quarter of Fiscal 1996 the Company took an additional
restructuring charge of $2.2 million relating to the 1995 Restructuring. This
addition to the 1995 Restructuring Charge reflects the actual proceeds received
from the sale on August 14, 1995 of the Mitre Sports soccer business. In
addition, the Company made an additional positive adjustment of $1.7 million to
the 1995 Restructuring Provision. The adjustment reflects primarily the
reversal of reserves in connection with the final settlement of a long-term
lease liability, based on the resolution of certain contingencies at the
closing of the transaction in the second quarter more favorably than the
Company had anticipated and lower than anticipated severance payments.
The transactions provided for in the 1995 Restructuring are substantially
complete. The 1995 Restructuring Charge, as adjusted, provided for the
elimination of 464 jobs in footwear operations to be divested or consolidated
and in staff positions to be eliminated, of which 302 jobs had been eliminated
as of July 31, 1995. The divestiture of the University Brands business was
completed in February 1995. The operations of The Greif Companies have ceased,
its inventories and equipment have been liquidated and its last major remaining
long-term lease liability was resolved in June 1995. The Company's GCO Apparel
Corporation was sold effective June 9, 1995. The Company's Mitre Sports soccer
business was sold effective August 14, 1995 with cash proceeds to the Company
of approximately $19.1 million, including repayment of intercompany balances,
subject to the outcome of certain contingencies, principally a post-closing
audit. The outcome of these contingencies may require further adjustments to
the 1995 Restructuring Charge and Provision. There can be no assurance that
variations in the timing of any further adjustments will not affect the results
of operations and cash flows of the Company in the third fiscal quarter or that
some variations will not 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.
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales from continuing operations in the second quarter ended
July 31, 1995 decreased 4.0% from the previous year reflecting primarily lower
sales from the operations divested as part of the 1995 Restructuring. Net
sales from ongoing operations increased 3.8% from the previous year. Total
gross margin for the quarter decreased .9% but increased as a percentage of net
sales from 37.6% to 38.8%. Selling and administrative expenses decreased 10.0%
and decreased as a percentage of net sales from 36.8% to 34.5%. The pretax
loss in the second quarter ended July 31, 1995 was $1,179,000, compared to
pretax earnings of $2,657,000 for the quarter ended July 31, 1994. The pretax
loss for the second quarter ended July 31, 1995 includes the $2.2 million
increase in the 1995 Restructuring Charge. Last year's pretax earnings
includes the recognition of $4.9 million of additional gain on the sale in 1987
of the Company's Canadian operations following the settlement in the second
quarter of Fiscal 1995 of certain claims arising out of that transaction. The
Company reported net earnings of $514,000 ($0.02 per share) for the second
quarter ended July 31, 1995 compared to a net loss of $516,000 ($0.02 per
share) in the second quarter ended July 31, 1994. The second quarter ended
July 31, 1995 net earnings includes, in addition to the 1995 Restructuring
Charge adjustment, the positive adjustment of $1.7 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 July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . $54,581 $52,999 3.0%
Operating Income . . . . . . . . . . . . . . . . . $ 2,979 $ 2,104 41.6%
Operating Margin . . . . . . . . . . . . . . . . . 5.5% 4.0%
Primarily due to an increase in comparable store sales of approximately 5%, net
sales from footwear retail operations increased 3% in the quarter ended July
31, 1995 compared to the previous year, despite the operation of 4% fewer
stores in the second quarter ended July 31, 1995. As part of a restructuring
plan adopted in the fourth quarter of Fiscal 1994 (the "1994 Restructuring"),
the Company completed the closing of 7 retail stores in the second quarter of
last fiscal year, which resulted in increased discounting. Consequently, the
average price per pair in the quarter ended July 31, 1995 increased 8% as
compared to the same period last year, while unit sales were down 4%.
Gross margin as a percentage of net sales decreased from 50.7% to 49.0%,
primarily from price pressures on branded products as well as increased
markdowns to stimulate sales in the Company's boot outlets. Operating
20
21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
expenses decreased 5.3%, primarily due to the operation of fewer stores as a
result of the 1994 Restructuring and other store closings (see Note 2 to the
Consolidated Financial Statements) and decreased as a percentage of net sales
from 47.4% to 43.5%. In addition to the operation of fewer stores, expenses
are down due to job eliminations as part of the 1995 Restructuring and lower
selling salaries and advertising expenses.
The increase in operating income in the second quarter ended July 31, 1995
compared to the same period last year was due to sales growth and a decrease in
operating expenses.
Footwear Wholesale & Manufacturing
Three Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . $ 55,019 $61,167 (10.1)%
Operating Income before
Restructuring Charges . . . . . . . . . . . . . $ 2,710 $ 2,742 (1.2)%
Restructuring Charges . . . . . . . . . . . . . . $ 2,216 $ -0- 100.0%
Operating Income . . . . . . . . . . . . . . . . $ 494 $ 2,742 (82.0)%
Operating Margin . . . . . . . . . . . . . . . . 0.9% 4.5%
Net sales from footwear wholesale and manufacturing operations were $6.1
million (10.1%) lower in the second quarter ended July 31, 1995 than in the
same period last year, reflecting primarily lower sales from the operations
divested as part of the 1995 Restructuring. Sales from ongoing operations were
up 4.6%, reflecting primarily increased tanned leather sales and men's branded
footwear sales, which more than offset decreased sales of western boots,
primarily attributable to lower selling prices.
Gross margin as a percentage of net sales increased from 26.2% to 28.6%
primarily from improved overhead absorption due to the closing of a footwear
plant in February as part of the 1995 Restructuring.
Operating expenses decreased 12.3% and decreased as a percentage of net sales
from 22.3% to 21.7%, primarily because of the lower sales in operations to be
divested, the sale of University Brands in January 1995 and job eliminations as
part of the 1995 Restructuring.
The increase in operating income from ongoing operations before Restructuring
Charge excluding $1,027,000 of divested operating income for the three months
ended July 31, 1994 is due primarily to increased sales of tanned leather and
improvements in gross margin and expense reductions due to the 1995
Restructuring.
21
22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
The net sales and operating income before Restructuring Provision for the three
months ended July 31, 1994 of the University Brands and Mitre Sports businesses
that are being disposed of in the 1995 Restructuring were $26,542,000 and
$1,027,000, respectively. The operating results subsequent to October 31, 1994
have been charged against the Restructuring Provision.
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 July
31, 1994, which was prior to the decision to discontinue, were $26.8 million
and $2.8 million, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the three months ended July 31, 1995 were $2.1
million, compared to $4.0 million last year, a decrease of approximately 47%.
Included in last year's corporate and other expenses is a $700,000 provision
for environmental litigation. The decrease in corporate expenses, excluding
the provision for environmental litigation, is attributable primarily to lower
professional fees and to lower compensation expenses due to layoffs related to
the Restructurings and to other staff reductions.
Interest expense decreased $544,000, or 18%, from last year, because of a
decrease in borrowings. Borrowings under the Company's Revolving Credit
Facility during the three months ended July 31, 1995 averaged $44,000 compared
to average borrowings of $34.5 million last year.
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, cost of sales and selling and administrative expenses. The
net operating losses or gains incurred by these operations subsequent to the
decision to divest are charged against the restructuring reserves established
to provide for such losses or gains. The elimination of these gains from the
Company's results of operations for the three months ended July 31, 1995 is
presented as an other expense in the Consolidated Earnings Statement. Such
operating gains totalled $1.1 million for the three months ended July 31, 1995.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JULY 31 FISCAL 1996 COMPARED TO FISCAL
1995
The Company's net sales from continuing operations for the six months ended
July 31, 1995 decreased 5.4% from the previous year reflecting primarily lower
sales from the operations divested as part of the 1995 Restructuring. Net
sales from ongoing operations increased 1.7% from the previous year. Total
gross margin for the six months decreased 3.7% but increased as a percentage
22
23
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
of net sales from 37.8% to 38.5%. Selling and administrative expenses
decreased 7.6% and decreased as a percentage of net sales from 37.5% to 36.6%.
The pretax loss in the six months ended July 31, 1995 was $14.5 million,
compared to pretax earnings of $264,000 for the six months ended July 31, 1994.
The pretax loss for the six months ended July 31, 1995 includes a $16.3 million
increase in the 1995 Restructuring Charge and recognition of a $1.8 million
gain from the favorable resolution of a claim relating to import duties.
Included in last year's pretax earnings is the recognition of $4.9 million of
additional gain on the sale in 1987 of the Company's Canadian operations
following the settlement in the second quarter of certain claims arising out of
that transaction. The Company reported a net loss of $164,000 ($0.01 per
share) for the six months ended July 31, 1995 compared to a net loss of $3.2
million ($0.14 per share) in the six months ended July 31, 1994. The six
months ended July 31, 1995 net loss includes, in addition to the 1995
Restructuring Charge adjustment, a positive adjustment of $14.4 million to the
1995 Restructuring Provision. See Note 2 to the Consolidated Financial
Statements and "Significant Developments - Fiscal 1995 Restructuring."
Footwear Retail
Six Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . $102,339 $100,771 1.6%
Operating Income . . . . . . . . . . . . . . . . . $ 4,200 $ 3,412 23.1%
Operating Margin . . . . . . . . . . . . . . . . . 4.1% 3.4%
Primarily due to an increase in comparable store sales of approximately 5%, net
sales from footwear retail operations increased 1.6% in the six months ended
July 31, 1995 compared to the previous year even though the Company operated 5%
fewer stores in the six months ended July 31, 1995. As part of the 1994
Restructuring, the Company completed the closing of 34 retail stores in the
first six months of last fiscal year, which resulted in increased discounting.
Consequently, the average price per pair increased 10% in the first half this
year, while unit sales were down 7% as compared to the same period last year.
Gross margin as a percentage of net sales decreased from 51.1% to 49.5%,
primarily from price pressures on branded products as well as increased
markdowns to stimulate sales in the Company's boot outlets. Operating expenses
decreased 4.7%, 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 48.5% to 45.6%. In addition to
the operation of fewer stores, expenses are down due to job eliminations as
part of the 1995 Restructuring and lower selling salaries and advertising
expenses.
23
24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
The increase in operating income in the six months ended July 31, 1995 compared
to the same period last year was due to sales growth and a decrease in
operating expenses.
Footwear Wholesale & Manufacturing
Six Months
Ended July 31,
------------------------- %
1995 1994 Change
-------- -------- ------
(In Thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . $ 100,486 $113,616 (11.6)%
Operating Income before
Restructuring Charges . . . . . . . . . . . . . $ 6,507 $ 4,667 39.4%
Restructuring Charges . . . . . . . . . . . . . . $ 16,329 $ -0- 100.0%
Operating Income . . . . . . . . . . . . . . . . $ (9,822) $ 4,667
Operating Margin . . . . . . . . . . . . . . . . (9.8)% 4.1%
Net sales from footwear wholesale and manufacturing operations were $13.1
million (11.6%) lower in the six months ended July 31, 1995 than in the same
period last year, reflecting lower sales from the operations divested as part
of the 1995 Restructuring. Sales from ongoing operations were up 1.6%,
reflecting primarily increased tanned leather and men's branded footwear sales,
which more than offset decreased sales of western boots, primarily attributable
to lower selling prices.
Gross margin as a percentage of net sales increased from 26.0% to 27.3%
primarily from improved overhead absorption due to the closing of a footwear
plant in February 1995 as part of the 1995 Restructuring.
Operating expenses decreased 7.2% but increased as a percentage of net sales
from 22.3% to 23.4%, primarily because of the lower sales in operations to be
divested, the sale of University Brands in January 1995 and job eliminations as
part of the 1995 Restructuring.
Included in the operating income from ongoing operations before Restructuring
Charge for the six months ended July 31, 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 excluding $1.2 million of divested operating income for the six
months ended July 31, 1994 is due primarily to increased sales of tanned
leather and men's branded products and improvements in gross margin and expense
reductions due to the 1995 Restructuring.
The net sales and operating income before Restructuring Provision for the six
months ended July 31, 1994 of the University Brands and Mitre Sports businesses
that are being disposed of in the 1995 Restructuring were $43.4 million and
$1.2 million, respectively. The operating results subsequent to October 31,
1994 have been charged against the Restructuring Provision.
24
25
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 six months ended July
31, 1994, which was prior to the decision to discontinue, were $57.2 million
and $2.9 million, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the first six months ended July 31, 1995 were
$4.1 million, compared to $6.8 million last year, a decrease of approximately
40%. Included in last year's corporate and other expenses is a $700,000
provision for environmental litigation. The decrease in corporate expenses,
excluding the provision for environmental litigation, is attributable primarily
to lower professional fees and to lower compensation expenses due to layoffs
related to the Restructurings and to other staff reductions.
Interest expense decreased $1,122,000, or 19%, from last year, because of a
decrease in borrowings. Borrowings under the Company's Revolving Credit
Facility averaged $22,000 during the six months ended July 31, 1995 compared to
$29.1 million last year.
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, cost of sales 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 six months ended July 31, 1995 is presented as other income
in the Consolidated Earnings Statement. Such operating losses totalled $0.9
million for the six months ended July 31, 1995. Also included in other income
for the six months ended July 31, 1995 is a $1.8 million gain from the
favorable resolution of a claim relating to import duties.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
July 31,
------------------
1995 1994
------- ------
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.4 $ 5.0
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100.9 $178.7
Long-term debt (includes current
maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75.0 $114.0
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5x 3.5x
---------------
25
26
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
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 provided by operating activities was $2.9 million in the first six months
of Fiscal 1996 compared to $22.5 million used by operating activities for the
same period last year. The $25.4 million improvement in cash flow from
operating activities between the first six months of Fiscal 1996 and the first
six months of Fiscal 1995 reflects primarily cash inflows from the liquidation
of assets included in the 1995 Restructuring and lower seasonal requirements
from the disposition of businesses included in the 1995 Restructuring.
A $3.4 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 $4.9 million decrease in ongoing
inventories compared with July 31, 1994 reflects lower inventory levels in the
Company's boot business.
As reflected in the Consolidated Statement of Cash Flows, accounts receivable
at July 31, 1995 decreased $3.5 million compared to January 31, 1995, primarily
from collection of receivables in the operations being divested in the 1995
Restructuring. Ongoing accounts receivable at July 31, 1995 were $1.2 million
greater than at July 31, 1994, primarily due to increased sales in men's
branded footwear and tanned leather and extended terms to meet competitive
pressures.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Statement of Cash Flows at July 31, 1995 and
1994 is as follows:
Six Months Ended July 31,
--------------------------
(In Thousands) 1995 1994
-------- --------
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 1,872 $ 1,066
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . (10,354) (3,449)
-------- --------
$ (8,482) $ (2,383)
======== ========
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.
26
27
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
--------------------------------------------------------------------------------
There were only minimal revolving credit borrowings during the six months ended
July 31, 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 $24 million during the six months
ended July 31, 1994 to finance seasonal working capital increases, to finance
operations and to fund approximately $4.1 million of costs associated with the
Company's 1994 Restructuring.
Capital Expenditures
Total capital expenditures in Fiscal 1996 are expected to be approximately $8.0
million of which the Company has spent $3.5 million for the six months ended
July 31, 1995. These include expected retail expenditures of $4.1 million to
open approximately 22 new retail stores and to complete 31 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other purposes are expected to be approximately $3.9 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 $11.2 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.
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, including the
negotiation of a new revolving credit facility to replace the existing one.
There were $12.8 million of letters of credit outstanding under the revolving
credit agreement at July 31, 1995.
The restricted payments covenant contained in the Company's revolving credit
agreement and restricted payment covenant in the indenture under which the
Company's 10 3/8% senior notes were issued 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.
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PART II - OTHER INFORMATION
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At July 31, 1995 Genesco was in arrears with respect to dividends payable on
the following classes of preferred stock:
ARREARAGE
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DATE DIVIDENDS BEGINNING THIS END OF
CLASS OF STOCK PAID TO OF QUARTER QUARTER QUARTER
-----------------------------------------------------------------------------------------------------------
$2.30 Series 1 October 31, 1993 $128,511 $ 21,409 $149,920
$4.75 Series 3 October 31, 1993 139,878 23,313 163,191
$4.75 Series 4 October 31, 1993 116,935 19,490 136,425
$1.50 Subordinated Cumulative
Preferred October 31, 1993 67,464 11,256 78,720
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TOTALS $452,788 $ 75,468 $528,256
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of shareholders held on June 28, 1995, shares
representing a total of 24,546,902 votes were outstanding and entitled to vote.
At the meeting, shareholders of the Company:
(1) elected seven directors nominated by the board of directors by the
following votes:
Votes
Votes "For" "Withheld"
----------- ----------
David M. Chamberlain 20,045,573 729,539
W. Lipscomb Davis, Jr. 20,042,128 732,984
John Diebold 20,019,527 755,585
Harry D. Garber 19,942,241 832,871
Joel C. Gordon 20,055,632 719,480
William A. Williamson, Jr. 20,058,404 716,708
William S. Wire II 19,861,651 913,461
(2) ratified the appointment of Price Waterhouse LLP as independent
accountants for the fiscal year ending January 31, 1996 by a vote of
20,145,784 for, 397,729 against, with 231,599 abstentions: and
(3) ratified employee stock purchase plan by a vote of 19,389,073 for,
1,062,590 against, with 323,449 abstentions: and
(4) defeated a shareholder proposal requesting the board to take steps
to provide for cumulative voting in the election of directors by a
vote of 4,337,983 for, 8,225,729 against, with 544,623 abstentions
and 7,666,777 not voted: and
(5) defeated a shareholder proposal regarding the repealing of the
Company's Shareholder Rights Plan by a vote of 4,484,037 for,
8,089,880 against, with 534,418 abstentions and 7,666,777 not voted.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(10) z. Asset Purchase Agreement dated as of August 11, 1995 between the
Company and Pentland Sports Group, LTD.
aa. Share Purchase Agreement dated as of August 14, 1995 between the
Company and Pentland Industries Limited.
(11) Computation of earnings per common and common share equivalent.
(27) Financial Data Schedule (for SEC use only)
--------------------
REPORTS ON FORM 8-K
None
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SIGNATURE
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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
September 14, 1995
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