1
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
October 31, 1995
/ / Transition Report Pursuant To
Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Securities and Exchanges 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 December 8, 1995 - 24,351,572
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INDEX
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PAGE
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Part 1 - Financial Information 3
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Consolidated Balance Sheet - October 31, 1995, January 31, 1995 and
October 31, 1994 3
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Consolidated Earnings - Three Months Ended and Nine Months Ended
October 31, 1995 and 1994 4
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Consolidated Cash Flows - Three Months Ended and Nine Months Ended
October 31, 1995 and 1994 5
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Consolidated Shareholders' Equity - Year Ended
January 31, 1995 and Nine Months Ended October 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 30
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Signature 31
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PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
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OCTOBER 31, JANUARY 31, OCTOBER 31,
1995 1995 1994
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ASSETS
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CURRENT ASSETS
Cash and short-term investments $ 22,575 $ 10,235 $ 5,619
Accounts receivable 41,091 32,080 41,797
Inventories 91,974 82,905 98,721
Other current assets 4,140 4,277 4,848
Current assets of operations to be divested 3,236 53,891 72,911
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Total current assets 163,016 183,388 223,896
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Plant, equipment and capital leases, net 28,190 28,073 28,502
Other noncurrent assets 13,412 13,773 16,037
Noncurrent assets of operations to be
divested -0- 18,644 19,298
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TOTAL ASSETS $ 204,618 $ 243,878 $ 287,733
===============================================================================
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Current payments on capital leases $ 1,338 $ 2,343 $ 2,413
Accounts payable and accrued liabilities 53,052 61,124 74,354
Provision for discontinued operations 3,190 19,190 24,898
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Total current liabilities 57,580 82,657 101,665
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Long-term debt 75,000 75,000 110,000
Capital leases 1,749 10,057 10,750
Other long-term liabilities 22,588 25,746 35,740
Provision for discontinued operations 14,194 21,025 22,700
Contingent liabilities - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,945 7,943 7,942
Common shareholders' equity:
Par value of issued shares 24,838 24,832 24,832
Additional paid-in capital 121,709 121,670 121,664
Accumulated deficit (100,515) (104,582) (119,739)
Minimum pension liability adjustment (2,613) (2,613) (9,964)
Treasury shares, at cost (17,857) (17,857) (17,857)
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Total shareholders' equity 33,507 29,393 6,878
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 204,618 $ 243,878 $ 287,733
===============================================================================
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
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THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
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1995 1994 1995 1994
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Net sales $111,994 $123,199 $314,819 $337,586
Cost of sales 66,702 76,842 191,491 210,166
Selling and administrative expenses 39,391 43,524 113,580 123,836
Restructuring and other charges (192) 22,114 16,137 22,114
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Earnings (loss) from operations before
other income and expenses 6,093 (19,281) (6,389) (18,530)
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Other expenses (income):
Interest expense 2,656 3,241 7,586 9,153
Interest income (155) (34) (308) (47)
Gain on divestiture -0- -0- -0- (4,900)
Other expense (income) (646) 262 (3,404) (250)
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Total other (income) expenses, net 1,855 3,469 3,874 3,956
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Earnings (loss) before income taxes
and discontinued operations 4,238 (22,750) (10,263) (22,486)
Income taxes 7 223 22 736
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Earnings (loss) before discontinued
operations 4,231 (22,973) (10,285) (23,222)
Discontinued operations:
Operating loss -0- (1,600) -0- (4,540)
Excess provision (provision) for future losses -0- (68,587) 14,352 (68,587)
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NET EARNINGS (LOSS) $ 4,231 $ (93,160) $ 4,067 $(96,349)
=======================================================================================
Earnings (loss) per common share:
Before discontinued operations $ .17 $ (.95) $ (.43) $ (.96)
Discontinued operations $ .00 $ (2.88) $ .59 $ (3.01)
Net earnings (loss) $ .17 $ (3.83) $ .16 $ (3.97)
=======================================================================================
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
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THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
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1995 1994 1995 1994
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OPERATIONS:
Net earnings (loss) $ 4,231 $(93,160) $ 4,067 $(96,349)
Noncash charges to earnings:
Depreciation and amortization 1,868 2,500 5,455 7,447
Impairment of long-lived assets 978 -0- 978 -0-
Restructuring charge (1,170) 22,114 15,159 22,114
Provision for loss on discontinued operations (excess) -0- 68,587 (14,352) 68,587
Gain on divestiture -0- -0- -0- (4,900)
Provision for losses on accounts receivable 515 7 1,238 1,262
Provision for deferred income taxes -0- 1,404 -0- 1,404
Other 117 (198) 378 400
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Net cash provided by (used in) operations before
working capital and other changes 6,539 1,254 12,923 (35)
Effect on cash of changes in working
capital and other assets and liabilities:
Accounts receivable 300 (2,844) 3,834 (22,889)
Inventories (4,130) 2,447 (764) 4,054
Other current assets (62) 819 342 (570)
Accounts payable and accrued liabilities 2,080 6,220 (6,402) 3,837
Other assets and liabilities (1,013) 1,432 (3,340) 2,473
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Net cash provided by (used in) operations 3,714 9,328 6,593 (13,130)
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INVESTING ACTIVITIES:
Capital expenditures (2,655) (1,347) (6,183) (4,542)
Proceeds from businesses divested and asset sales 17,207 275 18,697 2,045
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Net cash provided by (used in) investing activities 14,552 (1,072) 12,514 (2,497)
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FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit agreement -0- (4,000) -0- 20,000
Net change in short-term borrowings (510) (3,095) 2,523 (69)
Payments on capital leases (593) (578) (9,313) (2,089)
Other 24 21 23 (221)
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Net cash provided by (used in) financing activities (1,079) (7,652) (6,767) 17,621
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NET CASH FLOW 17,187 604 12,340 1,994
Cash and short-term investments at
beginning of period 5,388 5,015 10,235 3,625
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $22,575 $ 5,619 $ 22,575 $ 5,619
===============================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $4,266 $ 4,995 $ 8,786 $ 10,338
Income taxes 6 36 (761) (98)
===============================================================================================
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 ADDITIONAL 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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Exercise of options -0- 2 4 -0- -0- -0- -0- 6
Net earnings -0- -0- -0- 4,067 -0- -0- -0- 4,067
Other 2 4 35 -0- -0- -0- -0- 41
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BALANCE OCTOBER 31, 1995 $7,945 $24,838 $121,709 $(100,515) $(17,857) $ -0- $(2,613) $33,507
==============================================================================================================================
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.
BASIS OF CONSOLIDATION
All subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and accounts have been eliminated.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at October 31, 1995, are short-term
investments of $20,000,000. There were no short-term investments at January
31, 1995 or October 31, 1994. Short-term investments are highly-liquid debt
instruments having an original maturity of three months or less.
INVENTORIES
Inventories of wholesaling and manufacturing companies are stated at the lower
of cost or market, 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.
The Company implemented Statement of Financial Accounting Standards (SFAS) 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" in the third quarter of Fiscal 1996. This statement
establishes accounting standards for determining impairment of long-lived
assets. The Company periodically assesses the realizability of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than carrying
amount. During the third quarter, the Company identified certain retail stores
that were impaired because of a history of and current period cash flow losses
in these specific stores. An impairment loss of $978,000 was recognized for
these retail stores and is included in the "Restructuring and other charges"
line on the income statement for the three months and nine months ended October
31, 1995.
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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 for Lira. At January 31, 1995
and October 31, 1995, the Company had approximately $9.7 million and $2.4
million, respectively, of such contracts outstanding. Forward exchange
contracts have an average term of approximately seven and one half 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 a pension plan. For
its defined benefit plan, the Company funds at least the minimum amount
required by the Employee Retirement Income Security Act.
In accordance with SFAS 106, postretirement benefits such as life insurance
and health care are accrued 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 constituted its entire men's apparel
segment.
The 1995 Restructuring provided 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 constituted 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.
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10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
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.
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 reflected 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 reflected primarily the
reversal of reserves in connection with the final settlement of a long-term
lease liability referred to above, 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 on lower than anticipated
severance payments.
In the third quarter of Fiscal 1996 the Company made a positive adjustment of
$1.2 million to the Restructuring Charge in connection with the sale of the
Mitre soccer business. The Mitre adjustment was the result of more favorable
than expected post-closing purchase price adjustments. In addition, the Company
took a charge of $978,000 from the adoption of a new accounting standard
relating to impaired assets. See Note 1 to the Consolidated Financial
Statements. These two adjustments are shown as "Restructuring and other
charges" on the income statement for the three months and nine months ended
October 31, 1995 for a net gain of $192,000.
The transactions provided for in the 1995 Restructuring were substantially
complete as of October 31, 1995. 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 450 jobs had
been eliminated as of October 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. While the Company is unable to predict
with certainty the extent 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 $15
million. Any excess cash will be reinvested in the Company's ongoing
businesses.
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11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2
RESTRUCTURINGS, CONTINUED
The operating results of the men's apparel segment prior to the decision to
discontinue, classified as discontinued operations in the consolidated earnings
statement, are shown below:
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NINE MONTHS ENDED OCTOBER 31,
IN THOUSANDS 1994
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Net sales $81,777
Cost of sales and expenses 86,317
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Pretax loss (4,540)
Income tax expense (benefit) -0-
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Net Loss $(4,540)
===============================================================================
Discontinued operations' sales subsequent to the decision to discontinue were
$20.0 million for the nine months ended October 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, 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 nine months ended
October 31, 1995 is presented as other income in the Consolidated Earnings
Statement. Such operating losses totalled $1.4 million for the nine months
ended October 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
reflected 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 acquisition of
certain assets of Lamar Manufacturing Company by the Company's GCO Apparel
subsidiary and $800,000 related to the Company's acquisition of certain assets
of Toddler U Inc.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3
ACCOUNTS RECEIVABLE*
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OCTOBER 31, JANUARY 31,
IN THOUSANDS 1995 1995
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Trade accounts receivable $41,628 $32,401
Miscellaneous receivables 2,957 2,258
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Total receivables 44,585 34,659
Allowance for bad debts (1,637) (1,127)
Other allowances (1,857) (1,452)
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NET ACCOUNTS RECEIVABLE $41,091 $32,080
===============================================================================
* Excludes accounts receivable of divested operations (see Note 5).
NOTE 4
INVENTORIES*
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OCTOBER 31, JANUARY 31,
IN THOUSANDS 1995 1995
- -------------------------------------------------------------------------------
Raw materials $ 8,227 $ 8,856
Work in process 3,837 2,877
Finished goods 21,242 21,992
Retail merchandise 58,668 49,180
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TOTAL INVENTORIES $91,974 $82,905
===============================================================================
* Excludes inventories of divested operations (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,
OCTOBER 31, 1995 1995
-------------------------- -----------
DISCONTINUED* OTHER**
IN THOUSANDS OPERATIONS OPERATIONS TOTALS
- --------------------------------------------------------------------------------
Current assets:
Accounts receivable $865 $2,371 $3,236 $27,079
Inventory -0- -0- -0- 26,158
Other -0- -0- -0- 654
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $865 $2,371 $3,236 $53,891
================================================================================
Noncurrent assets:
Plant and equipment $-0- $ -0- $ -0- $ 2,647
Capitalized lease rights -0- -0- -0- 299
Goodwill and other intangibles -0- -0- -0- 15,698
- --------------------------------------------------------------------------------
TOTAL NONCURRENT ASSETS $-0- $ -0- $ -0- $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*
- --------------------------------------------------------------------
OCTOBER 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 32,657 30,682
Construction in progress 1,529 672
Improvements to leased property 38,059 37,776
Capital leases:
Land 60 60
Buildings 2,126 2,195
Machinery, furniture and fixtures 7,521 7,627
- --------------------------------------------------------------------
Plant, equipment and capital leases, at cost 84,544 81,884
Accumulated depreciation and amortization:
Plant and equipment (49,784) (48,131)
Capital leases (6,570) (5,680)
- --------------------------------------------------------------------
NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 28,190 $ 28,073
====================================================================
* Excludes plant, equipment and capital leases of divested operations (see
Note 5).
13
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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
- -----------------------------------------------------------------------------------------------
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 (8,997) (9,394) (752) (3,688) (22,831)
- -----------------------------------------------------------------------------------------------
Balance October 31, 1995 16,137 11 663 573 17,384
Current portion 1,943 11 663 573 3,190
- -----------------------------------------------------------------------------------------------
TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $14,194 $ -0- $ -0- $ -0- $ 14,194
===============================================================================================
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 (2,600) (1,521) (70) (2,299) (6,490)
- -----------------------------------------------------------------------------------------------
Balance October 31, 1995 1,365 1,602 485 813 4,265
Current portion (included in accounts
payable and accrued liabilities) 1,365 1,361 485 812 4,023
- -----------------------------------------------------------------------------------------------
TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM
LIABILITIES) $ -0- $ 241 $ -0- $ 1 $ 242
===============================================================================================
14
15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
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.
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.
15
16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8
LEGAL PROCEEDINGS, CONTINUED
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.
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 defend the U.S. District Court Action
vigorously. 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 8
LEGAL PROCEEDINGS, CONTINUED
Texas Interference Action
On October 6, 1995, a prior holder of a license to manufacture and market
western boots and other products under a trademark now licensed to the Company
filed an action in the District Court of Dallas County, Texas against the
Company and a contract manufacturer alleging tortious interference with a
business relationship, breach of contract, tortious interference with a
contract, breach of a confidential relationship and civil conspiracy based on
the Company's entry into the license. The Company has filed an answer denying
all the material allegations of the plaintiff's complaint and has removed the
action to the U.S. District Court for the Northern District of Texas. The
Company is unable to predict whether the outcome of the litigation will have a
material 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 constituted 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 provided 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 constituted 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 union 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 reflected 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 reflected primarily the
reversal of reserves in connection with the final settlement of the long-term
lease liability referred to above, 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 on lower than anticipated
severance payments.
In the third quarter of Fiscal 1996 the Company made a positive adjustment of
$1.2 million to the Restructuring Charge in connection with the sale of the
Mitre soccer business. The Mitre adjustment was the result of more favorable
than expected post-closing purchase price adjustments. In addition, the
Company took a charge of $978,000 from the adoption of a new accounting
standard relating to impaired assets. See Note 1 to the Consolidated Financial
Statements. These two adjustments are shown as "Restructuring and other
charges" on the income statement for the three months and nine months ended
October 31, 1995 for a net gain of $192,000.
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The transactions provided for in the 1995 Restructuring were substantially
complete as of October 31, 1995. 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 450 jobs had
been eliminated as of October 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. While the Company is unable to predict
with certainty the extent 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 $15
million. Any excess cash will be reinvested in the Company's ongoing
businesses.
Adoption of New Accounting Standard
The Company implemented Statement of Financial Accounting Standards (SFAS) 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" in the third quarter of Fiscal 1996. This statement
establishes accounting standards for determining impairment of long-lived
assets. The Company periodically assesses the realizability of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than carrying
amount. During the third quarter, the Company identified certain retail stores
that were impaired because of a history of and current period cash flow losses
in these specific stores. An impairment loss of $978,000 was recognized for
these retail stores and is included in the "Restructuring and other charges"
line on the income statement for the three months and nine months ended October
31, 1995.
RESULTS OF OPERATIONS - THIRD QUARTER FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales from continuing operations in the third quarter ended
October 31, 1995 decreased 9.1% from the previous year reflecting primarily
lower sales from the operations divested as part of the 1995 Restructuring.
Net sales from ongoing operations increased 6.4% from the previous year. Total
gross margin for the quarter decreased 2.3% but increased as a percentage of
net sales from 37.6% to 40.4%. Selling and administrative expenses decreased
9.5% and decreased as a percentage of net sales from 35.3% to 35.2%. Pretax
earnings in the third quarter ended October 31, 1995 was $4,238,000, compared
to a pretax loss of $22,750,000
20
21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
for the quarter ended October 31, 1994. Pretax earnings for the third quarter
ended October 31, 1995 includes a positive adjustment of $1.2 million to the
1995 Restructuring Charge and a $978,000 charge for impaired assets due to the
implementation of SFAS No. 121. Last year's pretax loss includes the $22.1
million Restructuring Charge. The Company reported net earnings of $4,231,000
($0.17 per share) for the third quarter ended October 31, 1995 compared to a
net loss of $93,160,000 ($3.83 per share) in the third quarter ended October
31, 1994. The third quarter ended October 31, 1994 net earnings includes a
$68.6 million Restructuring Provision. See Note 2 to the Consolidated
Financial Statements and "Significant Developments - Fiscal 1995
Restructuring."
Footwear Retail
Three Months
Ended October 31, %
-------------------
1995 1994 Change
--------- --------- --------
(In Thousands)
Net Sales......................... $61,553 $59,704 3.1%
Operating Income before
Restructuring and Other Charges. $ 5,038 $ 5,384 (6.4)%
Restructuring and Other Charges... $ (978) $ (236) (314.4)%
Operating Income.................. $ 4,060 $ 5,148 (21.1)%
Operating Margin.................. 6.6% 8.6%
Primarily due to an increase in comparable store sales of approximately 4%, net
sales from footwear retail operations increased 3.1% in the quarter ended
October 31, 1995 compared to the previous year, despite the operation of 5%
fewer stores in the third quarter ended October 31, 1995. The average price
per pair in the quarter ended October 31, 1995 increased 8% as compared to the
same period last year, while unit sales were down 10%, because of heavy
discounting during the third quarter last year in connection with the closing
of five retail stores as part of a restructuring plan adopted in the fourth
quarter of Fiscal 1994 (the "1994 Restructuring").
Gross margin as a percentage of net sales decreased from 51.5% 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
increased about 1%, primarily due to increased advertising and rent expense but
decreased as a percentage of net sales from 42.8% to 41.8%.
The decrease in operating income excluding restructuring and other charges in
the third quarter ended October 31, 1995 compared to the same period last year
was due primarily to lower earnings in the Company's boot outlets.
21
22
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
During the third quarter ended October 31, 1995 the Company implemented SFAS
No. 121 resulting in a $978,000 charge to retail earnings. See "Significant
Developments - Adoption of New Accounting Standard."
Footwear Wholesale & Manufacturing
Three Months
Ended October 31, %
------------------
1995 1994 Change
-------- --------- ------
(In Thousands)
Net Sales........................ $50,441 $ 63,495 (20.6)%
Operating Income before
Restructuring and Other Charges. $ 4,367 $ 2,367 84.5%
Restructuring and Other Charges.. $ 1,170 $(20,578) -
Operating Income (Loss).......... $ 5,537 $(18,211) -
Operating Margin................. 11.0% (28.7)%
Net sales from footwear wholesale and manufacturing operations were $13.1
million (20.6%) lower in the third quarter ended October 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 9.9%, reflecting primarily increased men's branded footwear sales, which
more than offset decreased sales of western boots, primarily attributable to
lower unit sales.
Gross margin as a percentage of net sales increased from 24.6% to 28.8%
primarily from improved overhead absorption due to the closing of a footwear
plant in February as part of the 1995 Restructuring.
Operating expenses decreased 19.0% but increased as a percentage of net sales
from 21.0% to 21.4%, primarily because of increased bad debt and advertising
expenses.
For the three months ended October 31, 1994, the University Brands and Mitre
Sports businesses that were disposed of in the 1995 Restructuring had net sales
of $18,980,000 and an operating loss before Restructuring Provision of
$1,340,000. The operating results subsequent to October 31, 1994 have been
charged against the Restructuring Provision.
The increase in operating income before restructuring and other charges,
excluding the $1,340,000 divested operations' operating loss for the three
months ended October 31, 1994, is due primarily to increased sales of men's
branded footwear and improvements in gross margin.
22
23
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
October 31, 1994, which was prior to the decision to discontinue, were $24.6
million and $1.6 million, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the three months ended October 31, 1995 were
$2.9 million, compared to $6.5 million last year, a decrease of approximately
56%. Included in last year's corporate and other expenses are provisions of
$659,000 for environmental litigation and $2.3 million of severance costs,
including $1.3 million of which related to the 1995 Restructuring. The decrease
in corporate expenses, excluding the above provisions, is attributable
primarily to lower professional fees and other expense reductions related to
the Restructurings.
Interest expense decreased $585,000, or 18%, from last year, because of a
decrease in borrowings while interest income increased $121,000 from last year
due to increased short-term investments. Borrowings under the Company's
revolving credit facility during the three months ended October 31, 1995
averaged $681,000 compared to average borrowings of $36.9 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 losses from the
Company's results of operations for the three months ended October 31, 1995 is
presented as other income in the Consolidated Earnings Statement. Such
operating losses totaled $0.5 million for the three months ended October 31,
1995.
23
24
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS ENDED OCTOBER 31 FISCAL 1996 COMPARED TO
FISCAL 1995
The Company's net sales from continuing operations for the nine months ended
October 31, 1995 decreased 6.7% from the previous year reflecting primarily
lower sales from the operations divested as part of the 1995 Restructuring.
Net sales from ongoing operations increased 3.5% from the previous year. Total
gross margin for the nine months decreased 3.2% but increased as a percentage
of net sales from 37.7% to 39.2%. Selling and administrative expenses
decreased 8.3% and decreased as a percentage of net sales from 36.7% to 36.1%.
The pretax loss in the nine months ended October 31, 1995 was $10.3 million,
compared to a pretax loss of $22.5 million for the nine months ended October
31, 1994. The pretax loss for the nine months ended October 31, 1995 includes
a $15.2 million increase in the 1995 Restructuring Charge, a $978,000 charge
for impaired assets due to the implementation of SFAS No. 121 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 loss is the $22.1 million 1995
Restructuring Charge and 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 net earnings of $4,067,000 ($0.16 per share) for the nine
months ended October 31, 1995 compared to a net loss of $96.3 million ($3.97
per share) in the nine months ended October 31, 1994. The nine months ended
October 31, 1995 net earnings includes, in addition to the 1995 Restructuring
Charge adjustment and the charge for impaired assets, a positive adjustment of
$14.4 million to the 1995 Restructuring Provision. The nine months ended
October 31, 1994 net loss includes, in addition to the 1995 Restructuring
Charge, a $68.6 million 1995 Restructuring Provision. See Note 2 to the
Consolidated Financial Statements and "Significant Developments - Fiscal 1995
Restructuring."
Footwear Retail
Nine Months
Ended October 31,
------------------ %
1995 1994 Change
------- -------- ------
(In Thousands)
Net Sales........................ $163,892 $160,475 2.1%
Operating Income before
Restructuring and Other Charges. $ 9,238 $ 8,796 5.0%
Restructuring and Other Charges.. $ (978) $ (236) (314.4)%
Operating Income................. $ 8,260 $ 8,560 (3.5)%
Operating Margin................. 5.0% 5.3%
24
25
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Primarily due to an increase in comparable store sales of approximately 4%, net
sales from footwear retail operations increased 2.1% in the nine months ended
October 31, 1995 compared to the same period the previous year even though the
Company operated 5% fewer stores in the nine months ended October 31, 1995.
The average price per pair increased 9% in the nine months this year, while
unit sales were down 8% as compared to the same period last year, because of
heavy discounting during the period last year in connection with the closing of
39 retail stores as part of the 1994 Restructuring.
Gross margin as a percentage of net sales decreased from 51.2% to 49.7%,
primarily from price pressures on branded products as well as increased
markdowns to stimulate sales in the Company's boot outlets. Operating expenses
decreased 2.8%, primarily due to the operation of fewer stores as a result of
the 1994 Restructuring (see Note 2 to the Consolidated Financial Statements)
and decreased as a percentage of net sales from 46.4% to 44.2%. 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.
The increase in operating income excluding restructuring and other charges in
the nine months ended October 31, 1995 compared to the same period last year
was due primarily to the sales growth and the decrease in operating expenses.
Footwear Wholesale & Manufacturing
Nine Months
Ended October 31, %
-------------------
1995 1994 Change
--------- --------- ------
(In Thousands)
Net Sales.......................... $150,927 $177,111 (14.8)%
Operating Income before
Restructuring and Other Charges... $ 10,874 $ 7,034 54.6%
Restructuring and Other Charges.... $(15,159) $(20,578) 26.3%
Operating Loss..................... $ (4,285) $(13,544) 68.4%
Operating Margin................... (2.8)% (7.6)%
Net sales from footwear wholesale and manufacturing operations were $26.2
million (14.8%) lower in the nine months ended October 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 4.8%,
reflecting primarily increased men's branded footwear and tanned leather sales,
which more than offset decreased sales of western boots, primarily attributable
to lower selling prices.
25
26
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Gross margin as a percentage of net sales increased from 25.5% to 27.8%
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 11.3%, primarily from the divestiture of
University Brands in January 1995 and Mitre Sports in August 1995, but
increased as a percentage of net sales from 21.8% to 22.7%, primarily because
of the lower sales in operations to be divested and increased bad debt and
royalty expenses.
For the nine months ended October 31, 1994, the University Brands and Mitre
Sports businesses that were disposed of in the 1995 Restructuring had net sales
of $62.3 million and an operating loss before Restructuring Provision of $0.2
million. The operating results subsequent to October 31, 1994 have been
charged against the Restructuring Provision.
Included in the operating income from ongoing operations before restructuring
and other charges for the nine months ended October 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 and other
charges and the import duty claim, excluding $0.2 million of divested
operations' operating loss for the nine months ended October 31, 1994, is due
primarily to increased sales of men's branded products and tanned leather and
improvements in gross margin and expense reductions due to the 1995
Restructuring.
Discontinued Operations
On November 3, 1994, in response to worsening trends in the Company's men's
apparel business, the Company's board of directors approved a plan to exit the
men's apparel business. See "Significant Developments-Fiscal 1995
Restructuring" and Note 2 to the Consolidated Financial Statements for
information regarding the discontinuation of this business segment. Net sales
and operating loss of the men's apparel segment for the nine months ended
October 31, 1994, which was prior to the decision to discontinue, were $81.8
million and $4.5 million, respectively.
Corporate and Interest Expenses
Corporate and other expenses in the first nine months ended October 31, 1995
were $7.0 million, compared to $13.3 million last year, a decrease of
approximately 48%. Included in last year's corporate and other expenses are
provisions of $1.4 million for environmental litigation and $2.3 million of
severance costs, including $1.3 million of which relates to the 1995
Restructuring. The decrease in corporate expenses, excluding the above
provisions, is attributable primarily to lower professional fees and other
expense reductions related to the Restructurings.
26
27
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Interest expense decreased $1,567,000, or 17%, from last year, because of a
decrease in borrowings while interest income increased $261,000 because of
increased short-term investments. Borrowings under the Company's revolving
credit facility averaged $245,000 during the nine months ended October 31, 1995
compared to $31.7 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 nine months ended October 31, 1995 is presented as other
income in the Consolidated Earnings Statement. Such operating losses totalled
$1.4 million for the nine months ended October 31, 1995. Also included in
other income for the nine months ended October 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.
October 31,
---------------
1994 1995
----- ------
Cash and short-term investments............... $ 22.6 $ 5.6
Working capital............................... $105.4 $122.2
Long-term debt (includes current maturities).. $ 75.0 $110.0
Current ratio ................................ 2.8x 2.2x
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 $6.6 million in the first nine months
of Fiscal 1996 compared to $13.1 million used by operating activities for the
same period last year. The $19.7 million improvement in cash flow from
operating activities between the first nine months of Fiscal 1996 and the first
nine 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.
27
28
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
A $0.8 million increase in inventories from January 31, 1995 levels reflected
in the Consolidated Statement of Cash Flows was due primarily to planned
seasonal increases which more than offset liquidation of inventories in
connection with the 1995 Restructuring, while the $6.7 million decrease in
ongoing inventories compared with October 31, 1994 reflects lower inventory
levels in the Company's boot and men's branded businesses.
As reflected in the Consolidated Statement of Cash Flows, accounts receivable
at October 31, 1995 decreased $3.8 million compared to January 31, 1995,
primarily from collection of receivables in the operations being divested in
the 1995 Restructuring. Ongoing accounts receivable at October 31, 1995 were
$0.7 million less than at October 31, 1994, primarily due to increased
provisions for bad debts and customer deductions.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Statement of Cash Flows at October 31, 1995 and
1994 is as follows:
Nine Months Ended October 31,
-----------------------------
1995 1994
------ ------
(In Thousands)
Accounts payable........................ $ 1,558 $ 9,803
Accrued liabilities..................... (7,960) (5,966)
-------- --------
$ (6,402) $ 3,837
======== ========
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 only minimal revolving credit borrowings during the nine months
ended October 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 $20 million during the nine
months ended October 31, 1994 to finance seasonal working capital increases, to
finance operations and to fund approximately $4.6 million of costs associated
with the Company's 1994 Restructuring.
Capital Expenditures
Total capital expenditures in Fiscal 1996 are expected to be approximately $8.5
million, of which the Company has spent $6.2 million for the nine months ended
October 31, 1995. These include expected retail expenditures of $4.7 million
to open approximately 20 new retail stores and to complete 22 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other purposes are expected to be approximately $3.8 million.
28
29
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Future Capital Needs
The Company expects that cash provided by operations will be sufficient to fund
all of its capital expenditures through the remainder of Fiscal 1996. The
approximately $7.2 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 partially offset by cash inflows from collection of
the remaining accounts receivable in operations divested pursuant to the 1995
Restructuring and with the remaining costs funded from cash generated from
operations or borrowings under the Company's revolving credit agreement.
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 would be adequate to meet the
Company's credit needs until its scheduled expiration in August 1996. However,
the Company expects to enter into a new revolving credit facility to replace
the existing one prior to its scheduled expiration.
There were $6.2 million of letters of credit outstanding under the revolving
credit agreement at October 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 currently has dividend arrearages in
the amount of $603,723 and is unable to predict when dividends may be
reinstated.
29
30
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has received and responded to a request for information dated
October 23, 1995, from the New York State Department of Conservation
regarding the site of a knitting mill operated by the Company or a former
subsidiary from 1965 to 1969. The request recited the statutory basis but
no specific factual basis for an inquiry regarding the site and the Company
retains little information with respect to its former operations at the
site. Consequently, the Company is unable to predict whether any further
investigation of the site will occur or whether any such investigation would
have any material effect on its financial condition or results of
operations.
For additional information concerning legal proceedings, see Note 8 to the
Consolidated Financial Statements which is incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At October 31, 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 $149,920 $21,409 $171,329
$4.75 Series 3 October 31, 1993 163,191 23,313 186,504
$4.75 Series 4 October 31, 1993 136,425 19,489 155,914
$1.50 Subordinated Cumulative
Preferred October 31, 1993 78,720 11,256 89,976
- -------------------------------------------------------------------------
TOTALS $528,256 $75,467 $603,723
=========================================================================
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
30
31
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
December 15, 1995
31
1
EXHIBIT 11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Earnings Per Common and
Common Share Equivalent
============================================================================================================================
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
---------------------------------------------------------------------------
1995 1994 1995 1994
----------------- ------------------- ----------------- -----------------
IN THOUSANDS EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES EARNINGS SHARES
- ----------------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations $4,231 $(22,973) $(10,285) $(23,222)
Preferred dividend requirements $75 $ 75 $ 226 $226
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $4,156 24,346 $(23,048) 24,337 $(10,511) 24,344 $(23,448) 24,320
Employees preferred and stock options deemed
to be a common stock equivalent 509 -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $4,156 24,855 $(23,048) 24,337 $(10,511) 24,344 $(23,448) 24,320
PER SHARE $ .17 $ (.95) $ (.43) $ (.96)
============================================================================================================================
Net earnings (loss) $4,231 $(93,160) $ 4,067 $(96,349)
Preferred dividend requirements $ 75 $ 75 $ 226 $ 226
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock
and average common shares outstanding $4,156 24,346 $(93,235) 24,337 $ 3,841 24,344 $(96,575) 24,320
Employees preferred and stock options deemed
to be a common stock equivalent 509 -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
Total net earnings (loss) $4,156 24,855 $(93,235) 24,337 $ 3,841 24,344 $(96,575) 24,320
PER SHARE $.17 $ (3.83) $ .16 $ (3.97)
============================================================================================================================
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $4,156 24,855 $(23,048) 24,337 $(10,511) 24,344 $(23,448) 24,320
Senior securities the conversion of which
would dilute earnings per share -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $4,156 24,855 $(23,048) 24,337 $(10,511) 24,344 $(23,448) 24,320
PER SHARE $ .17 $ (.95) $ (.43) $ (.96)
============================================================================================================================
Net earnings (loss) applicable to common stock
and average common shares outstanding $4,156 24,855 $(93,235) 24,337 $ 3,841 24,344 $(96,575) 24,320
Senior securities the conversion of which
would dilute earnings per share -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
Total net earnings (loss) $4,156 $(93,235) 24,337 $ 3,841 24,344 $(96,575) 24,320
PER SHARE $ .17 $(3.83) $ .16 $ (3.97)
============================================================================================================================
All figures in thousands except amount per share.
5
1,000
9-MOS
JAN-31-1996
FEB-01-1995
OCT-31-1995
22,575
0
39,771
1,637
91,974
163,016
84,544
56,354
204,618
57,580
76,749
24,838
0
7,945
724
204,618
314,819
314,819
191,491
191,491
0
1,921
7,586
(10,263)
22
(10,285)
14,352
0
0
4,067
.16
.16
