1
[LOGO] GENESCO
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(Mark One) FORM 10-Q
[X]
Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
April 30, 1996
[ ] 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
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 has been subject to
such filing requirements for the
past 90 days.
Yes X No
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Common Shares Outstanding June 7, 1996 - 24,456,597
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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 - April 30, 1996, January 31, 1996 and
April 30, 1995 3
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Consolidated Earnings - Three Months Ended
April 30, 1996 and 1995 4
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Consolidated Cash Flows - Three Months Ended
April 30, 1996 and 1995 5
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Consolidated Shareholders' Equity - Year Ended
January 31, 1996 and Three Months Ended April 30, 1996 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 15
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Part II - Other Information 22
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Signature 23
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PART I - FINANCIAL INFORMATION
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheet
In Thousands
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APRIL 30, JANUARY 31, APRIL 30,
1996 1996 1995
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ASSETS
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CURRENT ASSETS
Cash and short-term investments $ 34,003 $ 35,550 $ 11,224
Accounts receivable 32,720 32,135 31,919
Inventories 86,619 84,930 86,219
Other current assets 3,788 4,317 4,020
Current assets of operations to be divested -0- -0- 46,392
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Total current assets 157,130 156,932 179,774
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Plant, equipment and capital leases, net 28,704 28,552 27,533
Other noncurrent assets 12,215 12,322 13,652
Noncurrent assets of operations to be
divested -0- -0- 1,781
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TOTAL ASSETS $198,049 $197,806 $222,740
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes payable $ -0- $ -0- $ 1,743
Current payments on capital leases 1,091 1,212 2,211
Accounts payable and accrued liabilities 43,203 43,686 56,763
Provision for discontinued operations 3,699 3,899 11,499
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Total current liabilities 47,993 48,797 72,216
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Long-term debt 75,000 75,000 75,000
Capital leases 1,251 1,485 9,432
Other long-term liabilities 25,806 25,265 22,356
Provision for discontinued operations 12,932 13,354 15,013
Contingent liabilities - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,958 7,958 7,944
Common shareholders' equity:
Par value of issued shares 24,912 24,844 24,832
Additional paid-in capital 121,843 121,715 121,677
Accumulated deficit (93,545) (94,511) (105,260)
Minimum pension liability adjustment (8,244) (8,244) (2,613)
Treasury shares, at cost (17,857) (17,857) (17,857)
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Total shareholders' equity 35,067 33,905 28,723
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $198,049 $197,806 $222,740
==============================================================================
The accompanying Notes are an integral part of these Financial Statements.
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4
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Earnings
Three Months Ended April 30
In Thousands
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1996 1995
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Net sales $ 100,219 $ 93,225
Cost of sales 59,631 57,688
Selling and administrative expenses 37,806 36,366
Restructuring and other charges -0- 14,113
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Earnings (loss) from operations before
other income and expenses 2,782 (14,942)
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Other expenses (income):
Interest expense 2,632 2,313
Interest income (430) (85)
Other expense (income) 79 (3,848)
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Total other (income) expenses, net 2,281 (1,620)
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Earnings (loss) before income taxes and discontinued operations 501 (13,322)
Income taxes (benefit) (465) 9
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Earnings (loss) before discontinued operations 966 (13,331)
Discontinued operations:
Operating loss -0- -0-
Excess provision for future losses -0- 12,653
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NET EARNINGS (LOSS) $ 966 $ (678)
=====================================================================================
Earnings (loss) per common share:
Before discontinued operations $ .04 $ (.55)
Discontinued operations $ .00 $ .52
Net earnings (loss) $ .04 $ (.03)
=====================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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5
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Three Months Ended April 30
Consolidated Cash Flows
In Thousands
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1996 1995
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OPERATIONS:
Net earnings (loss) $ 966 $ (678)
Noncash charges to earnings:
Excess provision for future losses -0- (12,653)
Restructuring charge -0- 14,113
Depreciation and amortization 1,848 1,836
Provision for losses on accounts receivable 994 531
Other 269 178
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Net cash provided by operations before working capital and other changes 4,077 3,327
Effect on cash of changes in working capital and other assets and liabilities
net of effect of business acquisitions:
Accounts receivable (1,579) 1,637
Inventories (1,689) 3,500
Other current assets 529 320
Accounts payable and accrued liabilities (1,038) (6,069)
Other assets and liabilities 475 (2,729)
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Net cash provided by (used in) operations 775 (14)
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INVESTING ACTIVITIES:
Capital expenditures (2,184) (1,085)
Proceeds from businesses divested and asset sales 32 1,103
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Net cash provided by (used in) investing activities (2,152) 18
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FINANCING ACTIVITIES:
Net change in short-term borrowings -0- 1,743
Payments on capital leases (355) (758)
Exercise of options and warrants 189 -0-
Deferred note expense (4) -0-
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Net cash provided by (used in) financing activities (170) 985
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NET CASH FLOW (1,547) 989
Cash and short-term investments at beginning of year 35,550 10,235
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CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 34,003 $ 11,224
==================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 4,206 $ 4,296
Income taxes (479) (22)
==================================================================================================
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 MINIMUM TOTAL
NON-REDEEMABLE PENSION SHARE-
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY LIABILITY HOLDERS'
STOCK STOCK CAPITAL DEFICIT STOCK ADJUSTMENT EQUITY
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Balance January 31, 1995 $ 7,943 $ 24,832 $ 121,670 $ (104,582) $ (17,857) $ (2,613) $ 29,393
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Exercise of options -0- 8 15 -0- -0- -0- 23
Net earnings -0- -0- -0- 10,071 -0- -0- 10,071
Minimum pension liability adjustment -0- -0- -0- -0- -0- (5,631) (5,631)
Other 15 4 30 -0- -0- -0- 49
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Balance January 31, 1996 $ 7,958 $ 24,844 $ 121,715 $ (94,511) $ (17,857) $ (8,244) $ 33,905
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Net earnings -0- -0- -0- 966 -0- -0- 966
Exercise of options -0- 68 121 -0- -0- -0- 189
Other -0- -0- 7 -0- -0- -0- 7
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BALANCE APRIL 30, 1996 $ 7,958 $ 24,912 $ 121,843 $ (93,545) $ (17,857) $ (8,244) $ 35,067
=====================================================================================================================
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, 1997 ("Fiscal 1997") and of the fiscal year
ended January 31, 1996 ("Fiscal 1996"). 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NATURE OF OPERATIONS
The Company's businesses include the manufacture or sourcing, marketing and
distribution of footwear under the Johnston & Murphy, Laredo, Code West, Larry
Mahan, Dockers and Nautica brands, the tanning and distribution of leather by
the Volunteer Leather division and the operation of Jarman, Journeys, Johnston
& Murphy, Boot Factory and Factory To You retail footwear stores.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at January 31, 1996 and April 30,
1996, are short-term investments of $32,000,000 and $31,000,000, respectively.
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.
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8
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 of Fiscal 1996, 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.
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 Italian Lira. At January 31, 1996 and
April 30,1996, the Company had approximately $4.9 million and $8.7 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 a defined benefit pension
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
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
ACCOUNTS RECEIVABLE
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APRIL 30, JANUARY 31,
IN THOUSANDS 1996 1996
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Trade accounts receivable $35,277 $33,068
Miscellaneous receivables 3,475 3,263
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Total receivables 38,752 36,331
Allowance for bad debts (3,582) (2,065)
Other allowances (2,450) (2,131)
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NET ACCOUNTS RECEIVABLE $32,720 $32,135
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NOTE 3
INVENTORIES
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APRIL 30, JANUARY 31,
IN THOUSANDS 1996 1996
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Raw materials $ 7,640 $ 9,229
Work in process 3,425 3,792
Finished goods 23,582 22,935
Retail merchandise 51,972 48,974
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TOTAL INVENTORIES $86,619 $84,930
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10
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
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APRIL 30, JANUARY 31,
IN THOUSANDS 1996 1996
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Plant and equipment:
Land $ 110 $ 75
Buildings and building equipment 2,517 2,799
Machinery, furniture and fixtures 33,520 32,927
Construction in progress 1,873 1,114
Improvements to leased property 38,577 39,195
Capital leases:
Land 60 60
Buildings 2,195 2,195
Machinery, furniture and fixtures 7,376 7,392
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Plant, equipment and capital leases, at cost 86,228 85,757
Accumulated depreciation and amortization:
Plant and equipment (50,430) (50,355)
Capital leases (7,094) (6,850)
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NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 28,704 $ 28,552
===============================================================================
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11
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5
PROVISION FOR DISCONTINUED OPERATIONS AND RESTRUCTURING RESERVES
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PROVISION FOR DISCONTINUED OPERATIONS
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EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
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Balance January 31, 1996 $15,222 $ 10 $ 45 $ 1,976 $17,253
Charges and adjustments, net (546) 25 -0- (101) (622)
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Balance April 30, 1996 14,676 35 45 1,875 16,631
Current portion 1,759 35 45 1,860 3,699
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TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $12,917 $ -0- $ -0- $ 15 $12,932
========================================================================================================
RESTRUCTURING RESERVES
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EMPLOYEE FACILITY OTHER
RELATED SHUTDOWN CONTRACT
IN THOUSANDS COSTS COSTS LIABILITIES OTHER TOTAL
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Balance January 31, 1996 $ 956 $ 1,666 $ 59 $ 323 $ 3,004
Charges and adjustments, net (273) (133) (9) (39) (454)
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Balance April 30, 1996 683 1,533 50 284 2,550
Current portion (included in accounts
payable and accrued liabilities) 683 1,386 50 284 2,403
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TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM
LIABILITIES) $ -0- $ 147 $ -0- $ -0- $ 147
========================================================================================================
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12
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
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. Because
of uncertainties related to the ability or willingness of the other defendants,
including the municipalities involved, to pay a portion of future remediation
costs, the availability of State funding to pay a portion of future remediation
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 liability the Company may incur with
respect to either of the Johnstown or Gloversville actions.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
LEGAL PROCEEDINGS, CONTINUED
In November 1995 the Company responded to a request for information dated
October 23, 1995 from the New York State Department of Environmental
Conservation (the "Department") regarding the site of a knitting mill
operated by the Company or a former subsidiary from 1965 to 1969. The
Company has received notice from the Department that it deems remedial action
to be necessary with respect to certain contaminants in the vicinity of the
facility. The owner of the site has advised the Company that it intends to
hold the Company responsible for any required remediation or other damages
incident to the contamination. The Company has not ascertained what
responsibility, if any, it has for any contamination in connection with the
facility and is unable to predict whether its liability in this connection,
if any, will have a material effect on its financial condition or results of
operations.
Whitehall Environmental Sampling
The Michigan Department of Environmental Quality ("MDEQ") 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. MDEQ 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 MDEQ and has been advised by MDEQ
that no EPA referral is presently contemplated. Neither MDEQ nor the EPA
has threatened or commenced any enforcement action. In response to the
testing data, the Company submitted and MDEQ approved a work plan, pursuant
to which a hydro geological study was completed and submitted to MDEQ in
March 1996. Additional studies regarding wastes on-site, groundwater and
adjoining lake sediments are planned to serve as a basis for the Company's
remedial action plan for the site. The Company is presently unable to
determine whether the implementation of the plan will have a material effect
on its financial condition or results of operations.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
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 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.
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 filed an answer denying
all the material allegations of the plaintiff's complaint. 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.
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15
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion includes certain forward-looking statements. Actual
results could differ materially from those reflected by the forward-looking
statements in the discussion and a number of factors may adversely affect
future results, liquidity and capital resources. These factors include
softness in the general retail environment, the timing and acceptance of
products being introduced to the market, international trade developments
affecting Chinese and other foreign sourcing of products, as discussed in
greater detail below, the outcome of various litigation and environmental
contingencies, including those discussed in Item 1, Legal Proceedings, in Part
II - Other Information and in Note 6 to the Consolidated Financial Statements,
the solvency of the retail customers of the Company, the level of margins
achievable in the marketplace and the ability to minimize operating expenses.
They also include possible continued weakening of the western boot market,
which has experienced a somewhat prolonged down cycle. Many western boot
retailers are thinly capitalized. Continued weakness in demand for western
boots could result in the failure of those retailers and, consequently, the
erosion of the Company's customer base. Although the Company believes it has
the business strategy and resources needed for improved operations, future
revenue and margin trends cannot be reliably predicted and the Company may
alter its business strategies during Fiscal 1997.
SIGNIFICANT DEVELOPMENTS
Revolving Credit Agreement
On January 5, 1996, the Company entered into a revolving credit agreement with
two banks providing for loans or letters of credit of up to $35 million. The
agreement expires January 5, 1999. This agreement replaced a $50 million
revolving credit agreement providing for loans or letters of credit. See
"Liquidity and Capital Resources."
International Trade Developments
Manufacturers in China have become major suppliers to Genesco and other
footwear companies in the United States. In Fiscal 1997 the Company expects to
import approximately 18% of purchases from China. In addition to the products
the Company imports, many of the Company's suppliers import a significant
amount of their products from China. The United States has threatened trade
sanctions of up to $2 billion if China does not do more to stop piracy and
other intellectual property violations. In addition, annual renewal of China's
most-favored-nation trading status is also under review by the United States.
The President of the United States has recommended the continuation of China's
most-favored-nation's status for bilateral trade purposes. Failure of Congress
to follow the President's recommendation to continue to grant
most-favored-nation's treatment to China would raise duties and significantly
increase the cost of footwear and other products imported from China into the
United States. It could also materially affect the Company's ability to source
those products from other countries, because the Company would have to compete
with other footwear companies, some of whom buy substantially greater
quantities and have substantially greater resources, for productive capacity in
other low-labor cost countries. While the Company's divisions are developing
contingency plans in case of negative developments in Chinese sourcing, there
can be no assurance that such developments would not have a material adverse
effect on the Company's business.
15
16
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Fiscal 1995 Restructuring Substantially Completed
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.
The transactions provided for in the 1995 Restructuring were substantially
complete as of January 31, 1996 and the Company does not expect any material
future adjustments arising from the completion of the 1995 Restructuring. 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 in June 1995. The Company's Mitre Sports soccer business was sold in
August 1995.
RESULTS OF OPERATIONS - FIRST QUARTER FISCAL 1997 COMPARED TO FISCAL 1996
The Company's net sales from ongoing operations in the first quarter ended
April 30, 1996, which included an additional week versus a year ago, increased
21.1% from the previous year. The Company's total net sales (including both
ongoing operations and, for the first quarter ended April 30, 1995, $10,447,000
of sales from the operations divested as part of the 1995 Restructuring)
increased 7.5%. Total gross margin for the quarter increased 14.2% and
increased as a percentage of net sales from 38.1% to 40.5%. Selling and
administrative expenses increased 4.0% but decreased as a percentage of net
sales from 39.0% to 37.7%. Pretax earnings in the first quarter ended April
30, 1996 were $501,000, compared to a pretax loss of $13,322,000 for the
quarter ended April 30, 1995. The pretax loss for the first quarter ended
April 30, 1995 includes a $14.1 million increase in the 1995 Restructuring
Charge and recognition of a $1.8 million gain discussed below. The Company
reported net earnings of $966,000 ($0.04 per share) for the first quarter ended
April 30, 1996 compared to a net loss of $678,000 ($0.03 per share) in the
first quarter ended April 30, 1995. The first quarter ended April 30, 1996 net
earnings include a tax credit of $465,000. The first quarter ended April 30,
1995 net loss includes, in addition to the 1995 Restructuring Charge
adjustment, a positive adjustment of $12.7 million to the 1995 Restructuring
Provision.
16
17
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Footwear Retail
Three Months
Ended April 30,
---------------------- %
1996 1995 Change
-------- -------- ------
(In Thousands)
Net Sales .................... $ 59,035 $ 47,758 23.6%
Operating Income ............. $ 3,184 $ 1,221 160.8%
Operating Margin ............. 5.4% 2.6%
Primarily due to an increase in comparable store sales of approximately 13% and
seven additional selling days in the first quarter, net sales from footwear
retail operations increased 23.6% in the quarter ended April 30, 1996 compared
to the previous year despite the operation of 3% fewer stores in the first
quarter ended April 30, 1996. The average price per pair increased 7% and unit
sales increased 16% for the first quarter.
Gross margin as a percentage of net sales decreased from 50.0% to 49.7%,
primarily from price pressures on branded products and changes in product mix
to more branded products as well as increased markdowns to stimulate sales in
the Company's boot outlets. Operating expenses increased 13.9%, primarily due
to increased selling salaries, advertising and rent expense, but decreased as a
percentage of net sales from 47.8% to 44.1%.
Operating income in the first quarter ended April 30, 1996 was up 160.8%
compared to the same period last year due to increased sales (including the
additional week) and the lower expenses as a percent of sales.
Footwear Wholesale & Manufacturing
Three Months
Ended April 30,
---------------------- %
1996 1995 Change
------- -------- --------
(In Thousands)
Net Sales ........................... $41,184 $ 45,467 (9.4)%
Net Sales - Ongoing ................. $41,184 $ 35,116 17.3%
Operating Income before
Restructuring and Other Charges ... $ 1,492 $ 3,797 (60.7)%
Restructuring and Other Charges ..... $ -0- $ 14,113 (100.0)%
Operating Income (Loss) ............. $ 1,492 $(10,316) NA
Operating Margin 3.6% (22.7)%
17
18
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Net sales from footwear wholesale and manufacturing operations were $4.3
million (9.4%) lower in the first quarter ended April 30, 1996 than in the same
period last year, reflecting primarily the absence of sales in the first
quarter ended April 30, 1996 from the operations divested as part of the 1995
Restructuring. Sales from ongoing operations were up 17.3%, reflecting
primarily increased men's branded footwear and tanned leather sales, which more
than offset the continuing trend of decreased sales of western boots, primarily
attributable to lower unit sales.
Gross margin in the first quarter ended April 30, 1996 decreased 3.4% compared
to the same period last year, while gross margin as a percentage of net sales
increased from 25.7% to 27.4%, primarily from changes in sales mix and the
absence of the lower gross margins of the divested operations.
Operating expenses decreased 14.9% and decreased as a percentage of net sales
from 25.3% to 23.8%, reflecting primarily the absence of the expenses
attributable to the operations divested in the 1995 Restructuring.
Ongoing operations expenses increased as a percentage of sales from 20.1% to
23.8%, primarily due to higher advertising expenses including advertising
associated with the introduction of the Larry Mahan boot brand and higher bad
debt expense reflecting continuing credit problems in the western boot market.
Included in the operating income before restructuring and other charges for the
three months ended April 30, 1995 is a one-time gain of $1.8 million from the
favorable resolution of a claim relating to import duties. The decrease in
operating income before restructuring and other charges and the import duty
claim is due primarily to lower earnings in the Company's boot business
reflecting higher bad debt expense and higher than normal returns related to the
continued weakness of the western boot market and costs associated with the
introduction of the Larry Mahan brand.
Corporate and Interest Expenses
Corporate and other expenses in the first three months ended April 30, 1996
were flat compared to the previous year.
Interest expense increased $319,000, or 14%, from last year due to interest
expense incurred for the union pension liability as a result of the 1995
Restructuring Provision, while interest income increased $345,000 from last
year due to increased short-term investments related to the cash generated from
the 1995 Restructuring. There were no borrowings under the Company's revolving
credit facility during the three months ended April 30, 1996 or April 30, 1995.
18
19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Other Income
Operating results of businesses to be divested pursuant to the 1995
Restructuring are included in the Company's sales, gross margin and selling and
administrative expenses for the three months ended April 30, 1995. The net
operating losses incurred by these operations subsequent to the decision to
divest are charged against the restructuring reserves established to provide
for such losses. The elimination of these losses from the Company's results of
operations for the three months ended April 30, 1995 is presented as other
income in the Consolidated Earnings Statement. Such operating losses totalled
$2.0 million for the three months ended April 30, 1995. Also included in other
income for the three months ended April 30, 1995 is a $1.8 million gain from
the favorable resolution of a claim relating to import duties.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
April 30,
-------------------
1996 1995
------ ------
Cash and short-term investments ...................... $ 34.0 $ 11.2
Working capital ...................................... $109.1 $107.6
Long-term debt (includes current maturities) ......... $ 75.0 $ 75.0
Current ratio ........................................ 3.3x 2.5x
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable normally reaching peaks in the spring and
fall of each year. Cash flow from operations is ordinarily generated
principally in the fourth quarter of each fiscal year.
Cash provided by operating activities was $775,000 in the first three months of
Fiscal 1997 compared to $14,000 used in operating activities last year. The
$789,000 improvement in cash flow from operating activities between the first
quarter of Fiscal 1997 and the first quarter of Fiscal 1996 reflects primarily
the increase in net earnings for the first quarter.
A $1.7 million increase in inventories from January 31, 1996 levels reflected
in the Consolidated Cash Flows Statement reflects the buildup of inventory
associated with the introduction of the Larry Mahan brand and planned seasonal
increases. The $400,000 increase in inventories compared with April 30, 1995
reflects the introduction of the Larry Mahan brand.
As reflected in the Consolidated Cash Flows Statement, accounts receivable at
April 30, 1996 increased $1.6 million compared to January 31, 1996 and accounts
receivable at April 30, 1996 were $801,000 greater than at April 30, 1995,
primarily due to increased sales of men's branded footwear and tanned leather.
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Cash Flows Statement at April 30, 1996 and 1995
is as follows:
Three Months Ended April 30,
----------------------------
(In Thousands) 1996 1995
------- -------
Accounts payable ............................... $ 5,371 $ 3,693
Accrued liabilities ............................ (6,409) (9,762)
------- -------
$(1,038) $(6,069)
======= =======
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 bonuses and
to payment of severance costs and liabilities related to the Restructurings.
There were no revolving credit borrowings during the three months ended April
30, 1996, as cash generated from operations and cash on hand funded capital
expenditures. There were no revolving credit borrowings during the three
months ended April 30, 1995, as cash generated from the 1995 Restructuring more
than offset seasonal working capital increases in the remaining operations.
Capital Expenditures
Total capital expenditures in Fiscal 1997 are expected to be approximately
$13.4 million. These include expected retail expenditures of $8.6 million to
open approximately 50 new retail stores and to complete 41 major store
renovations. Capital expenditures for wholesale and manufacturing operations
and other purposes are expected to be approximately $4.8 million.
Future Capital Needs
The Company expects that cash on hand and cash provided by operations will be
sufficient to fund all of its capital expenditures through Fiscal 1997. The
approximately $6.1 million of costs associated with the 1994 Restructuring and
the 1995 Restructuring that are expected to be incurred during the next twelve
months are also expected to be funded from cash on hand and from cash generated
from operations.
There were $9.0 million of letters of credit outstanding under the revolving
credit agreement at April 30, 1996.
20
21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The restricted payments covenant contained 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, except from a pool of available net
earnings and the proceeds of stock sales. At April 30, 1996, that pool was in
a $108.4 million deficit position. 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 $754,658 and is unable to predict when dividends may be
reinstated.
21
22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 28, 1996, the Company and certain other industrial users of the
wastewater treatment system in Muskegon County, Michigan, filed a motion to
intervene in litigation pending in the Circuit Court for the County of
Muskegon between the City of Whitehall and Muskegon County. The City
originally brought suit against the County challenging a temporary transfer
to a unit of local government for use by an area landfill of a
contract-based wastewater capacity allocation by the Company's Whitehall
Leather operation. The City alleged that the transfer was improper and
should be voided. The City amended its complaint to address certain broader
issues of wastewater capacity allocation in the treatment system, whereupon
the industrial users, including the Company, sought to intervene. While
management believes that the litigation involves issues of significance to
the operations of its Whitehall Leather facility, it does not presently
expect that the outcome of the litigation will have a material effect on the
Company's financial condition or results of operations.
See Note 6 to the Consolidated Financial Statements for discussion of other
legal proceedings to which the Company is a party.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At April 30, 1996 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 $192,738 $21,409 $214,147
$4.75 Series 3 October 31, 1993 209,817 23,313 233,130
$4.75 Series 4 October 31, 1993 175,403 19,489 194,892
$1.50 Subordinated Cumulative
Preferred October 31, 1993 101,232 11,257 112,489
- -------------------------------------------------------------------------------------------
TOTALS $679,190 $75,468 $754,658
===========================================================================================
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
22
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Genesco Inc.
/s/ James S. Gulmi
- ------------------
James S. Gulmi
Chief Financial Officer
June 14, 1996
23
1
GENESCO INC. EXHIBIT 11
AND CONSOLIDATED SUBSIDIARIES
Earnings Per Common and
Common Share Equivalent
Three Months Ended April 30
1996 1995
--------------------- ----------------------
IN THOUSANDS EARNINGS SHARES EARNINGS SHARES
- -------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations $ 966 $(13,331)
Preferred dividend requirements $ 75 $ 75
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $ 891 24,410 $(13,406) 24,344
Employees preferred and stock options
deemed to be a common stock equivalent 642 -0-
- -------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $ 891 25,052 $(13,406) 24,344
PER SHARE $ .04 $ (.55)
=============================================================================================================
Net earnings (loss) $ 966 $ (678)
Preferred dividend requirements $ 75 $ 75
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock
and average common shares outstanding $ 891 24,410 $ (753) 24,344
Employees preferred and stock options
deemed to be a common stock equivalent 642 -0-
- -------------------------------------------------------------------------------------------------------------
Total net earnings (loss) $ 891 25,052 $ (753) 24,344
PER SHARE $ .04 $ (.03)
=============================================================================================================
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) before discontinued operations
applicable to common stock and average
common shares outstanding $ 891 25,052 $(13,406) 24,344
Senior securities the conversion of which
would dilute earnings per share 141 -0-
- -------------------------------------------------------------------------------------------------------------
Totals before discontinued operations $ 891 25,193 $(13,406) 24,344
PER SHARE $ .04 $ (.55)
=============================================================================================================
Net earnings (loss) applicable to common stock
and average common shares outstanding $ 891 25,052 $ (753) 24,344
Senior securities the conversion of which
would dilute earnings per share 141 -0-
- -------------------------------------------------------------------------------------------------------------
TOTAL NET EARNINGS (LOSS) $ 891 25,193 $ (753) 24,344
PER SHARE $ .04 $ (.03)
=============================================================================================================
All figures in thousands except amount per share.
24
5
1,000
3-MOS
FEB-01-1997
FEB-01-1996
APR-30-1996
3,003
31,000
32,827
3,582
86,619
157,130
86,228
57,524
198,049
47,993
76,251
0
7,958
24,912
2,197
198,049
100,219
100,219
59,631
59,631
0
1,123
2,632
501
(465)
966
0
0
0
966
.04
.04
