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[GENESCO LOGO]
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(Mark One) FORM 10-Q
[x] Quarterly Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended
May 3, 1997
[ ] Transition Report Pursuant To
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Securities and Exchange Commission
Washington, D.C. 20549
Commission File No. 1-3083
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GENESCO INC.
A Tennessee Corporation
I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000
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Indicate by check mark
whether the registrant (1)
has filed all reports
required to be filed by
Section 13 or 15(d) of the
Securities Exchange Act of
1934 during the preceding 12
months (or such shorter
period that the registrant
was required to file such
reports with the commission)
and (2) has has been subject
to such filing requirements
for the past 90 days.
Yes x No
--- ---
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Common Shares Outstanding June 6, 1997 - 25,111,259
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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 - May 3, 1997, February 1, 1997 and
May 4, 1996 3
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Consolidated Earnings - Three Months Ended
May 3, 1997 and May 4, 1996 4
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Consolidated Cash Flows - Three Months Ended
May 3, 1997 and May 4, 1996 5
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Consolidated Shareholders' Equity - Year Ended
February 1, 1997 and Three Months Ended May 3, 1997 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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MAY 3, FEBRUARY 1, MAY 4,
1997 1997 1996
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ASSETS
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CURRENT ASSETS
Cash and short-term investments $ 26,421 $ 43,375 $ 34,003
Accounts receivable 30,811 30,389 32,720
Inventories 108,191 95,884 86,619
Other current assets 4,326 4,509 3,788
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Total current assets 169,749 174,157 157,130
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Plant, equipment and capital leases, net 37,870 34,471 28,704
Other noncurrent assets 8,912 9,026 12,215
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TOTAL ASSETS $216,531 $217,654 $198,049
=======================================================================================================================
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 49,142 $ 54,631 $ 42,848
Current payments on capital leases 558 768 1,091
Provision for discontinued operations 3,210 3,263 3,699
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Total current liabilities 52,910 58,662 47,638
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Long-term debt 75,000 75,000 75,000
Capital leases 167 717 1,251
Other long-term liabilities 11,885 11,172 26,161
Provision for discontinued operations 11,161 11,613 12,932
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Total liabilities 151,123 157,164 162,982
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Contingent liabilities (see Note 6) - - -
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock 7,945 7,944 7,958
Common shareholders' equity:
Par value of issued shares 25,503 25,195 24,912
Additional paid-in capital 125,042 122,615 121,843
Accumulated deficit (75,225) (77,407) (93,545)
Minimum pension liability adjustment -0- -0- (8,244)
Treasury shares, at cost (17,857) (17,857) (17,857)
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Total shareholders' equity 65,408 60,490 35,067
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $216,531 $217,654 $198,049
=======================================================================================================================
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
In Thousands
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MAY 3, MAY 4,
1997 1996
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Net sales $114,185 $100,219
Cost of sales 66,313 59,631
Selling and administrative expenses 43,431 37,806
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Earnings from operations before
other income and expenses 4,441 2,782
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Other expenses (income):
Interest expense 2,545 2,632
Interest income (416) (430)
Other expense 113 79
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Total other (income) expenses, net 2,242 2,281
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Pretax earnings 2,199 501
Income taxes (benefit) 17 (465)
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NET EARNINGS $ 2,182 $ 966
=======================================================================================================================
Net earnings per common share $ .08 $ .04
=======================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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5
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Three Months Ended
Consolidated Cash Flows
In Thousands
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MAY 3, MAY 4,
1997 1996
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OPERATIONS:
Net earnings $ 2,182 $ 966
Noncash charges to earnings:
Depreciation and amortization 2,151 1,848
Provision for losses on accounts receivable 1,005 994
Other 222 269
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Net cash provided by operations before working capital and other changes 5,560 4,077
Effect on cash of changes in working capital and other assets and liabilities:
Accounts receivable (1,427) (1,579)
Inventories (12,307) (1,689)
Other current assets 183 529
Accounts payable and accrued liabilities (5,542) (1,038)
Other assets and liabilities 231 475
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Net cash provided by (used in) operations (13,302) 775
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INVESTING ACTIVITIES:
Capital expenditures (5,684) (2,184)
Proceeds from asset sales 78 32
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Net cash used in investing activities (5,606) (2,152)
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FINANCING ACTIVITIES:
Payments on capital leases (760) (355)
Exercise of options 2,714 189
Other -0- (4)
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Net cash provided by (used in) financing activities 1,954 (170)
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NET CASH FLOW (16,954) (1,547)
Cash and short-term investments at beginning of period 43,375 35,550
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 26,421 $34,003
=========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for:
Interest $ 4,437 $ 4,206
Income taxes 8 (479)
=========================================================================================================================
The accompanying Notes are an integral part of these Financial Statements.
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6
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, 1996 $ 7,958 $ 24,844 $ 121,715 $ (94,511) $ (17,857) $ (8,244) $ 33,905
===================================================================================================================================
Exercise of options -0- 187 455 -0- -0- -0- 642
Issue shares - Employee Stock Purchase Plan -0- 161 399 -0- -0- -0- 560
Net earnings -0- -0- -0- 17,104 -0- -0- 17,104
Minimum pension liability adjustment -0- -0- -0- -0- -0- 8,244 8,244
Other (14) 3 46 -0- -0- -0- 35
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Balance February 1, 1997 $ 7,944 $ 25,195 $ 122,615 $ (77,407) $ (17,857) $ -0- $ 60,490
===================================================================================================================================
Net earnings -0- -0- -0- 2,182 -0- -0- 2,182
Exercise of options -0- 302 2,412 -0- -0- -0- 2,714
Other 1 6 15 -0- -0- -0- 22
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BALANCE MAY 3, 1997 $ 7,945 $ 25,503 $ 125,042 $ (75,225) $ (17,857) $ -0- $ 65,408
===================================================================================================================================
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
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INTERIM STATEMENTS
The consolidated financial statements contained in this report are unaudited but
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods of the
fiscal year ending January 31, 1998 ("Fiscal 1998") and of the fiscal year ended
February 1, 1997 ("Fiscal 1997"). 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.
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 General Shoe Warehouse retail footwear stores.
BASIS OF PRESENTATION
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.
CASH AND SHORT-TERM INVESTMENTS
Included in cash and short-term investments at February 1, 1997 and May 3, 1997,
are short-term investments of $38.1 million and $21.7 million, 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 are computed principally by the straight-line method.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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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.
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 February 1, 1997 and
May 3, 1997, the Company had approximately $18.8 million and $18.7 million,
respectively, of such contracts outstanding. Forward exchange contracts have an
average term of approximately four 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 also provides certain former employees with limited medical
and life insurance benefits. 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. Costs
of future expenditures for environmental remediation obligations are not
discounted to their present value.
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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MAY 3, FEBRUARY 1,
IN THOUSANDS 1997 1997
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Trade accounts receivable $ 33,810 $ 32,721
Miscellaneous receivables 3,985 2,960
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Total receivables 37,795 35,681
Allowance for bad debts (4,245) (3,353)
Other allowances (2,739) (1,939)
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NET ACCOUNTS RECEIVABLE $ 30,811 $ 30,389
===================================================================================================================
The Company's footwear wholesaling business sells primarily to independent
retailers and department stores across the United States. Receivables arising
from these sales are not collateralized. Credit risk is affected by conditions
or occurrences within the economy and the retail industry. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
No single customer accounted for more than 5% of the Company's trade receivables
balance as of May 3, 1997.
NOTE 3
INVENTORIES
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MAY 3, FEBRUARY 1,
IN THOUSANDS 1997 1997
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Raw materials $ 9,162 $ 8,870
Work in process 3,822 3,333
Finished goods 29,463 29,270
Retail merchandise 65,744 54,411
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TOTAL INVENTORIES $108,191 $95,884
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4
PLANT, EQUIPMENT AND CAPITAL LEASES, NET
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MAY 3, FEBRUARY 1,
IN THOUSANDS 1997 1997
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Plant and equipment:
Land $ 272 $ 241
Buildings and building equipment 2,605 2,552
Machinery, furniture and fixtures 39,618 37,522
Construction in progress 4,841 3,130
Improvements to leased property 44,067 42,734
Capital leases:
Land 60 60
Buildings 2,195 1,904
Machinery, furniture and fixtures 7,311 7,285
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Plant, equipment and capital leases, at cost 100,969 95,428
Accumulated depreciation and amortization:
Plant and equipment (55,072) (53,241)
Capital leases (8,027) (7,716)
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NET PLANT, EQUIPMENT AND CAPITAL LEASES $ 37,870 $ 34,471
==============================================================================================================
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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
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
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Balance February 1, 1997 $13,356 $ -0- $1,520 $14,876
Charges and adjustments, net (438) -0- (67) (505)
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Balance May 3, 1997 12,918 -0- 1,453 14,371
Current portion 1,757 -0- 1,453 3,210
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TOTAL NONCURRENT PROVISION FOR
DISCONTINUED OPERATIONS $11,161 $ -0- $ -0- $11,161
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RESTRUCTURING RESERVES
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EMPLOYEE FACILITY
RELATED SHUTDOWN
IN THOUSANDS COSTS COSTS OTHER TOTAL
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Balance February 1, 1997 $ 672 $1,637 $369 $2,678
Charges and adjustments, net (157) (133) (18) (308)
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Balance May 3, 1997 515 1,504 351 2,370
Current portion (included in accounts
payable and accrued liabilities) 515 1,071 351 1,937
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TOTAL NONCURRENT RESTRUCTURING RESERVES
(INCLUDED IN OTHER LONG-TERM LIABILITIES) $ -0- $ 433 $-0- $ 433
==============================================================================================================================
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
LEGAL PROCEEDINGS
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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 allege
that 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.
In March 1997, the Company accepted an offer to settle the Johnstown action for
a payment of $31,000 and is now awaiting entry of an acceptable consent order
and dismissal of that action. The Company remains a defendant in the
Gloversville action. The environmental authorities have issued decisions
selecting plans of remediation with respect to the Gloversville site with a
total estimated cost of approximately $10.0 million.
The Company has filed answers to the complaint in the Gloversville case 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 the Gloversville action.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6
LEGAL PROCEEDINGS, CONTINUED
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The Company has received notice from the New York State Department of
Environmental Conservation (the "Department") that it deems remedial action to
be necessary with respect to certain contaminants in the vicinity of a knitting
mill operated by a former subsidiary of the Company from 1965 to 1969, and that
it considers the Company a potentially responsible party. The Department and the
Company are negotiating with regard to a consent order whereby the Company would
assume responsibility for conducting a remedial investigation and feasibility
study ("RIFS") and implementing an interim remediation measure with regard to
the site, without admitting liability or accepting responsibility for any future
remediation of the site. The Company believes that it has adequately reserved
for the costs of conducting the RIFS and implementing the interim remedial
measure contemplated by the proposed consent order, but there is no assurance
that it will be able to enter into an acceptable consent order along the lines
proposed, or that such a consent order would ultimately resolve the matter. 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 or what other parties
may be liable in that connection and is unable to predict whether its liability,
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 hydrogeological study was
completed and submitted to MDEQ in March 1996. Additional studies regarding
wastes on-site, groundwater and adjoining lake sediments have been performed and
will 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
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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 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 alleged breach of
fiduciary duty and fraudulent and negligent misrepresentations and sought
damages in excess of $10 million, costs, attorneys' fees, interest and punitive
damages in an unspecified amount.
In April 1997, the parties to the litigation entered into a settlement agreement
providing for the issuance of shares of the Company's common stock to the
plaintiffs in exchange for dismissal of the lawsuit and the execution of mutual
general releases by the parties. The settlement was consummated on June 13,
1997, pursuant to which the Company issued 525,495 shares of stock to the
plaintiffs' nominee.
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 presently
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 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
the continuing weakening of the western boot market, which has resulted in
declining sales and erosion of the boot division's retail customer base. This
weakness has resulted in the Manufacturing Restructuring discussed below and,
unless reversed, may require further adjustments to manufacturing capacity and
other steps designed to reduce costs to a level consistent with lower expected
sales. Although the Company believes it has an appropriate business strategy
and the resources necessary for its operations, future revenue and margin
trends cannot be reliably predicted and the Company may alter its business
strategies during Fiscal 1998.
SIGNIFICANT DEVELOPMENTS
Manufacturing Restructuring
In response to the continued weakening of the western boot market, the Company
approved a plan (the "Manufacturing Restructuring"), in the third quarter of
Fiscal 1997 to realign its manufacturing operations as part of an overall
strategy to focus on marketing and global sourcing. The plan included closing
the Company's Hohenwald, Tennessee, western boot plant by July 1997, with the
elimination of approximately 190 jobs. The plant was closed in April 1997. In
connection with the adoption of the plan, the Company recorded a charge to
earnings in the third quarter of Fiscal 1997 of $1.7 million including $0.5
million in asset write-downs of the plant and excess equipment to estimated
market value and $1.2 million of other costs. Included in other costs is
employee severance, facility shutdown and lease costs of which the Company has
spent $0.5 million through May 3, 1997.
International Trade Developments
Manufacturers in China have become major suppliers to Genesco and other footwear
companies in the United States. In Fiscal 1998 the Company expects to import
approximately 28% of inventory purchases from China. In addition to the products
the Company imports directly, a significant amount of the products purchased by
the Company from other suppliers have been imported from China. China's most
favored nation trading status was renewed for an additional year in June 1996,
and has not yet been renewed in 1997. China's trading status remains
controversial and there can be no assurance that a failure by the U.S. to grant
the annual extension of most favored nation status to China or other
disruptions in the Company's ability to import shoes from China will not
15
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
occur, or that any such disruption would not have a material adverse effect on
the Company's operations.
RESULTS OF OPERATIONS - FIRST QUARTER FISCAL 1998 COMPARED TO FISCAL 1997
The Company's net sales in the first quarter ended May 3, 1997, which had three
less days than the comparable quarter a year ago, increased 13.9% from the
previous year. Total gross margin for the quarter increased 17.9% and increased
as a percentage of net sales from 40.5% to 41.9%. Selling and administrative
expenses increased 14.9% and increased as a percentage of net sales from 37.7%
to 38.0%. Pretax earnings in the first quarter ended May 3, 1997 were $2.2
million, compared to pretax earnings of $501,000 for the quarter ended May 4,
1996. The Company reported net earnings of $2.2 million ($0.08 per share) for
the first quarter ended May 3, 1997 compared to net earnings of $966,000 ($0.04
per share) in the first quarter ended May 4, 1996, which included a tax credit
of $465,000.
Footwear Retail
Three Months Ended
--------------------------
May 3, May 4, %
1997 1996 Change
----------- ----------- ------
(In Thousands)
Net Sales...............................................$ 70,024 $ 59,035 18.6%
Operating Income........................................$ 5,758 $ 3,184 80.8%
Operating Margin........................................ 8.2% 5.4%
Primarily due to increases in comparable store sales of approximately 10% and an
11% increase in average retail stores operated, net sales from footwear retail
operations increased 18.6% in the quarter ended May 3, 1997 compared to the
previous year. The average price per pair increased 1% and unit sales increased
15% for the first quarter of Fiscal 1998.
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GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
The Company's comparable store sales and store count at the end of the first
quarter were as follows:
Store Count
-------------------
May 3, May 4,
Comp Sales 1997 1996
---------- ---- ----
Jarman Retail +3% 144 136
Jarman Lease +5% 85 81
Journeys +21% 136 95
Johnston & Murphy (including factory stores) +11% 122 112
Other Outlet Stores +6% 43 40
--- ---
Total Retail +10% 530 464
=== ===
The Jarman Lease comparable store increase was aided by a 4% increase in the
average square footage due to remodeling.
Gross margin as a percentage of net sales increased from 49.7% to 50.4%,
primarily from changes in product mix. The change in product mix to more branded
non-western boots in the Company's boot outlets created less markdowns compared
to last year. Operating expenses increased 12.9%, primarily due to the 11%
increase in average stores operated, which caused increased rent expense,
selling salaries and shipping and warehouse expense. In addition, divisional
management expenses increased to support new store growth. Overall operating
expenses decreased as a percentage of net sales from 44.1% to 41.9%.
Operating income for the first quarter ended May 3, 1997 was up 80.8% compared
to the same period last year due to increased sales, increased margins and the
lower expenses as a percentage of sales.
Footwear Wholesale & Manufacturing
Three Months Ended
----------------------------
May 3, May 4, %
1997 1996 Change
------------ ------------ ------
(In Thousands)
Net Sales............................................... $44,161 $41,184 7.2%
Operating Income........................................ $ 1,153 $ 1,492 (22.7)%
Operating Margin....................................... 2.6% 3.6%
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 $3.0
million (7.2%) higher, in the first quarter ended May 3, 1997 than in the same
period last year, reflecting primarily increased men's branded footwear sales,
which more than offset lower tanned leather sales and the continuing trend of
decreased sales of western boots, primarily attributable to lower unit sales.
Tanned leather sales were down due to Department of Defense delays in awarding
military footwear contracts. Military footwear suppliers, which have been
impacted by the continuing decrease in demand for military footwear, make up
the bulk of the Company's tanned leather business. The increase in branded
sales included sales of new products introduced by the Company's Nautica
division.
Gross margin in the first quarter ended May 3, 1997 increased 11.9%, and
increased as a percentage of net sales from 27.4% to 28.6%, primarily from
changes in sales mix.
Operating expenses increased 17.0% and increased as a percentage of net sales
from 23.8% to 26.0%, primarily due to higher divisional administrative expenses
to support the growth in the branded businesses and increased royalty expenses,
from higher royalty rates.
Operating income decreased 22.7%, primarily due to lower earnings in the
Company's tanned leather business due to Department of Defense delays in
awarding military boot contracts, resulting in delays in orders from the
division's customers, and the increase in operating expenses.
Corporate and Interest Expenses
Corporate and other expenses in the first quarter ended May 3, 1997 were $2.6
million compared to $2.0 million for the same period last year, an increase of
31%. The increase in corporate expenses is attributable primarily to increased
compensation expense, including performance-related stock based compensation
and increased bonus accruals based on the Company's increased earnings.
Interest expense decreased $87,000, or 3%, from last year, and interest income
decreased $14,000 from last year due to decreased short-term investments. There
were no borrowings under the Company's revolving credit facility during the
three months ended May 3, 1997 or May 4, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain financial data at the dates indicated.
All dollar amounts are in millions.
May 3, May 4,
1997 1996
---- ----
Cash and short-term investments........................................................... $ 26.4 $ 34.0
Working capital........................................................................... $ 116.8 $ 109.5
Long-term debt............................................................................ $ 75.0 $ 75.0
Current ratio............................................................................. 3.2x 3.3x
18
19
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Working Capital
The Company's business is somewhat seasonal, with the Company's investment in
inventory and accounts receivable normally reaching peaks in the spring and fall
of each year. Cash flow from operations is ordinarily generated principally in
the fourth quarter of each fiscal year.
Cash used by operating activities was $13.3 million in the first three months of
Fiscal 1998 compared to $775,000 provided by operating activities last year. The
$14.1 million reduction in cash flow from operating activities between the first
quarter of Fiscal 1998 and the first quarter of Fiscal 1997 reflects primarily
the additional working capital needed to support new store growth. The Company
has added a net of 26 stores in the first quarter ended May 3, 1997 compared to
a net of 1 store for the same period last year.
A $12.3 million increase in inventories from February 1, 1997 levels reflected
in the Consolidated Cash Flows Statement and the $21.6 million increase in
inventories compared with May 4, 1996 reflects planned seasonal increases and
increases in retail inventory to support the net increase of 26 stores from
February 1, 1997 and the net increase of 66 stores from May 4, 1996. In
addition, there were increases in men's branded wholesale inventory to support
growth in those businesses.
As reflected in the Consolidated Cash Flows Statement, accounts receivable at
May 3, 1997 increased $1.4 million compared to February 1, 1997 primarily due to
increased sales of men's branded footwear. Accounts receivable at May 3, 1997
were $1.9 million less than at May 4, 1996, primarily reflecting improved
accounts receivable turn.
Cash provided (or used) due to changes in accounts payable and accrued
liabilities in the Consolidated Cash Flows Statement at May 3, 1997 and May 4,
1996 is as follows:
Three Months Ended
------------------
May 3, May 4,
(In Thousands) 1997 1996
---- ----
Accounts payable $ 1,209 $ 5,371
Accrued liabilities (6,751) (6,409)
------- -------
$(5,542) $(1,038)
======= =======
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 interest payments on the Company's long-term debt.
19
20
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
There were no revolving credit borrowings during the three months ended May 3,
1997 and May 4, 1996, as cash on hand funded seasonal working capital
requirements and capital expenditures.
Capital Expenditures
Total capital expenditures in Fiscal 1998 are expected to be approximately $26.3
million. These include expected retail expenditures of $16.2 million to open
approximately 94 new retail stores and to complete 53 major store renovations.
Capital expenditures for wholesale and manufacturing operations and other
purposes are expected to be approximately $10.1 million including approximately
$6.0 million for new systems to improve customer service and support the
Company's growth. During the three months ended May 3, 1997 the Company had $5.7
million in capital expenditures which included opening 28 new stores and
completing 15 major renovations.
Litigation Settlement
On June 13, 1997, the Company completed the settlement of the case of Miller,
et al. v. Genesco Inc., et al. pending in the Southern District of New York
since 1993, pursuant to a settlement agreement entered into on April 25, 1997.
The Company issued 525,495 shares of its common stock to the plaintiffs, and
who also received a cash payment from the Company's insurance carrier. The
settlement did not result in a charge to earnings. See Note 6 to the
Consolidated Financial Statements.
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 1998, although
the Company may borrow from time to time to support seasonal working capital
requirements. The approximately $5.1 million of costs associated with the 1994
Restructuring, 1995 Restructuring and the Manufacturing 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 $10.2 million of letters of credit outstanding under the revolving
credit agreement at May 3, 1997.
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 May 3, 1997, that pool was in a
$86.5 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 $301,000. The Company currently has dividend arrearages in the amount of $1.1
million and is unable to predict when dividends may be reinstated.
20
21
GENESCO INC.
AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Changes in Accounting Principles
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128")
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 requires the disclosure of basic and diluted
earnings per share. For the quarter ended May 3, 1997, the amount reported as
net income per common and common equivalent share is not materially different
from that which would have been reported for basic and diluted earnings per
share in accordance with SFAS No. 128. For the year ended February 1, 1997,
primary earnings per share were $.66 and fully diluted earnings per share were
$.65. Had SFAS No. 128 been in effect for the year ended February 1, 1997, basic
earnings per share would have been $.68 and diluted earnings per share would
have been $.66.
21
22
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At May 3, 1997 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 $277,494 $ 21,386 $ 298,880
$4.75 Series 3 October 31, 1993 300,553 23,119 323,672
$4.75 Series 4 October 31, 1993 253,360 19,490 272,850
$1.50 Subordinated Cumulative
Preferred October 31, 1993 146,333 11,256 157,589
- ---------------------------------------------------------------------------------------------------------------
TOTALS $977,740 $ 75,251 $1,052,991
===============================================================================================================
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 17, 1997
23
1
GENESCO INC. EXHIBIT 11
AND CONSOLIDATED SUBSIDIARIES
Earnings Per Common and
Common Share Equivalent
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------
MAY 3, 1997 MAY 4, 1996
--------------------- ----------------------
IN THOUSANDS EARNINGS SHARES EARNINGS SHARES
- -------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE
Net earnings $2,182 $966
Preferred dividend requirements $ 75 $ 75
- -------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock
and average common shares outstanding $2,107 24,915 $891 24,410
Employees preferred and stock options
deemed to be a common stock equivalent 1,517 642
- -------------------------------------------------------------------------------------------------------------------
Total net earnings $2,107 26,432 $891 25,052
PER SHARE $ .08 $.04
===================================================================================================================
FULLY DILUTED EARNINGS PER SHARE
Net earnings applicable to common stock
and average common shares outstanding $2,107 26,432 $891 25,052
Senior securities the conversion of which
would dilute earnings per share 120 141
- -------------------------------------------------------------------------------------------------------------------
TOTAL NET EARNINGS $2,107 26,552 $891 25,193
PER SHARE $ .08 $.04
===================================================================================================================
All figures in thousands except amount per share.
5
1,000
3-MOS
JAN-31-1998
FEB-02-1997
MAY-03-1997
4,683
21,738
31,071
4,245
108,191
169,749
100,969
63,099
216,531
52,910
75,167
0
7,945
25,503
31,960
216,531
114,185
114,185
66,313
66,313
0
1,515
2,545
2,199
17
2,182
0
0
0
2,182
.08
.08
